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.
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.
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.
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."
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.
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."
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."
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."
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.