Investors are still digesting all the new tidbits from Tesla Motors' (NASDAQ:TSLA) new third-quarter letter to shareholders and earnings call last week. As always, there was some very interesting commentary. Here are the quotes from the earnings call worth some contemplation.
Stop worrying about demand
Tesla CEO Elon Musk seemed to be a bit frustrated with analysts' persistent questions about demand during the earnings call. Hoping to drive home his point, he emphasized several different times during the call that demand is not at all a concern for the company.
One of the times that Musk elaborated on Tesla's demand situation, after refusing to answer another demand-related question directly, he frustratingly outlined the company's unique supply-limited environment as clearly as he could:
The last question was sort of a demand-related question as well and it really took pains to emphasize demand is not our issue. Production is our issue and being too perfectionist about future products -- those are legitimate things to be concerned about, but not demand. We have more demand than we can really address and there is a lot of things, levers we could pull to increase that demand which we're not pulling. So, it's really not an issue.
The Model 3 is in the Model S
Tesla is already gaining key experience in developing the next-generation motors that will be used in its planned lower-cost Model 3. From Musk:
[W]e have got a big and a small motor -- big and small drive unit -- and for like the performance 85, the dual motor car, the standard sort of sport big motor in the rear and smaller motor drive unit in the front. And that smaller drive unit, in a lot of ways, is a precursor for the Model 3. It represents a significant improvement in cost, in steady state power -- a number of other factors. It's basically -- it's like a second-generation motor essentially, that's a good pathfinder for 3 on the powertrain side.
The Model X is special
When Tesla talks about its Model X, the company's fully electric SUV scheduled for launch in Q3 2015, the executives give it a sort of reverence.
Musk: I think the Model X is going to be something special. I mean, it's sort of an expensive car, but it's really going to be something special.
Tesla CFO Deepak Ahuja: It gives us an opportunity to bring an amazing car to market that isn't there at all.
Musk: It's something that should exist.
The Gigafactory will not be made obsolete over night
Tesla is not worried about a "breakthrough" battery technology that will suddenly render its Gigafactory, a $5 billion factory the company is building to bring economies of scale to lithium-ion batteries, useless. As Musk said:
Whatever we build out for the Gigafactory has to work at least at the lab level this year because we're making monster investments in equipment, and there's a certain amount of time -- a year or two at least -- from working at the lab level to working at small-scale production, and at least a year after that before you can go from small production to mass production. That's why we're not worried about being blindsided by some technology at the Gigafactory. If it doesn't work at the lab right now, there's no point in worrying about it, because you can't scale within the time frame.
Musk went on to say that "everyone and their mother" is approaching the company about technology improvements, yet no one dares to send Tesla a sample cell of their supposedly superior battery tech.
Battery cost reductions will come easy
It's time to stop fretting about whether or not Tesla will be able to cut costs enough to profitably market its lower-cost Model 3. Musk says the 30% cost cuts needed are in the bag:
We felt comfortable with at least a 30% reduction in cost just based on the location and economies of scale. That's without taking any technology improvement into account. And we'll certainly do technology improvement. If we can't get to 30% without technology improvements, someone should shoot us, because that would be in complete defiance of economies of scale and obvious cost savings.