It's that time of the year where once again, Tesla releases its financial data from the first quarter of business. Many had predicted massive cash hemorrhages and a fairly bleak outlook for the future based on continued production woes, factory worker injury reporting scandals and credit rating downgrades. Despite all that, Tesla's stock prices are back up to over $300 per share from a low of $252.48 at the beginning of April. Musk expects the company to hit profitability in Q3.
In the investor letter, Tesla outlines its plan to have Model 3 production up to 5,000 vehicles per week within two months and to then introduce the entry-level Model 3 trim as well as an all-wheel drive variant. One interesting fact is that Tesla is still losing money on every Model 3 it builds, particularly as it has had to cut back on automation in certain areas of production until it can iron out some kinks. Tesla shutting the Model 3 production line down last month made headlines, and surprise, surprise -- it's going to have at least one more 10-day shutdown coming up soon to further update the line.
Tesla has reduced its capital expenditure estimates from $3.4 billion to $3.0 billion which is good news, given the rampant speculation that the company was running out of money faster than MC Hammer in the '90s. The target for gross margin is expected to remain at around 25 percent, but Tesla surprised itself by ending up with a significantly higher selling price per vehicle than it had initially projected. However as Model 3 deliveries ramp up, this will likely change. As far as Model S and Model X, the company expects deliveries to remain fairly steady until Q3 when it expects to see a massive jump that will push total vehicles delivered for the year to around 100,000.
So, it looks like things are working better now that Mr. Musk is directly at the helm of Model 3 production, and sleeping at the factory on a terrible couch wasn't such a bad idea after all. Hopefully things will continue to improve and Tesla becomes cashflow positive this year as it maintained it would. Part of the solution for this is to restructure and reorganize the company and also cut back dramatically on the number of third party contractors that it uses. Musk referred to them as "barnacles" and went on to say that their barnacles had barnacles and that it was time to scrape them off.
Musk eventually became somewhat irate with questions related to Model 3 production and capital expenditure, and cut off several callers. He then went on to call out journalists for reporting negatively on the state of Tesla's Autopilot, stating that it was saving lives and it was irresponsible for journalists to write something that might inspire someone to turn the system off. This isn't the first time that Musk has lashed out at journalists for reporting adversely on the company, with him famously shouting, "Shame!" at journalists on a call year.
One of the more interesting things discussed on the call was Musk's vision for Tesla as it relates to full autonomy. He stated that he believes that Teslas are currently ready for full Level 4 or Level 5 autonomy from a hardware standpoint, lacking only more computing power and that the cars could be ready by the end of next year. The biggest hurdles, he said, would be regulatory and that regulators would be influenced by the way the press treats the technology.
The call also ventured into the topic of the upcoming Model Y. Musk estimates that production wouldn't begin until the beginning of 2020 at the earliest and that it absolutely wouldn't be built in Fremont owing to the fact that the facility was already crowded. This may be a hint that ties into another piece of information that he gave later in the call that all future Gigafactory sites would have vehicle production facilities built in, and that the company was working with the Chinese government on securing a location there.
During the call, Musk also elaborated on the Model 3's trend towards being the dominant midsize luxury sedan in terms of sales in the US, besting competitors like the BMW 3-Series and the Mercedes-Benz C-Class. He also speculated that the Model 3 was not just be taking bites out of the market share of other luxury sedan makers, but increasing the size of the pool by bringing buyers up from more entry-level marques.
Lastly, on the subject of the Tesla Semi and its proposed 500 mile range, Musk said that the company could produce the truck with a 500 mile range right now given the current state of its technology. He speculated that without a great deal more development, that could be pushed to 600 miles and that the production version of the truck would sit at around that maximum range. He commented on the recently announced lawsuit by fellow electric truck manufacturer, Nikola calling it ridiculous.
In all, it was a pretty standard earnings call with all of the bluster, bravado and confidence that we've come to expect from the electric carmaker and its outspoken CEO. We can say with certainty that Elon Musk will be under close scrutiny by the media and by investors as Q2 unfolds, with particular attention being paid to the continued production ramp for Model 3. As always, we hope that Musk is able to deliver on his statements because, frankly, most of them sound pretty cool.