Tesla reported Q2 2016 earnings this past week and the big takeaway, at least for me personally, was Tesla showing fiscal discipline. Tesla's capital expenditures came in much lower than expected and Tesla is also keeping their operating expenses in check as well. One of the biggest reasons for this can be attributed to Tesla's "do more with what we have" attitude that was emphasized even greater with the new CFO, Jason Wheeler. Prior to the new CFO, Tesla was leasing/buying buildings (ie., Fremont, Lathrop, etc) aggressively in preparation for Model 3. But since Wheeler took his position, Tesla is now touting their new physics "first principle" approach to manufacturing and volumetric density of factories. In other words, rather than needing new buildings, Tesla has found a way to design their current factories to handle a much larger production load (ie., create more floors and use all the vertical space in the factory). As a result, Tesla is able to save hundreds of millions of dollars and is in a much stronger fiscal position entering Model 3 production.
Last weekend I was able to visit the Gigafactory and take a tour. I was allowed to record the entire tour (45 minutes) and here's a link to the YouTube video.
The Gigafactory is massive in size and it's a clear demonstration of Tesla and Elon's mega-vision to change the world and "move the needle" in transitioning the world to sustainable energy. The Gigafactory is Tesla's secret sauce to make the Model 3 affordable. Other car companies take a $20k car, make it electric and charge $35k-40k. But with the Model 3, Tesla is taking a $45k car (in terms of performance, handle, features) and charging $35k. This is why there are already 400k(?) reservations for the car and will be the most significant car in history, next to the Model T.
I was surprised to find out that the Gigafactory architectural and design team is very small, 10-15 people, and very young (most seemed to be in their 20s). One shared that he works super long days but he loves the excitement and challenge of his job.
First cell production is slated to start at the end of the year. And it seems like there were be separate sections in the Gigafactory for stationary storage cell production and auto cell production. Once stationary storage cell production starts ramping next year, we'll likely to see the ramping of the Powerpack and Powerball products.
Lastly, I wanted to thank those that used my referral link http://ts.la/david7556 to order a new Model S/X. Because of you, I was able to receive a Gigafactory invite. A new referral program has started and I need 9 more referrals by Oct 15 in order to receive an invite to Tesla's next event.
Update: If you're interested in hearing more of my thoughts on Tesla's Gigafactory, I recorded a video you can find here.
Tesla Energy
Tesla Gigafactory Grand Opening Video
Here's the official video presentation from Elon Musk and JB Straubel at the Gigafactory Grand Opening Event.
Tesla and SolarCity to Combine
We expect to achieve cost synergies of $150 million in the first full year after closing. We also expect to save customers money by lowering hardware costs, reducing installation costs, improving our manufacturing efficiency and reducing our customer acquisition costs. We will also be able to leverage Tesla's 190-store retail network and international presence to extend our combined reach. Here are some key terms of today's announcement: this is an all-stock transaction with an equity value of $2.6 billion based on the 5-day volume-weighted average price of Tesla shares as of July 29, 2016. Under the agreement, SolarCity stockholders will receive 0.110 Tesla common shares per SolarCity share, valuing SolarCity common stock at $25.37 per share based on the 5-day volume weighted average price of Tesla shares as of July 29, 2016.
The Solarcity acquisition, if approved by both set of disinterested shareholders and the SEC, is set to close in Q4 of this year.
Panasonic to raise $3.9 billion, partly to finance Tesla plant investment
Japan's Panasonic Corp said on Friday it would raise up to 400 billion yen ($3.86 billion) in corporate bonds, partly because it needs to bring forward its investment in a Tesla Motors Inc battery factory. "In the near term, strategic investment (from the money raised) would be mostly in Tesla's Gigafactory. There is a need to speed up investment," Kawai said.
Panasonic is stepping up to the plate big time by raising almost $4 billion, with a significant portion going to the Gigafactory.
Model 3
Tesla Model 3: Tesla is ordering enough parts for a fleet of ~300 prototypes
Giving us some insights into Tesla’s road to production, sources within Tesla’s supply chain told Electrek that the automaker has been ordering enough Model 3 parts over the past two months to build a fleet of around 300 prototypes.
Autopilot
This is what is blowing Elon Musk's mind
The challenge is not so much in the hardware, which Musk said, is already there. "Full autonomy is about developing advanced narrow AI, for the car to operate on," he explained. "When I say narrow AI, it is not going to take over the world, but it needs to be good at driving a car. So increasingly sophisticated neural nets that can operate in reasonably sized computers in the car. That is our focus. I am very optimistic about this. It blows me away. If I am this close to it and it blow me away, it is really going to blow other people away."
My guess is that we might see some of this "mind-blowing" technology at the Part 2, Model 3 reveal.
TSLA
Tesla Q2 2016 Shareholder Letter
We are also accelerating store openings and plan to add a new retail location every four days on average during the remainder of Q3 and through Q4. We are adding stores in new population-dense markets like Taipei, Seoul, and Mexico City, while also adding stores in our most mature markets like California.
New stores in key markets help stir new demand for the Model S and X, and also help prepare the way for the Model 3.
We exited Q2 consistently producing nearly 2,000 vehicles per week and our total Q2 production of 18,345 vehicles constituted a new quarterly production record, up 18% from Q1 and up 43% from Q2 last year. Production hours per vehicle also declined throughout the quarter for both cars. Based on this progress, vehicle production is now on track to support about 50,000 deliveries in the second half of this year, with automotive gross margin improvement.
Tesla has finally hashed out their Model X production issues and we'll likely see strong Q3 and Q4 production and delivery numbers.
We have completed the design phase of Model 3 and released Model 3 for tooling, production planning and validation. The Model 3 capacity expansion will reflect our initial efforts to apply our “machine that makes the machine” philosophy to vehicle manufacturing, and demonstrates our intense focus on volumetric and capital efficiency. Some Model 3 production equipment is already on line, including initial capacity in our stamping and paint centers. Later this year, we plan to begin construction of new Model 3 body and general assembly centers.
It might seem like Tesla has many focuses with stationary storage, the Solarcity deal, Model X, semi truck, mini-bus, etc. But in the conference call, Elon mentioned that the two main focuses of Tesla currently are the Model 3 and full autonomy.
Finally, we signed a definitive agreement to acquire SolarCity. Buying the largest residential solar energy installer and generator in the United States along with its unique panel technology will further our mission of accelerating the world’s transition to sustainable energy. We see significant opportunities for product innovation and integration, and we shared our initial thoughts on synergies earlier this week.
On Monday Tesla held a conference call with analysts to go over the Solarcity deal specifics. You can listen to the conference call here and view the slide deck.
Elon Musk
For Elon Musk, star-touched vision and messy reality collide
“Elon is amazing at unblocking mental, physical and financial boundaries,” says Ali Javidan, who worked for years without vacations as head of vehicle prototyping at Tesla from 2008 to 2012, and now is developing an electric vehicle for a stealth startup. “He doesn’t come up with ideas in the shower. He’s all about calculations, data and de-risking. It will all get done.” Of Tesla's speed bumps, Javidan says they are merely the byproduct of Musk’s penchant for pushing his teams to meet aggressive deadlines, then walking those back when necessary. “Tesla, SpaceX, SolarCity, they’re all simply subsidiaries of Elon Inc.," he says. "Elon's got great teams in place, and his job, like Neo in The Matrix, is to see through and around corners.”
Great description of the uniqueness of Elon Musk and what he brings to Tesla.
Other News
The Tesla Effect: How the cutting edge company became the most powerful engine in Bay Area manufacturing
Fremont Economic Development Director Kelly Kline said her impression is that Tesla is preparing to expand its supply chain outward in the region. Kline said a half-dozen auto parts manufacturers from around the world are currently poking around the Fremont area looking for space in case they are able to land a contract with Tesla. “The greatest impact is yet to come,” said Kline of Tesla’s plan for extraordinarily rapid growth. “We are moving so quickly,” Kline said. “It’s all hands on deck in the city to meet the needs of Tesla and their supply chain.”
Tesla is proving to be a huge boon to the local Fremont economy.