8 things I would like to hear discussed during Tesla's Q2'19 earnings call

First of all, I'd like to thank everybody who read my Tesla Investment Thesis. I was happy to hear that people enjoyed reading it. I'm not going to spend 80 hours writing Tesla blog posts every week, but I do plan to write more about Tesla and investing in Tesla when I have time and when there are things I want to write about.

As I'm sure most of you are aware, next week on the 24th of July Tesla will announce its 2nd quarter 2019 financial results, and hold a live Q&A to answer questions from selected investors. Since Q1'18 they have also answered a number of popular questions from retail investors through the website Say.com. I'm expecting they will do the same this quarter, but retail investors cannot submit questions yet, so we will have to wait and see.

This blog post is going to be a pretty short one. Basically, I'd just like to share what topics I would most like to hear discussed on the upcoming conference call. Two topics will be noticeably absent from this list: batteries, and autonomy progress. Although I would love to hear more about Tesla's plans for battery supply, Maxwell tech integration, etc. I think we'll just have to be patient until the Battery Investor Day, that we've been promised later this year. As for autonomy progress, I think it's the third most important thing to keep an eye on as a Tesla investor (2nd is battery supply, 1st is #1 on the list in this post), but we just had the Autonomy Investor Day a few months ago, so I feel like I'm quite up-to-date in this regard, and I would be satisfied with an update on autonomy some time towards the end of this year.

So without further ado, here are the eight things I would most like to hear discussed at Tesla's upcoming Q2'19 earnings call:

#8 Disaster Precautions at Fremont

In my Tesla Investment Thesis I mentioned that one potential risk I see for Tesla is the fact that California is due for an enormous earthquake. In more general terms one could say that Tesla is still very reliant on their Fremont factory, and in the unlikely event something happened to it that would spell disaster for Tesla. Therefore, I'd be interested to know what, if any, precautions Tesla has taken for potential disasters such as an earthquake, or an attack from one of Tesla's enemies.

I really hope nobody will intentionally try to destroy the Fremont factory, but there have been reports of Tesla's enemies doing crazy things before such as a short seller who tried to make a Tesla autonomous car crash before Tesla Autonomy Day, an oil executive who tried to impersonate Elon Musk, and an-exmployee who threatened to 'shoot up' the Fremont factory. So I don't think it's impossible, and I think it's important to have some precautions in place.

#7 Unwinding the delivery waves update

Tesla has always delivered cars in waves to various geographical regions in order to maximize the cars delivered before the end of each quarter. If they send a car on a boat to Europe or China two weeks before the end of the quarter, they are unable to deliver it before the end of the quarter and include it in the financial results. Therefore, Tesla has historically produced more cars for further away geographical locations earlier in quarters, and in the last week of a quarter mostly produced cars for California.

This way of doing things may please short sighted investors, but it strains Tesla's delivery pipelines, and creates a bad experience for consumers. In their Q1'19 earnings call Tesla talked about 'unwinding the waves', and transitioning to a more normalized way of delivering vehicles. I am totally on board with this, because it benefits Tesla in the long term. I would like to hear how things are coming along during the upcoming earnings call.

#6 How Tesla vehicles will change after autonomy

Although autonomy could still be quite far away, I have no doubt that Tesla is already thinking about how their cars will change after they launch the Tesla Network. Elon has already mentioned that he wants to remove the steering wheel at some point, but I think this will only be the beginning, and I think that Tesla's post-autonomy vehicle designs will be influenced by three factors:

1. No driver. Besides being able to remove the steering wheel and pedals, there will also no longer be a need for forward facing seats. Furthermore, the occupants are free to spend their time as they please, so I suspect there could be a lot more focus on in-car entertainment, or providing an on-the-move work space.
2. More specialized vehicles. If 80% of robotaxi trips turn out to have 2 or less occupants with very little luggage, it would be a waste to continue to create cars with more than 2 seats and lots of storage space. There could also be a market for people who want to take an overnight long distance trip, if they're able to sleep in the vehicle. There could even be people who would rent a small car as a cheap hotel room.
3. Lower Prices. If Tesla has a decent amount of profits once it launches its network, they'll likely want to invest those profits into building their own fleet of robotaxis. The cheaper these taxis are, the more they'll be able to afford, so it's very likely they'll want to create vehicles even cheaper than the Model 3.

Either way, I'd love to get Elon's (and if possible Franz von Holzhausen's) take on this subject.

#5 S&X update

A day ago this topic was on the bottom of this list, but with today's news about the price cuts it has moved up a few spots. In my opinion, S&X are not that important for Tesla's long term success, because it's a low-volume program. and volume is extremely important to achieve autonomy and to maximize profits afterwards. However, in the short term S&X is still an important part of Tesla's business, and helps them to achieve their long term goals. Therefore, I'd like to hear in more detail about the S&X's current production, on-going updates, demand, and plans for the future.

#4 Tesla Service

Another short term concern that I have for Tesla are their service losses. Ever since the start of the Model 3 ramp, Tesla's margins on service have been getting increasingly worse to the point that they're on track to lose almost a billion dollars on service this year. I think that improving the quality of Tesla's service and their communications are even more important, and I would love to hear about their progress on this front too, but I also want to know how they plan to reduce their service losses.

#3 Tesla cargo

I can't believe I've never heard anybody talk about this before. I realised a few days ago that if Tesla solves autonomy there is tremendous potential beyond just ferrying around passengers. A cheap AEV (maybe with a few modifications) can be used to deliver packages, mail, food, groceries, and maybe a whole lot of other things. This could also make Elon's numbers for robotaxi usage look silly. The average robotaxi may only end up being able to ferry around passengers 16 hours per day, but it could potentially do other things during non-peak hours when there are not enough passengers. Tesla AVs could end up ferrying around passengers during the day, and cargo at night.

#2 Production capacities forecast

I'd love to hear an update about how many of each of its vehicles Tesla currently thinks it will be able to produce at each of its factories.

• I know they were planning on producing 10k M3s per week in Fremont, but has this changed since they've decided to produce Model Y in Fremont as well?
• How many MYs is Tesla planning to produce in Fremont?
• I know that Tesla initially plans to ramp Gigafactory 3 production to 3k units per week, but what do they think will be the final number of M3s and MYs they'll be able to make at Giga 3?
• What about Tesla Semi and Pick-up Truck production? Presumably these will be produced at Gigafactory 1, but what kind of capacity do they forecast?
• What about Gigafactory 4 in EU? Will it have the same capacity as Giga 3?

I'd love to have all these questions answered in the upcoming earnings call, because it'll help me envision how Tesla will ramp up production in the next 2-5 years.

#1 Machine that makes the machine update

Tesla has just held an Autonomy Investor Day and is planning a Battery Investor Day for later this year, but can we please get a Manufacturing Investor Day in the first half of 2020? Because I think that when Elon said at the annual shareholders meeting that long term investors should be most focused on battery supply and autonomy, that he forgot to mention manufacturing. In my eyes the next decade for Tesla is all about setting up an enormous battery supply chain, efficiently and rapidly building a large amount of state-of-the-art Gigafactories across the globe, and solving autonomy. If they can do these three things, Tesla will be a multi-trillion dollar company by 2030.

The early signs at Gigafactory 3 are very good, but as of right now I cannot call Tesla very proficient at manufacturing. I know Elon and many of Tesla's engineers have been working on the machine that makes the machine over the last few years, and I'd love to have more insight into how that's coming along. So this is the number one thing I would most like to hear about on the upcoming earnings call.


That's it for now. I told you this blog would be pretty short :)

I have some thoughts for another longer, and more complex blog post. If time allows, I hope to write that one some time in the next month or two.