On the afternoon of June 11, 2:30 PM EST, Tesla’s 2019 Shareholder Meeting was held at the Computer History Museum in California, attended by CEO Elon Musk and CTO JB Straubel. As we enter 2019, Tesla’s stock price is approaching a halving while the shareholder meeting has historically been Elon’s forum to respond to shareholder queries and clarify doubts, making this year’s meeting much anticipated.
Is Tesla experiencing a “demand hell”? Are Tesla’s financial difficulties becoming unsustainable? Is Tesla facing tough competition from traditional luxury EV brands? These questions received comprehensive and detailed responses at this meeting. Enjoy.
Demand Problem? Absolutely none!
As we enter 2019, the notion of unsustainable demand for Tesla has been constantly heard. In “Tesla Will Eventually Return,” published on June 2nd, we spent a considerable portion addressing the gap between Wall Street’s pessimistic expectations and Tesla’s actual business progress, concluding that “dwindling demand” is what is actually unsustainable for Tesla.
At the shareholder meeting, Elon gave a tough response to demand queries.
So we get this question a lot, and it’s — I wanted to clear, there is not a demand problem, okay? Absolutely none!
We get this question a lot, and I want to make it clear that Tesla has no demand problem, understand? Absolutely none!
Contrary to general expectations, Tesla may break its historical record for quarterly deliveries in Q2, which coincides with what we previously mentioned as “Tesla being in its all-time highest-demand quarter.”
Tesla’s quarterly delivery record was set in Q4 of 2018, with 90,700 cars delivered. The widespread questioning of Tesla’s “dwindling demand” only fully emerged as we entered 2019. So, is 2019 a turning point for Tesla’s demand? Take a look at the chart below.
This is the cumulative sales chart of American luxury mid-size cars since January 2018. In December 2018, the cumulative sales growth curve of Model 3 showed a turning point, while there was no obvious turning point for Mercedes-Benz C-Class, BMW 3 Series, Audi A4, Lexus IS, and Jaguar XE.
However, isn’t exponential growth becoming proportional function growth no longer growth? Most people are not aware that in the past four quarters, Model 3’s sales volume has been higher than the sum of all competing models.
Expanding the comparison of competing models from luxury mid-size cars to the entire auto market, Model 3 is the highest-selling model in the United States. Finally, a PPT is used to respond to all doubts:
The quarterly orders of Model S/X/3 exceeded the quarterly production capacity, and 90% of the orders came from non-reservation users. In other words, Tesla has been penetrating into a wider range of audiences outside its earliest loyal customers.
Of course, if you read carefully enough, you will find the “trick” in the above PPT: Why is the sales trend of Model S/X not included in the cumulative sales from 2018 to the present? Why is Tesla, whose Model 3 is the highest-selling model, consistently losing money?
400-mile range car
We need to refocus on the long-unfavored Model S/X. Since the production of Model S/X P 100D in August 2016, the two flagship models have not received a significant update for three years. On April 24th, Tesla updated the powertrain and adaptive suspension of Model S/X, but this is not enough. What consumers are expecting is a comprehensive upgrade of Model S/X.Below is the English Markdown text:
CNBC exposed on May 29 that Tesla is designing and developing a new Model S, one of the design targets of which is to achieve a range of 400 miles. Although not explicitly stated, the “400-mile range car” that Elon mentioned at the shareholder meeting is obviously referring to the new Model S.
It won’t be long before we have a 400-mile range car.
We won’t be long before launching a 400-mile range car.
Regarding the new Model S/X, we have summarized the previous information as follows:
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Tesla is reorganizing the Fremont factory to set up new production lines for the new Model S/X.
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Tesla is subjecting new battery packs to extreme high-temperature testing in the Mojave Desert and Death Valley.
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Tesla plans to start production of the new Model S/X in September this year.
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The new Model S/X will have an EPA range of 640 km.
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The new Model S/X will come with updated interiors, including a horizontal center console like that in the Model 3.
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The new Model S/X will have updated powertrain components, including a tri-motor setup and 2170 batteries.
This product line update explains why Tesla is continuing to bleed money despite increasing sales. Product development, factory reorganization, and new production line setups have replaced the 2018 Model 3 automated production line as the new money pit for Tesla.
The launch of the new model will answer another question – with the new Model S/X boasting a 640 km range under EPA conditions, and incorporating the most advanced Tesla technology in one car, is there still any question about the traditional luxury brand EVs’ siege against Tesla?
For Tesla, “weak demand” is what is truly unsustainable.
Battery & Powertrain Investor Day
As Tesla’s largest shareholder, Elon himself also asked two questions at the shareholder meeting.>If I were an outside investor, I would really focus on 2 things: What is the timeline to full self-driving? what is your plan to scale battery production and get the cost per kilowatt hour lower? Those are — it’s basically the battery cells and full self-driving. So those are the 2 strategic things that are of most importance.
If I were an external investor, I would pay close attention to two things: the timeline for achieving full self-driving and the plan for scaling battery production and reducing the cost per kilowatt hour. These are the two most important strategic issues, namely battery cells and full self-driving.
How does Tesla address these two issues? For full self-driving, Tesla has already provided an answer at the Tesla Autonomy Investor Day on April 22.
In essence, compared to the world’s best self-driving chips, Tesla’s AI chip has made many breakthroughs in performance improvement by an order of magnitude, double redundancy of power supply/compute, independent hardware security encryption, lower unit cost and more. So, what about batteries?
At the shareholder meeting, Elon announced that Tesla will hold an Electric Motor and Powertrain Investor Day this summer at the latest.
Many people are not aware that, except for the Model 3, most of Tesla’s products have not entered the 2170 battery era, including Model S/X, Tesla Semi Truck, Tesla pickup, and energy storage products.
On the other hand, as of the end of 2018, Tesla’s Gigafactory 1 in Nevada has completed an initial investment of 35GWh/year of production capacity. In fact, 35GWh/year is the production capacity target for Q4 2018.
There has been a huge demand, and the initial investment has been completed. Following the normal development logic, Tesla should continue to expand battery production capacity in 2019 to meet the battery demand of the new products that are gradually put into production. However, as of today, the capacity of Giga 1 remains at 24 GWh/year, while orders have exceeded 2000 units, and the strongest battery-consuming machine, Semi Truck, originally scheduled for production this year has been delayed until 2020.
Why is this happening?
Tesla first confirmed the production delay of Semi Truck at the Q1 earnings call. Jerome Guillen, the head of Semi Truck and Tesla’s automotive president, mentioned that Semi Truck will be delayed until 2020 for production.
Tesla announced a $218 million acquisition offer for electrochemical company Maxwell on February 5, 2019. At the Q1 earnings conference call, Elon’s answer to a question about Maxwell’s impact on Tesla’s battery scale was, “You’re really asking some pretty super-secret sauce questions here.”
We have reason to believe that the acquisition of Maxwell has completely disrupted Tesla’s established battery R&D-production-capacity growth strategy, and Tesla has had to pause the expansion of battery capacity and prioritize the integration of Maxwell’s technology.
All the mysteries will be revealed at the “Battery & Powertrain Investor Day.”
CTO JB Straubel
On April 3, 2019, we learned from sources who had long-term contact with the Tesla Trio that Tesla’s CTO JB Straubel had not been to the company’s office for several months.
On May 31, foreign media began to report that sources revealed that Straubel had not been to the Tesla headquarters for 6-8 months. At the same time, Straubel has been selling the Tesla stock he holds for the past few months. As one of the only two Tesla co-founders still working for the company, his suspected departure has attracted widespread attention.
However, we have seen that he attended the recent two earnings calls in addition to the shareholder meeting. At this shareholder meeting, Drew Baglino, a seasoned Tesla warrior and vice president of technology, also made his first appearance.In the past three years, Tesla has had over 50 VP-level executives leave, but Drew’s role differs significantly from these VPs.
Drew has been working at Tesla for 14 years, and when he first joined the technology team led by Straubel, the entire team consisted of only 5-10 people. Straubel called Drew his “right-hand person”, the man who participated in the formulation of every key strategy of Tesla.
Drew leads all sub-technical fields at Tesla, including energy product engineering, powertrain, power electronics, high voltage and battery safety. Given Tesla’s vertically integrated development strategy and business complexity, this multi-talented engineer is obviously highly appreciated by Elon. Elon himself has evaluated that Drew’s team has played a key role in power system innovation, factory innovation, solar roof, and many other areas.
At the entire shareholders meeting, Straubel talked more about Tesla’s macro strategic level. Combined with the recent two earnings calls, a reasonable speculation is that Drew has succeeded Straubel and now leads Tesla’s various technical teams forward.
Whether Straubel is on vacation, resigned or focusing on the integration of Maxwell’s technology, or selecting the location of the European Gigafactory is not important. What is important is that during the time period when Straubel gradually withdrew from daily management, Tesla’s technical team has completed a smooth transition.
Tesla’s Tomorrow
As I mentioned earlier, all the mysteries will have to wait until “Battery & Powertrain Investor Day” is unveiled. But even if Elon is procrastinating, we can still make a prediction from Tesla’s long-term goals and Maxwell’s technological advantages. What does Tesla really want to achieve?
In fact, at Tesla’s autopilot investor day on April 22nd, Elon inadvertently revealed Tesla’s goal in the electrochemical field.
The cars currently built are all designed for a million miles of operation. The drive unit is design, tested, and validated for 1 million miles of operation.
Today, the cars built are all designed for a million miles of operation. The designed, tested, and validated drive unit can operate for 1 million miles.
So what about the battery pack?One week before the Investor Day, Elon tweeted that the sustainable operational mileage of the battery pack would be 300,000-500,000 miles (480,000-800,000 kilometers).
In a subsequent tweet, Elon mentioned that the new battery pack being produced in 2020 is designed specifically for operations of 160 kilometers. Considering that heavy consumers of battery power like the Model Y and Semi Truck will also be put into production next year, and the annual production capacity of 35 GWh/year will be fully released by the end of this year, it can be determined that the battery pack with significantly longer life cycle next year must have the support of Maxwell technology.
The next question is, it is difficult for a private car to travel more than 200,000 kilometers during its entire life cycle, why does Elon Musk have such an obsession with 1.6 million kilometers?
Another indicator of private cars is that only 3% of their entire life cycle is spent in driving, with the remaining 97% of the time being idle, without fulfilling their role as a “means of transportation”.
A fleet of pure electric self-driving taxis, this is Elon Musk’s ultimate goal.
Since 2016, Tesla has had the following milestone events:
In January 2016, Tesla established a team dedicated to the development of AI chips, committed to developing chips that meet the scenarios of autonomous driving in terms of algorithms, safety, redundancy, and cost.
In October 2016, Tesla released Autopilot 2.0, a vision processing tool driven by a self-developed deep neural network Tesla Vision.
In July 2017, Tesla’s Model 3 went into production. Its entire vehicle and drive unit can sustainably operate for up to 1,000,000 miles, with embedded brake and steering redundancy.
In April 2019, Tesla acquired Maxwell, putting the development of battery packs with sustainable operational mileage of up to 1,000,000 miles on the agenda.
At the shareholders meeting, Elon said the following statement:
> I think it’s basically financially insane to buy anything except an electric car that is upgradable to Autonomy. You can see 1 country after another is putting dates on banning gasoline and diesel cars, So, it’s just basically mad to buy a fossil fuel car at this point because its long-term resale value will be less and less.
I made this comment before like essentially if you buy a gasoline car that’s not full self-driving, it’s like riding a horse and using a flip phone.It’s not wise.
This paragraph has sparked a huge controversy. Nobody believes that self-driving will come so fast, nobody believes that Tesla can achieve self-driving.
In 2016, we didn’t have powerful chips, car-grade sensors, algorithms that far exceed human drivers, or large fleets of test vehicles. We face government regulation, ethical dilemmas in electric cars, and one insurmountable challenge after another.
Today, many challenges still seem insurmountable, but Tesla has solved part of it and is trying to solve the rest step by step.
Like most people in the world, I don’t believe Tesla will achieve commercial self-driving by the end of 2019. But Elon believes, Tesla believes, they are pushing the boundaries of technology.The following is the translation of the Chinese Markdown text into English Markdown text, with HTML tags preserved:
Finally, the speech by Robyn M. Denholm, Chairman of Tesla:
As an investor, you need to have some courage when changing the world and many industries. Thank you for your tremendous support to Tesla in the past 12 months and over the years. Without you, we would not have made progress in our mission to drive the world towards sustainable energy as a company.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.