Tesla Motors, Inc. Continues to Impress: The Can't-Miss Quotes From Earnings

When Tesla (NASDAQ: TSLA  )  released second-quarter results last Thursday, reporting revenue and earnings per share that beat expectations, the market didn't quite know how to react. Shares jumped between gains and losses in after-hours trading. But the confusion wasn't surprising: With future aspirations driving much of the share price, the items that matter to the market go much deeper than Tesla's quarterly results. It took some time after the earnings call to digest all the important story lines before the market decided that it had incrementally more confidence in the company, sending shares up 4% on Friday.

Model S 21-inch turbine wheels with red brake calipers. Image source: Tesla Motors.

Here are 11 telling quotes from both Tesla's second-quarter shareholder letter and its quarterly conference call, grouped by topics, which help encapsulate some of the likely drivers behind why the market may have more confidence in Tesla after its second-quarter update.

Next year
According to the Q2 letter: "Provided that we execute well and there are no serious macroeconomic shocks, Tesla's annualized delivery rate should exceed 100,000 units by the end of next year."

This would be quite an accomplishment, considering that Tesla is only guiding to deliver 35,000 vehicles this year.

Adding some perspective to the number, CEO Elon Musk said during the call that the company expects the upcoming Model X SUV, which is scheduled to be launched early next year, to make up roughly half of those deliveries.

Regarding annual shipments next year, Musk said the number could be higher than 60,000, which would boost year-over-year growth in deliveries from an expected 55% this year to somewhere closer to 100% for 2015.

Demand
Tesla seems more confident than ever that demand for its vehicles will not be a problem, emphasizing the issue repeatedly. For example, the Q2 letter states: "[E]ven though we increased both production and deliveries, average global delivery wait times increased because our production growth was unable to keep pace with increased demand."

Tesla store. CEO Elon Musk said sales per square foot in the company's retail stores are the highest in the world, doubling Apple's. Image source: Tesla. 

And despite uninformed claims that demand for Tesla's Model S may have peaked in North America and in some markets in Europe, orders are rising in both regions. According to the letter:

Model S orders, and thus demand, continue to grow even in our most established markets. In both North America and Europe, Q2 Model S orders increased sequentially at a much faster rate than for the rest of the automotive industry. Accordingly, we believe these markets remain under-penetrated. We expect demand to continue to increase worldwide as we continue to grow our customer support infrastructure and broaden the appeal of our products, and as consumer awareness improves.

Model X
The Model X is increasingly looking like it is going to be like a game-changer.

From the Q2 letter: "Development efforts remain on track for production of Model X in the spring of 2015. We anticipate having operational Alpha prototypes ready by next week in order to confirm design intent and Beta prototypes to be ready later this year."

Tesla's Model X SUV next to the Model S. Musk said during the company's 2014 annual shareholder meeting that the production version of the Model X looks much better than the one on its website. Image source: Tesla Motors.

The demand story for the car is ridiculously good. Musk put it in perspective during the call:

Let's just put the orders in context. There are no cars available for a test drive. There is no information about the cars in our stores because we're only selling the S. In fact, if somebody comes in who wants to buy the X, we try to convince them to buy the S. So we anti-sell it. And we don't really provide all that much information or details about the car or provide a definitive date on when you can get it. Despite all that, there's huge demand from around the world for the X.

And even though no one has even seen the official production version of the Model X, Musk said in the conference call that customers are right to desire the vehicle: "They don't really have enough information to know they're right, but they are."

The Gigafactory
Perhaps the most overlooked quote in the entire quarterly letter to shareholders may be this one about the Gigafactory, or Tesla's planned factory to produce lithium-ion batteries: "We have also chosen to slightly accelerate our investments in production capacity and the Gigafactory."

While it's impossible to understand exactly what Tesla means by this, any acceleration to this already monstrous project is impressive. The Gigfactory is no small endeavor. It's purposed to deliver production capacity to support battery packs for 500,000 vehicles per year by 2020.

Related to the trajectory of cost savings that could result from the Gigafactory, Musk spoke boldly about it on the conference call: "I'd be disappointed if it took us 10 years to get to $100 a kilowatt-hour pack."

The Model S battery is built into the floor of the vehicle. Image source: Tesla Motors.

This is a huge statement. It would imply that within the next decade electric vehicles would reach cost parity with, and perhaps even improve upon, the cost of an internal combustion engine vehicle. But on the call, Musk was confident: "Seems pretty obvious to me."

The new wild card
The most important quote of all from the second-quarter update?

It was heard on the conference call: "In the past we've shown all of our cards, so people have kind of gotten used to us showing all of our cards. We're not currently showing all our cards."

What is this wild card? No clue. But it's already eating into operating expenses, apparently, so it could be revealed soon. Answering a question about the trajectory of the company's operating expenses, Musk reemphasized this wild card on the conference call: "I mean another thing, our CapEx and R&D numbers are better than they appear because there are things you don't know about."

But these quotes barely touch the surface of all the new and interesting material from Tesla's most recent shareholder letter and earnings call. Anyone interested in the company should take the time to check them out here.


Read/Post Comments (3) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 04, 2014, at 2:14 PM, Cencio wrote:

    Finally someone writing for Motley Fool who "gets it," with respect to Tesla Motors. I read the initial market reaction the same way-- confusion followed by OMG!

    It is particularly nice to see someone but the demand naysayers in their place. Under penetrated market demand is obvious here in Vancouver, BC. In just a few months, Tesla's have gone from invisible to commonplace on the streets. And yet they are still outnumbered hugely by the other premium brands and exotics. That will change too in the months to come, I believe.

  • Report this Comment On August 05, 2014, at 1:01 AM, DrDauger wrote:

    Elon surely has a good reason to hide some cards now, but I do wonder what they are. My guess: a counter move to the duplicity behind Hydrogen cars described well here:

    http://cleantechnica.com/2014/06/04/hydrogen-fuel-cell-vehic...

    I agree with Elon hydrogen cars do not make sense, and their attempt distracts from Tesla, but what can anyone do to stop the wasteful attempt? Seems to me FCEVs will fail on their own because they're inherently expensive (both the infrastructure and the car itself) and already so late to market (catching up makes them even more expensive than not). Therefore Tesla wins ... after a multibillion-dollar battle...

  • Report this Comment On August 05, 2014, at 9:07 AM, MiserblOF wrote:

    Would love to see some company dive into the compact tractor market with electric. The additional weight of the batteries would not be a concern, especially if kept as low as possible. Most people with compact tractors fill them from diesel cans, which is a huge nuisance. In addition, a backup or "booster" battery that sits in the loader or hooks on the three point (depending on which is not needed at the time) could extend the operating time and charge off the machine while the machine is in use. Compact diesel tractors cost a lot more than cars, once you get into the 40 hp range, so they could probably be made for a competeitive price as well. Styling would be much less important, no crash tests, or aerody\namics to worry about, etc.

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