Special Stockholder Meeting

Nov 17, 2016

Hi. All right. Well, welcome to Tesla's special stockholder meeting To consider the acquisition of SolarCity, we're very glad that you could be here today with us. My name is Todd Marin. I'm the General Counsel and Before we get started, I'd also like to introduce some important people who are here today. We have many of our Board of Directors in the front row here. We have our CFO, Jason Wheeler. We have our President of Global Sales and Service, John McNeill I see our Head of HR, Arun Angashore our VP of IR, Jeff Evanson, is here. We're all real glad that you could join us today. There's 2 parts to today's meeting. The first, the formal part of the meeting, which will be pretty brief, We'll be to discuss and vote on the acquisition of SolarCity. We'll then have the Q and A session with He'll be answering the questions that you submitted before the meeting today. So let's get started by calling the special meeting to order. Please refer to the agenda and rules of the meeting that were provided to you today. In the interest of respecting the time of all stockholders present, We ask that you help us run a smooth process by following those rules. The time is now 102, and I'm going to declare that the polls are now open. We've already received over the past few weeks proxies from the vast majority of our shareholders, meaning that most all of the votes were already submitted before the meeting. However, as I mentioned previously, if you wish to submit a ballot or change your vote, you can do so by handing your ballot To Christina Vico, who's right over there, and she can help you with that. She's our Inspector of Elections for the special meeting. Our Board of Directors Has appointed her as a representative of Broadridge Financial Services to serve on that behalf. She has signed an oath to serve as the Spector. Broadridge is certified that on or about October 13, 2016, the proxy materials were mailed or provided All shareholders of record as of September 23, 2016, we have a majority of the outstanding shares entitled to vote Represented at the meeting, so I declare that there is a quorum present and that we may proceed with the business of the meeting. We're conducting the meeting in in accordance with Tesla's bylaws and applicable law. The items on the agenda are as follows: Proposal 1, The proposal to adopt the merger agreement among Tesla, SolarCity and a wholly owned subsidiary of Tesla, as a result of which, SolarCity will become a wholly owned subsidiary of Tesla, and to approve the transactions contemplated by the merger agreement, including the merger and issuance of shares of Tesla common stock to SolarCity stockholders in connection with the merger. Proposal 2 is the proposal to adjourn the special meeting, if necessary or appropriate, solicit additional proxies. Tesla's Board has recommended that our shareholders vote for each of the proposals. Now I'm going to ask if there's anyone in the audience that needs to have some proxies submitted. Now is the time to do it before we close the polls. Can you raise your hand if you have a proxy that you need to submit to Miss Vico? I see one hand over there. We'll come by and grab them. Anyone left? Put your hand high up if you need it. Okay, thank you. For the record, the time is now 105, and I declare that the polls are now closed. I'm pleased to say that based on the proxies that we've previously Our shareholders have overwhelmingly approved each proposal. There will be a final report given by the Inspector of Elections, but based on the proxies we've received so far, Tesla's acquisition of SolarCity received the approval of more than 85% of the of SolarCity received the approval of more than 85% of the unaffiliated votes cast at the meeting. So thank you to all of our shareholders for your support. We can't tell you how much we appreciate it. We will formally announce the voting results on an 8 ks that we'll file with the SEC, and that concludes the official portion of today's meeting, which I now declare to be adjourned. Next up will be the Q and A with Elon. During the Q and A, he may discuss our business outlook and make other forward looking statements. Such statements are predictions based on our current expectations. Actual events or results could differ due to a number of risks and uncertainties, including those disclosed in our most recent Form 10 Q and the S-four that we filed with the Dee. Those forward looking statements represent our views as of today, should not be relied on after, and we disclaim any obligation to update after today. With that, please welcome Elon Musk. So yes, I'd like to thank all the unaffiliated Shareholders that voted in favor of the transaction, by an overwhelming margin. So I think Your faith will be rewarded. It's really going to be, I think, some amazing stuff that comes out. In fact, I was just meeting with the earlier this evening with the SolarCity, engineering team. And I don't want to 100% commit to this yet, but it's looking quite promising that a solar roof will actually Costs less than a normal roof before you even take the value of electricity into account. So the basic proposition would be, would you like a roof that looks better than normal roof, lasts twice as long, costs less And by the way, it generates electricity. It's like, why would you get anything else? Maybe there's a reason. I'm not sure why. So that's looking really promising, and I think there's even room for improvement beyond there. So very excited about where things are going to go with the Solar Roof integrated with the Powerwall and with the, obviously with electric cars. So with that, let's go to questions. The questions, I think, should appear on the screen. Well, maybe not. Maybe we'll have to read them or something. Should we? Okay. Thanks. Yes? Okay. So apparently, there's a new political landscape. And not sure what people are referring to, but yes, something. So I think one of the biggest misunderstandings about Tesla, and somewhat counterintuitive, is the degree to which Tesla is reliant upon incentives or subsidies. Ironically, if all incentives and subsidies were removed for Tesla, Tesla's competitive position would increase, not decrease. This is a like a really fundamental misunderstanding. We do believe there should be incentives and government incentives for electric vehicles, but we believe that They should be there for the good of the industry and to accelerate the advent of sustainable transport, not because Tesla needs them. Let me explain what I mean by this. The incentives either don't scale or they're disadvantageous. If you take the 0 emission vehicle credit, where you get $5,000 it's a nominal value of $5,000 per credit. And I see you might get 2 of those per vehicle or 3. So 2 would be worth $10,000 face value, but Tesla can only sell them to other car companies for about $0.50 on the dollar. Because the ZEV mandate is very weak, We only get $0.50 on the dollar disadvantage of EV incentives, Not the other way around. There's also the $7,500 federal tax credit, but that Stops at a cumulative 250,000 vehicles. So it's essentially irrelevant for any high volume program. As soon as we start making 500,000 or 1,000,000 vehicles per year, that 250,000 cumulative will long ago have run out. So no scale it's impossible to scale electric vehicles and have the incentive be relevant. And then ironically, in California, They put an income cap on the $2,500 incentive. So many of our customers don't even qualify for the $2,500 incentive because The income cap, which I think is really quite disruptive since we're the and it doesn't make any sense to me because we're the only car company left in California. Tesla is the biggest manufacturer in California. So I don't understand why the Litch said she would do such a thing. That's ultimately to the detriment of its own state. Anyway, these things are puzzling. And then if you look internationally, in China, which is the world's biggest car market, we currently pay 25% Import duty, and we have no access to incentives because our car is not locally made. The net effect is that our car costs 40% more And a locally made vehicle. So if we made the vehicle locally, it would be yes, it would be 40% difference. So not only do you not have access to incentives, we have a huge penalty. Looking at other parts of the world, Germany put a €60,000 cap On the incentives, conveniently, just below the Tesla cost of a Tesla in Europe Or just the public, yes, just look. So essentially, it's very difficult for us to Good access to any incentives in Germany. Denmark did the same thing. France is considering doing the same thing. So the great irony is that if all the incentives went to 0, Tesla's competitive position would immediately improve by quite significantly. We don't think that's a good thing for the world, but it would be a good thing for Tesla. So I think that's a pretty important thing to consider. So let's say the new President did erase all incentives that Tesla's competitive position would just be better. So that's actually what would happen. Who owns the technology for the new solar roof? Technology is well, it's owned by us. Yes, this was almost entirely Developed by Tesla and SolarCity, mostly by SolarCity, some by Tesla. And then we may or may not use a Film from 3 ms, but the use of the film in particular application that we're talking about was something that we came up with. But, call it, I don't know, 90% -plus of the technologies owned by a combined company. Yes. So partially answered this question. So we expect to start doing the solar roofs in volume in summer next year. So we'll and we'll roll out there's 4 main types, if you saw the rollout, and we'll roll them out 1 at a time. So we'll start off probably in like 3 month intervals, I'll start with the one that appears to be most popular and then roll each new variant out roughly on 3 month cycles From summer next year. And the cost will obviously vary according to the size of the house and the difficulties of the installation. But the important thing is that the apples to apples comparison compared to a regular roof, we're confident we'll be at least at, and we believe, slightly below the cost of a regular roof. And then electricity is just a bonus. Well, I have to touch on this question more than a few times. We're trying to make an integrated product. So you have an integrated solar roof with a Powerwall and an electric car. And if you just go into a Tesla store, Just say yes, it just happens. It all works. It's seamless, and you love it. Thoughts on new competitors? Well, it's certainly encouraging to see other carmakers do electric cars. I am a little concerned about the pace and volume of what they're doing since they seem to be mostly aiming to just target Whatever the incentive threshold is and then not really do serious volume beyond that. So as I said a moment ago, the incentives don't scale with volume. So the major manufacturers are not From what we see, maybe with the exception of what Volkswagen says they're going to do, none of the competitors are planning to do Serious volume in electric vehicles yet, That they're just sized to stay within the volume constraints of the incentives. So the I think So like the Chevrolet Bolt with a B is, I think, aiming for like 200000 to 300000 cars a year. But really, a call like that should be 300,000 to 500,000 per year for it to really make a difference. I'm not sure I understand this question. Model 3, I think Model 3, from the beginning, we said free charging is not included in the Model 3 or not Free unlimited charging is not included. So free long distance is, but not free local. It's just It becomes really unwieldy for people to use the gas station approach Electric cars should really be charged where you charge your phone, but then you just need to solve the long distance problem, which is what the supercharger stations will do. Already answered. All right. And any I can maybe take a few quick questions from the audience. Sure. Sure. The question is, will each tile have a solar cell behind it Or will some not? And the answer is some will not, but it's important that they aesthetically look the same so that you do not see a patchy roof. So it has to be aesthetically consistent, but it will not make sense to put solar cells on every portion of the roof because some portions are heavily As you're pointing out, yes. It just needs to be aesthetically consistent. Today is not the time for that announcement. But I mean, it's probably, yes, I don't know, Beginning of spring or something like that, yes, 3 or 4 months from now. I'm sorry, I'm actually going to take like maybe Yes. So the question was, what about the incentives for solar? Because there is currently a 30 percent investment tax credit. Although the efficiency with which that tax credit is applied Really diminishes its true value to I think maybe a 15% to 20% true value because of the complexity of how it's set up. So and it is important to note that obviously oil and gas and Many other things, farming subsidies are gigantic. I was like When somebody is complaining about subsidies, why are they complaining about what Tesla receives if we're like number 150 on the list? You have to really question their motivations. Like if they're really about subsidies, what about the top 10? But it's not really about subsidies. That's not really what they're Attacking. So like stripper oil wells something like a 25% tax credit. I don't know why we're giving a 25% tax credit to Strybrough Oil Wells. It's crazy, No time limit, by the way. And then there's the whole scam where oil companies can Do 0 cost leases in foreign countries and just pay taxes and then not pay taxes in the U. S. This is like one of the biggest scams ever. No lease is truly zero value. But if you go 0 to very low value on lease, Pretend that you're getting taxed instead, that you don't pay taxes in the U. S. It's a really giant subsidy. But Going back to what I was saying a moment ago, assuming it pans out that we're able to do a solar roof For less than a normal roof, before you even take into account the cost of the value of the electricity, that assuming that pans out, Well, subsidies are generally matter. Yes. Yes, that includes the labor cost of the roof, yes, absolutely. It turns out the Roofing supply chain is incredibly inefficient, and it's been a long time since people really looked at that. When was the last time anyone here had a conversation about a roof? I mean, it's like rare. So it just hasn't roofing hasn't gotten a lot has just not gotten a lot of love. Yes. So looking at just the supply chain efficiency and going to high strength glass instead of a concrete or ceramic tile, The glass weighs maybe onethree to a quarter, sometimes even onethree as much as a regular ceramic or concrete tile. And most of the cost of the tiles is actually transport. Logistics costs are huge, And they tend to be quite fragile. So the in process breakage of the ceramic and concrete tiles is very high. So you have a lot of breakage, very high transport costs. The density is not very good. They should be quite thick. And the whole supply chain from where they're made To where they're finally installed is really inefficient. So just by kind of cleaning all that up, there are huge gains, it turns out. Yes. The cell, it uses a very high efficiency cell, We'll be using a very high efficiency cell. That's in the cell efficiency be in the Low to mid-20s, kind of 22% to 24% efficient at the cell level. And then it's like laminated to behind decorative glass, decorative high strength glass. And then you got to be clever about how you connect all those Sales together and what the backplane looks like. But honestly, in looking at this, it's like I don't know why anyone's not doing it. It's Not that crazy hard. So beats me. It's okay at the back there, sure. I'm most concerned with getting rid of the fossil fuel industry. PG and E SOLAR CHOYCE FOR 0 point 0 $3 more per your kilowatt hour We'll give you solar energy from solar farms in Northern California. It keeps our economy in California Strong. Sure. And you can do it today. All right. Sounds great. So I know that maybe you want to put roofs on. Our roof wouldn't take Solar panels. Well, actually Or even the roof, it's got too many gables and it has trees. So everybody can switch over. It's just if we get rid of the fossil fuel industry, then electric cars will and All right. That's not the subject matter. It is. Yes. It turns out like actually the actual sun energy you get when it's really low and the horizon is tiny. So excluding that low angle energy has very little effect. Yes. And then In the way that the sort of at the microstructure, if the way it's arranged, you can actually get internal reflections. So as the photon comes in, instead of bouncing right out, it can actually Bounce around inside and kick down an electron, which is photovoltaics. So it turns out that it actually The benefit offsets the efficiency head to some degree. It looks like it's probably going to be close to even, plusminus a few percent. So all right. Thank you, everyone. Thank you.