Autonomy Is Coming Sooner Than Anyone Expects

So, despite missing its Q2 earnings and other targets, as related in a letter released late last week (misses that might have toppled a lesser stock), Tesla’s stock price barely wavered, and in fact seems to have risen upon the bad news. Some analysts have suggested that Tesla stock now trades solely on the success (or failure) of the Model 3. Tesla claims to “have completed the design phase of Model 3 and released Model 3 for tooling, production planning and validation.”

Here are the quarterly details.

  • Tesla had a larger-than-expected second-quarter loss of $1.06 per share — while the Street looked for a net loss of 59 cents a share
  • Non-GAAP sales were $1.56 billion, up from last year’s Q2 revenue of $1.2 billion, but below analyst expectations of $1.63 billion
  • Automotive gross margin expanded, but missed consensus estimates
  • Tesla delivered 14,402 cars (9,764 units of Model S and 4,638 units of Model X) in Q2 and looks to “support 50,000 deliveries” during the second half of 2016
  • According to the letter, “We ended up with $3.25 billion on the balance sheet at the end of the quarter. […] On December 31, 2015, we had $1.2 billion. We raised $1.7 billion in our secondary offering and we collected on our Model 3 reservations.”

Stuff Tesla CEO Elon Musk says

One, make that two, priorities: “So, the focus really is on Model 3, followed by full autonomy — well, it’s our two priorities.”

Ballistic stationary storage: Musk said there are heavy engineering and production constraints, adding, “We’ve got some next-generation technology and we’re going to split off that production line. So it’s going to be heavily concentrated in Q4 and probably even [more] heavily in November and December. But I think it’s going to be really exciting when people see it. So, that’s why I expect kind of exponential growth from there. I think it’s really going to go ballistic.”

He added, “What I’m highly confident of is that the next generation of stationary storage is head and shoulders above anything else that I’ve even heard announced as future plans from other companies.”

Things that are hard: Production, according to Musk:

  • “We’ve just got to scale up production, and production is a hard thing. It’s [really] hard, particularly when it’s new technology. If it’s some standard technology that’s been made for a long time, it’s fine. If it’s cutting-edge technology, it’s really hard to scale up production, because you’ve got to design the machine that makes the machine, not just the machine itself.”
  • “Basically, we were in production hell for the first six months of this year. Man, it was hell. And then we just managed to sort of climb out of hell partway through June. And now the production line is humming and our suppliers mostly have their shit together. There’s a few that don’t — one I’m going to be visiting on Saturday personally to figure out what the hell’s going on there. But we’ll solve it. But the thing that’s crazy-hard about cars is that there’s several thousand unique items, and you move as fast as the slowest item in the whole car.”

Things that are nutty: “It’s important to bear in mind…as a manufacturing company, our percentage growth, I think it’s unprecedented in the modern era. It’s really nutty. I mean, in 2010, we were making 600 cars a year and Lotus was doing the body and chassis. Five years later, we were making 50,000. And it was a much more sophisticated car with Model X, and we were doing the whole car without any partner.”

“So it’s just real important to parse things out and to understand what the real health of the business is. Right now, I mean in a nutshell, we’re shipping $10 billion a year of product on an annualized basis at somewhere around 23 percent to 25 percent gross margin.”

New models: “I think there’s going be some pretty exciting unveils for the Tesla Semi and Tesla Minibus (or bus) — we don’t have a name for it yet.”

Alien dreadnought: “The Model 3 — the internal name for designing the machine makes the machine is…’the alien dreadnought.’ At the point at which the factory looks like an alien dreadnought, then you know you’ve won. It’s like, what the hell is that? So we’ve got alien dreadnought version 0.5, [which] will be Model 3. It will take us another year to get to version 1 and probably a major version every two years thereafter. By version 3, it won’t look like anything else. It might look like a giant chip pick-and-place machine or a super-high-speed bottling or canning plant, and you really can’t have people in the production line itself. Otherwise, you automatically drop to people speed. There’s still a lot of people at the factory, but what they’re doing is maintaining the machines, upgrading them, dealing with anomalies. But in the production process itself, there essentially would be no people. With version 1, not version 0.5. But I don’t want people to think, ‘Oh, Tesla’s going to have a factory without people.’ It’s going be a huge number of people, but they will be maintaining machines and upgrading the machines and dealing with anomalies. And the output per person will be extraordinarily high.”