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Tesla executives interpret the third quarter earnings report Musk: every production line is an independent startup



Tesla Motors today announced the third quarter financial report for the 2020 fiscal year. According to the report, Tesla Motors’ total revenue in the third quarter was US$8.771 billion, an increase of 39% from US$6.303 billion in the same period last year, and an increase of 45% from US$6.036 billion in the previous quarter; net profit attributable to common shareholders was 331 million US dollars, an increase of 131% compared with the net profit attributable to common shareholders of US$143 million in the same period last year, and an increase of 218% compared to the previous quarter’s net profit attributable to common shareholders of US$104 million.

Tesla executives interpret the third quarter earnings report Musk: every production line is an independent startup 1

After the financial report is released,Tesla CEO Elon Musk, CFO Zatch Kirkhorn, Vice President of Technology Drew Baglino, Head of Commercial Energy RJ Johnson, President of Operations Jerome Guillen and other executivesInterpreted the financial report and answered questions from analysts.

The following is the main content of the analyst Q&A session of this conference call:

Individual investors:Does Tesla plan to produce 4680 batteries at the same time that it starts production of complete vehicles at the Berlin Gigafactory? Which products of the Fremont factory’s battery trial production line will use this type of battery?

Drew Baglino:There will be many products in the future, including energy products and vehicles, which will use the 4680 battery design. As the production volume of the Berlin Super Factory continues to increase, the battery production line at the Fremont factory can also help.

Individual investors:Can Tesla’s bumpless electrode design greatly increase the charging rate? Is there any improvement to the gradient curve?

Drew Baglino:The most fundamental limitation of the charging rate of lithium-ion batteries comes from avoiding anode lithium plating, and the bumpless electrode design structure helps to avoid overheating, because it is a structure with higher power density under high continuous charging rate. Changing the principle of anodizing, electrode design and anode material selection more directly determines the maximum charging rate.

Individual investor: Can the information of the fully automated driving system be transferred to our newly purchased Tesla vehicle, or is there a transfer fee? I think this can increase brand loyalty. Just like game companies and mobile phone manufacturers, maintain your original ecosystem in your newly purchased upgraded hardware.

Elon Musk:I will discuss this issue.

Individual investors:What are the other restrictions that greatly increase the solar roof installation capacity?

RJ Johnson:The main reason is that the number of trained and experienced installation workers is not enough, which improved in the third quarter and will continue to increase in the future. Another aspect is how to make the material transportation at the construction site more efficient. I often talked about this issue before, including communication with the factory, improvements in packaging and tools, so that installation workers working on the roof can get the needs without much trouble. s things. At the same time, we have also cooperated with third-party installation companies, and it is expected that there will be a good growth in installations in the future.

Elon Musk:You can think of the question like this: What kind of world do you want to live in? What can make you have a higher quality of life? What are your thoughts on the future of life? A beautiful solar roof that can generate electricity should be part of a high-quality life. The solar roof is one of our most valuable products, and its value will be further highlighted next year.

Individual investors:You recently mentioned that Tesla is a conglomerate of many start-up companies. In addition to manufacturing electric cars, what do you think are Tesla’s most valuable business units in the next 5-7 years? Which businesses will Tesla divest?

Elon Musk:Each of our production lines is operated as a start-up company, and every ambitious plan is also an independent start-up company. Even our sales and service teams are like start-ups because these departments were created from scratch. , We have established Tesla’s sales and service network in 40 countries.Even our internal application team is also our core technology research and development department, which is not dependent on any enterprise software, which is very important, I pay tribute to the internal application team, who developed Tesla’s own system and laid a very good foundation. Insurance business accounts for 30%-40% of the value of car companies. This business has also received good feedback from customers. They do not need to make choices. We can provide better and lower-priced services. In the autonomous driving department, the research and development of chips can also be regarded as start-up companies. Businesses such as batteries, electronic systems, driving unit design, super charging piles, etc. are all start-ups. It may not have been thought of before, and it is not too late to think about it. At present, the contribution of some departments may not be so obvious, but there are no failure cases. Not bad, there is no plan to divest the business. These departments are all effective in improving the company’s functions.

corporate investor:Can the company’s insurance products help customers rent out their Tesla cars through apps and make money for them? This is Turo’s own car service version.

Elon Musk:We hope to empower Robotaxi, a driverless taxi service, but (insurance products) may be only a small part of its business. Of course, you can use it alone, or you can choose to share it with friends and family. You can rent out part of the time online , You can also rent out completely, of course, you can also buy 10 cars as a car rental company. The company is still focusing on the establishment of autonomous driving networks, the model may be a bit like Uber Uber and Airbnb.

corporate investor:The carbon emissions of civil electrical appliances are similar to road traffic, and the electric kettle and air conditioner consume a lot of electricity. The heating, ventilation and air-conditioning (HVAC) system used by Elon previously suggested that Model Y can also be used for household purposes. Can you elaborate What is the situation in this regard?

Drew Baglino:The energy-saving systems of Model Y and Model 3 focus on the efficient conduction of heat energy, and also ensure the normal operation of the vehicle under the condition of minus 20 to 30 degrees Celsius outdoors. Of course, these technologies can be applied to homes.

Elon Musk:It is of great significance to store the heat energy during the driving process of the vehicle in a battery or a heat energy pool. The principle of civilian use is the same. A battery that stores heat energy can be installed on the heater. It is believed that energy generation, storage, heating, cooling, filtering and In terms of purification, it is possible to apply Tesla technology.

corporate investor:If achieving the company’s long-term goal of electric vehicle production requires a price cut, and the result of the price cut is that the company cannot achieve its profit margin target of 11%-13%, will the company still cut prices?

Elon Musk:We hope that Tesla’s cars will be affordable to users, and we have to separate the concepts of affordability and cost-effectiveness. If the car is too expensive, consumers cannot afford it, no matter what value you have. Positioning is useless, so affordability is very important. We hope that everyone can afford it. At the same time, Tesla will continue to improve the company’s cost structure and output, hoping to make progress every day. Great progress can be made in time. Regarding the issue of profitability, if the factors of autonomous driving are taken into account, the impact on profitability is small.

Zatch Kirkhorn:Add two points. The first is that the company has been working hard to increase production within the manageable range. Second, in the past year and a half, despite several price cuts, the company’s production and profit margins have increased, and the company has also The key to reducing operating costs is that consumers must be able to afford them. The company will continue to adjust the cost structure to make our cars cheaper and of better quality.

corporate investor:With sufficient internal and external battery output, does the company have plans to increase the construction of energy storage power stations? When will the plan be implemented?

Elon Musk:The number of Tesla’s energy storage power stations has increased greatly, and it is expected that the number will double next year, and we look forward to accelerated growth in the future.

Zatch Kirkhorn:This year’s number will also double year-on-year.

Elon Musk:Yes, if it keeps doubling, the earth can’t hold it, the next target Jupiter.

corporate investor:Production is not easy, and sometimes there are delays. Does the company have an emergency response plan to deal with possible bottlenecks in the battery production process? It will not affect the production targets of Model Y in Berlin and Texas.

Elon Musk:We hope that stable production can last until at least next year, and will not rely on our internal battery production at that time. Internal production can help the company increase production in the next year, but will not rely on it next year.

Drew Baglino:One measure to maintain stable production is to set up the battery trial production line in the Fremont plant, so that we can respond to the problems and challenges that arise at any time and provide feedback to the design team.

Elon Musk:Our trial production line is also very large, and it can be ranked among the top ten battery factories in the world.

Rod Lache, analyst at Wolfe Research:The company mentioned earlier that it hopes to achieve an annual output of 20 million vehicles in 2030. Could you also please introduce the company’s mid-term goals, such as the approximate annual production target by 2025? What is the approximate investment for this goal? Is US$2 to 2.5 billion per year enough?

Elon Musk:What is more difficult to predict is that if the annual output doubles or increases by 50%, and suddenly one year of growth deviates from this level, it will have a great impact on the realization of the goal, which may be much higher or lower. So it is difficult to predict the medium-term production situation, and I have not concluded that the goal of 20 million vehicles will be reached, but this is a very good goal, which means that our share of the global car ownership reaches 1%. How can we change the world if we can’t even account for 1%.

Rod Lache :Regarding the question of solid-state batteries, if the plan is successful, what impact will it have on Tesla’s battery production plan?

Elon Musk:There are still many unknown areas in battery production systems, including anodes, cathodes, electrolytes, etc. Our process improvement will focus on various aspects of performance, such as upgrading and manufacturing ionic phosphates and nickel-manganese alloys, which are suitable for different purposes. In terms of output, there may not be a big increase.

Drew Baglino:Pure lithium metal is denser than lithium silicon alloy, which may not be particularly easy to understand, but it is true. We mentioned earlier that the cost of the anode is 1 to 2 dollars per kilowatt hour, so removing the anode material does not have much cost impact.

Elon Musk:If using an all-lithium anode is the right direction, we can do the same.

Oppenheimer analyst Colin Rusch:The management mentioned that some processes will be introduced from outside the company. Could you elaborate on which equipment companies will build by themselves? Which ones will be introduced?

Elon Musk:Compared with other auto companies or almost any company, Tesla is the most thorough company in vertical management. The company has a large number of internally developed production technologies. The machines are also manufactured or designed by ourselves. For example, we design what machines we need and how to produce them. Therefore, Tesla’s model is very difficult to imitate, and we are not opposed to it. Other companies imitate us, but it is definitely not an easy task, because what we do cannot be found in books, and you cannot build these devices with a supplier catalog. Tesla’s equipment is not in the catalog. In terms of outsourcing, we also don’t want to do too much. After all, it is good to be able to outsource some work, and we can free up some staff to do other things. The situation of the company’s internal manufacturing machinery may not be known to the outside world, but if you come to the factory to experience it yourself, you will understand a lot. I don’t know whether it is wise to build the machine by yourself, but the supplier does not have the equipment we want. You have to do it yourself.

Colin Rusch:The company’s balance sheet has changed a lot, and its assets have become much lighter. At present, there is still a large buffer room. In the insurance business, there are also opportunities to reduce costs and improve financial performance. As market demand increases, the company gains Is the capacity of capital also increasing and contributing to the development of other products of the company? Is there any change in this regard?

Elon Musk:Insurance products are a good example and have made our internal application team. They have developed insurance products that are linked to drivers’ driving performance, constantly reviewing data and calculating risks. These are all done internally, a set of internal software systems. The capital invested in this part of the business is also relatively low, but the returns are high. On the premise of not spending money indiscriminately, we may have been spending money at the fastest speed all the time. This is difficult. Try to spend as little as possible. There may still be some that should not be spent, but the goal is to maximize revenue. Right.

Morgan Stanley analyst Adam Jonas:A question about Light Detection and Ranging System (LiDAR). If these technologies are completely free, will Tesla apply them to vehicles in the short term? Is this technology particularly helpful for Tesla’s neural network training for fully autonomous driving?

Elon Musk:I think it is unlikely to be completely free, and even if it is completely free, we are not willing to adopt it.

Adam Jonas :Amazon seems to be investing in some internal projects in autonomous driving and electric vehicle transportation networks. In addition, Zuk, Aurora and Rivian are also making similar moves. In this regard, what advice would you give Jeff Bezos (Amazon Chairman)?

Elon Musk:I don’t know how much he cares about this field, but I guess he has invested a lot. If he really gets involved in this industry, the research and development of optical technology may be very important. If optical technology is solved, it will also solve autonomous driving. technology.

Pierre Ferragu, analyst at New Street Research:This year the management did not talk about the topic of Tesla pickups. What is the current situation of the project? When will the Tesla pickup be on the road? How quickly can the output ramp up?

Elon Musk:I also discussed the progress of the pickup project with the team last Friday. We hope this car will perform better than when it was first released. Some car dealers made their cars very beautiful when they released new cars, but the actual delivery of the cars was far worse than the original prototypes. I am very annoyed by this situation. What is the point of deceiving consumers like this? The cars delivered by Tesla to customers must be better than those released publicly. This is also a principle we follow in our pickup project. We have made a lot of small improvements, very good improvements, which are produced in the Austin factory, and also adopted some new technologies, including the use of high-strength exoskeleton armor. The challenge is not small, because we have not done similar before The product. The high strength of the car body is not prone to scratches and dents, but these all mean challenges in the production process and look cleaner. If all goes well, delivery to customers can begin before the end of next year, but the delivery time is more likely to be 2022.

Pierre Ferragu:How is the company going next year? At the end of this year, it is estimated that the annual output can reach 850,000 units. The Shanghai plant will also increase its output in the future. The Berlin plant will start construction. Today, it is said that the Austin plant will also be opened. Taking these into account, it may also reach an annual output of 1 million units. Will it reach the same next year? Level?

Drew Baglino:The outlook for next year will be made when the next quarterly earnings report is released.

Credit Suisse analyst Dan Levy:In the third quarter, the gross profit margin of Model Y and Model 3 business in China, which is higher than the gross profit margin of Model 3 business in Fremont? The factor that determines the level of gross profit margin this quarter is relatively high production or the sales of fully autonomous driving functions? What are the reasons for the change in gross margin this quarter?

Zatch Kirkhorn:A small part of the revenue of the fully autonomous driving business is deferred revenue, which is only about 10 million US dollars, which has little effect. Regarding the issue of product profit margins, various business lines and product lines have seen cost drops. The Shanghai plant has made good progress. With the increase in output, the manufacturing cost of Model Y has also dropped rapidly. We have also said before that the manufacturing cost of Model Y at the Fremont plant is equivalent to that of Model 3. The cost (of the Shanghai plant) has not yet been reduced, and the cost of the Fremont plant is also declining. The same is true for Model Y. The profit margin advantage of Model Y in Shanghai is gradually showing, and the profit margins of Model 3, S and X in Fremont are also improving. The overall situation in the third quarter was good.

Dan Levy :I also want to ask a question about European market strategy. The company has been optimizing costs, creating room for product price reductions and increasing production. The situation in China is similar, and lithium iron phosphate is used. As the output of the Berlin plant climbs, what is the future pricing strategy in Europe?

Zatch Kirkhorn:We have been dealing with the issue of priority shipments in which regions. This is related to product adjustments, logistics routes and product positioning. Of course, we will continue to increase production and strive for regions where we do not need to worry about priority shipments in the future.

Gene Munster, analyst at Loup Ventures:A question about the Tesla truck project Semi. Can you tell us about the current Semi Super Charging Pile and the progress of the Semi Autopilot Team? How has Semi impacted the truck industry?

Jerome Guillen:Semi’s research and development has been ongoing, especially the development of super charging piles. The 350 kW charging piles used in other models may not be enough for Semi. We are developing super-powered products that can be charged during the intermittent driving of the user to ensure the next rest. There has been continuous motivation before. I am also working with other parties to ensure that all customers have access to standard charging facilities. Our work is open, and we need to constantly invent and create, because there has never been such a thing before, and we hope that the products we make can benefit everyone.

Elon Musk: Semi uses a lot of battery packs, which are about five times that of ordinary passenger cars. Therefore, it is difficult to increase Semi’s output when the battery supply is insufficient. The prerequisite for increasing its output must first solve the battery output limitation. The current way to solve the battery supply problem is often to demolish the east wall and supplement the west wall. We need more battery output to build more replacement stations and more autonomous driving fleets.

Gene Munster:Makes sense. The management previously talked about the impact of the automated taxi Robotaxi business on passengers. What impact will Semi have on the freight industry? Is the Semi business dispensable? Is it just the improvement of the company’s current technology? Or will it become a business that actually contributes to the company’s business in the future?

Elon Musk:I think that the future will definitely contribute to the company’s business. In the long run, all vehicles will realize automatic driving. In fact, horses are vehicles with autonomous driving. The future prospects are still very good.

Zatch Kirkhorn:The technology we use on Semi is the same as that used on other vehicles.

Elon Musk:It’s just that the car is bigger.

Baird analyst Ben Kallo:Elon, what do you think is the biggest structural problem of traditional contract manufacturers? In other words, you think they have two biggest problems that prevent them from catching up with Tesla. You also mentioned that you want the world to look forward. What kind of vision do you have? The same as Tesla? Or a combination of Tesla and Rivian?

Elon Musk:There will certainly be other car companies. Tesla will certainly not be the only car company in the future, but what these companies do in the industry may only be a small part of Tesla. Tesla designs and builds products and manages vertically. We design and build more vehicle-related products than traditional car companies. They rely more on the same supply chain, so the final cars are similar. The parts of traditional car companies may have outstanding features accumulated over the years, but also have their limitations and cost structures. So we need new factors, new parts, and equipment to make these products. At this time, vertical management is an advantage, and it is also a management model that we will definitely adopt. In addition, we also need to establish our own sales, service and distribution systems to provide products to consumers in 40 countries. In the future, there will be more than 100 countries. In contrast, other car companies do not have their own sales and distribution networks. To put it vividly, other car companies take parts from a supplier’s basin and hand over the finished car to the retailer. Tesla has many aspects, and our similarity with other car companies may only be 10%.

Jeffery analyst Philippe Houchois:I want to try to analyze the company’s business model from the perspective of energy storage power station business. There may be two directions: one is selling hardware, which requires cost. I want to know if the company has plans to incorporate charging piles into the grid? In terms of energy storage sharing, is there an opportunity to achieve sharing? A few years ago, I came into contact with some of Tesla’s business practices in Australia. Because of the large amount of energy storage, the company’s hardware products could have been sold at higher prices. Want to hear what the management thinks about this?

Zatch Kirkhorn:There is indeed such a situation in Australia. The interconnection of energy storage power stations is beneficial to reducing user electricity prices and grid operating costs. In fact, similar practices exist all over the world, and retail electricity consumption and batch electricity consumption are the same. The company’s super battery Megapack and household battery Powerwall deliver power to the grid through Autobidder, an automated energy trading platform.

RJ Johnson:One point needs to be clarified. Australia’s largest battery production plant has been operating and continuously generating revenue, so whether we sell electricity or not, the plant has always contributed revenue to the company.

Philippe Houchois :At the Battery Day event, Elon talked about the method of integrating batteries and vehicles. It was very interesting. It made me feel that many companies’ products would become obsolete in order to emulate Tesla. Am I right?

Elon Musk:In the long run, it will be outdated. After a few years, it is not the kind of “old car still has value” type obsolete. If you produce a battery pack, it is part of the many parts of the vehicle, but it also means the car The increase in body mass and cost is the same for other parts such as body castings. Frankly speaking, we want to build a car like a toy car. Such a car is cheap and beautiful. How can we build it? It is ridiculous that we use casting methods to make so many parts and then put them together, so it is natural for me to think so. The same is true for energy storage. The battery is now a structure of the car body, just as the wings of an aircraft and a rocket are part of an aircraft and a rocket. Early rockets also had a propeller and a fuel tank. Later, everyone thought that it was unreasonable to divide the propeller and the fuel tank into two structures and integrated them together to build a wing-shaped fuel tank. This was also a long time for people. The solution that was just thought of cannot be realized overnight. My view is that there must be innovation in structure.