#flakenews: Will Tesla Ever Have a Drama-Free Analyst Call?

In the publicity run-up and zaniness leading up to Super Bowl 53 (Super Bowl “LIII” for traditionalists), the quarterly Tesla earnings call cum Elon Musk-analyst sparring match might seem restrained. Almost. Musk, like Tom Brady, rises to the occasion and makes the call newsworthy. At least he gives analysts something to write about (read: dispute.) In his earnings reported and analyst Q&A, Musk announced earnings that were below expectations, the departure of another grown-up from the Tesla executive team, set guidance of 360,000-400,000 sales in 2019, and said Tesla should turn a profit for the full 2019 calendar year. Still, in the wake of Tesla’s report, and discussion with analysts, the stock fell 4 percent.

Some analysts were happy Tesla turned any profit last quarter. Some were happy to hear Musk talk cost reductions on the Model 3 since many current Tesla buyers don’t have the money to burn that some early adopters in the Model S had in the early years. Other analysts found concerns as they looked over what Musk did, and didn’t say.

Anton Wahlman, an analyst who also writes on the SeekingAlpha site, found some of Musk’s remarks incomplete or misleading. He said:

On Tesla’s conference call, many questions were either dodged or answered in the most questionable ways. I outline the top examples:

  • For starters, Tesla claimed that its current cars perform “full self driving” on highways right now. That’s clearly not true.
  • On China, Tesla did not talk about its (lack of?) production license, or the terms under which it can import batteries from Japan and the U.S.
  • Regarding Europe, Tesla did not explain why it thinks the widely circulated order sheet indicating barely 16,000 Model 3 orders is incorrect.
  • Contrary to the past (remember April-May 2016?) Tesla now refuses to give out the Model 3 deposit backlog.

In the call, Musk was asked, “When will customers start to see full self-driving features?” Musk replied, “Sure. We already have full self-driving capability on the highway. So from highway on-ramp to highway exit, including passing cars and going from one highway interchange to another, full self-driving capability is there.”

#flakenews: Will Tesla Ever Have a Drama-Free Analyst Call? 2

Musk is taking liberties with what “full self-driving” means, either a little or a lot. It depends on how harsh you want to be on somebody who’s revolutionized the auto industry twice — once with EVs, and once with the direct selling model that gives buyers an alternative to the ossified dealer network. A Tesla you drive today is at Level 2 — a high-functioning Level 2, but still Level 2, the same as Nissan ProPilot, a feature available in cars costing in the twenties. Cadillac Super Cruise would be another high-level Level 2 car. The Cadillac CT6 lets you take your hands off the wheel, but a driver-facing camera requires you to keep your eyes on the road at all times so, effectively the same thing.

The Society of Automotive Engineers taxonomy for autonomy is this:

Level 0: Zero automation beyond cruise control or automatic headlamps.

Level 1, Driver Assistance: One or more driver assists, say lane departure warning, but not working together.

Level 2, Partial Automation: Combined automated functions (typically acceleration/braking and lane centering assist).

Level 3, Conditional Automation: Self-driving, some roads, some situations. Driver must be ready to take over, with notice, doesn’t need to constantly monitor surroundings.

Level 4, High Automation: Car is capable of all driving functions under some conditions (most commonly, limited access highways). The driver is given advance notice to take over.

Level 5, Full Automation: Automation on all roads, all conditions. Steering gear wouldn’t be necessary.

While Tesla can do extra things such as change lanes on the highway, the driver can’t just put the seat back, zone out, and wait for the car to alert him or her to a problem, which is Level 3. Full autonomy is Level 5. No one is there yet. The highway on-ramp to off-ramp remark describes Level 4, but to be fully Level 4, a car would have to deal with traffic jams (doable), wrecks on the highway, debris on the road, lane closures and detours, and moving over a lane when an emergency vehicle is on the side of the road. It’s not clear any car that is available now can do that. At other times, Musk has talked about his cars having the hardware capability now and just needing a software download.

#flakenews: Will Tesla Ever Have a Drama-Free Analyst Call? 3

Musk was also asked when Tesla would switch the battery cells in the Model S and Model X from 18650 to 2170 battery cells. The newer ones are thicker and longer (21mm x 70mm) with higher energy density compared with the current cells. Musk replied, “We have no plans to switch S and X to 2170 and can’t comment on huge product developments.”

Analysts such as Wahlman (who is short Tesla stock, meaning he’s betting Tesla stock will fall) noted, “Um, Tesla does little else but to comment on huge product developments.” He added:

Elsewhere in this very conference call, Tesla talked at length about other future products such as Model Y, the semi truck, and the pickup truck. In fact, the very next question was about just those, and Tesla management gave a long and detailed answer to the future of Model Y, pickup truck, and semi truck.

Asked for financial guidance about its battery factory in China, Musk answered the question but didn’t touch on a more pressing China question: A month ago, the CEO of Byton, an EV startup in China, charged Tesla didn’t have a production license for China. There were also questions about how Tesla would source batteries for the 3,000 Teslas to be built in China this year. Musk said the batteries would be a combination of cells from the Nevada Gigafactory, cells from Japan, and cells from China. That raised some eyebrows because Tesla has talked about the high quality of Gigafactory cells versus generic LiIon cells.

Finally, Tesla didn’t give analysts much help to determine how many Model 3 units remain on the backorders list and Tesla’s likely sales in 2019. In the wake of the Model 3 announcement, Musk tweeted “Over 325k cars or ~$ 14B in preorders in first week.” Asked for guidance on the backlog, soon-to-be-ex-DFO Deepak Ahuga this week said, “I don’t think it’s appropriate to share the reservations number.”

How many cars will Tesla deliver? Between an investor letter signed just before the analyst called, and the analyst call, Tesla and Musk said, “In total, we are expecting to deliver 360,000 to 400,000 vehicles in 2019…” of all Tesla models, as well as, “Maybe in the order of 350,000 to 500,000 Model 3s, something like that this year.”

If the 360K-400K deliveries of all models is the Tesla prediction for 2019, and Tesla sales had been running at 90,000 in the year’s last quarter, then Tesla sales would be anywhere between flat and up about 10 percent in 2019.

Other analyst reactions to Tesla’s earnings call:

  • ISI Evercore said Tesla appears to have abandoned claims it would build 10,000 cars a week at its Fremont, CA, factory; 7,000 is more like it. It might hit 10,000 a week total once the Shangai Tesla factory comes online and builds 3,000 units a week, by mid-2020.
  • The headline of The Wall Street Journal’s Heard on the Street column by Charley Grant declared that Tesla now has “Champagne Dreams on a Six-Pack Budget.” On the upside, Tesla put together back-to-back profitable quarters for the first time. But, Grant wrote, “Tesla trades at roughly 50 times this year’s earnings estimate, a much higher valuation than any other automaker. That is a fancy price to pay for a company operating on a shoestring.”

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