Good morning, everyone. Good morning. Welcome to Tesla's 2014 annual shareholder meeting. We're really glad that you could be here with us today. My name is Todd Maron. I'm Tesla's Deputy General Counsel. Momentarily, we'll be welcoming Elon Musk, our Co-founder, CEO, and Chairman to the stage. I would now like to introduce our board who's sitting up in the front. We also have our CFO, Deepak Ahuja, and our Vice President of Investor Relations, Jeff Evanson. We also have representatives here from our independent auditor, PricewaterhouseCoopers. There are two parts to today's meeting. First, we'll have the formal part of the meeting. It'll cover the five items that the company has asked the stockholders to vote on today. After the voting, Elon will provide a brief overview of the company, and we'll have a question-and-answer session.
I'll begin by calling Tesla's annual stockholder meeting officially to order. I ask that you refer to the agenda and rules of the meeting that you received earlier today. I declare that the polls are now open. As I mentioned earlier, if you wish to submit a ballot to vote or if you wish to change your vote, please pick one up at the table and hand it to our Inspector of Elections, Lisa Brenton, who's in the back. Lisa has taken and signed an oath as Inspector of Election, and that will be filed with the minutes of today's meeting. Computershare has certified that starting on April 24, 2014, the proxy materials or a notice of internet availability of the proxy materials were mailed or provided to all stockholders of record as of April 10, 2014.
Copies of these proxy materials and related certificates will be attached to the minutes of today's meeting as well. We have our majority of the outstanding shares represented at the meeting today. I declare that there is a quorum present and that we may proceed with the meeting. We're conducting the meeting in accordance with Tesla's bylaws. The five items on the agenda today are as follows. First, to elect two Class 1 directors, Elon Musk and Steve Jurvetson, to serve for a term of three years or until their respective successors are duly elected and qualified. Second, to hold a non-binding vote to approve on an advisory basis our 2013 executive compensation program. Third, to approve an amendment and restatement of Tesla's 2010 Equity Incentive Plan to specify certain performance goals for and limits on awards that may be granted under the plan.
Fourth, to ratify the appointment of PricewaterhouseCoopers as Tesla's independent auditors for the fiscal year ending December 31, 2013. Tesla's board has recommended that our stockholders vote for each of the director nominees and for each of these four items. Finally, we've received a stockholder proposal today regarding supermajority voting provisions in our governing documents. Our board has recommended that our stockholders vote against the stockholder proposal. The stockholder proposal is going to be presented today by James McRitchie, and I understand that Mr. McRitchie is here, and he's ready to present his proposal. Mr. McRitchie, if you can step to the microphone, we'll give you a couple minutes here. Thank you.
Yeah, thank you very much. First, I wanna say that I'm excited to be a shareowner of Tesla. Our company's shown that combating climate change can be more exciting than contributing to it. That's the best car ever tested by Consumer Reports. With the recently announced EPA power plant reductions, our cars will be even cleaner. Tesla's a great company. Even great companies can be improved. I'd like our corporate governance standards to someday match our engineering standards. That's why I propose to eliminate Tesla's supermajority voting requirements. I think that doing so will help us to attract more institutional shareowners. I'm not alone in my opposition to supermajority requirements. Many see them as an impediment to good governance.
For example, the Council of Institutional Investors, whose members have over $3 trillion in invested assets, includes the following in their policies on corporate governance concerning voting requirements. A majority vote of common shares outstanding should be sufficient to amend company bylaws or to take other action that requires or receives a shareowner vote. Supermajority votes should not be required. Thank you, and I ask for your aye vote.
Thank you, Mr. McRitchie. I would like to remind our stockholders that Tesla's board has prepared a statement in opposition to Mr. McRitchie's statement, and that's found in our proxy statement. They've again recommended that you vote against that proposal. Before we finish the meeting, the formal part of the meeting, I would just ask, are there any proxies remaining in the audience that have not been submitted? If you could please find Lisa. Lisa, if you could come gather the remaining proxies, we'll just wait for them to be handed in. Thank you. We will attempt to calculate the at least the unofficial tally and announce that at the end of the meeting as well. We'll just wait for the rest of the votes to be handed in. Just one more over here. Over here. Anyone else? One more over here.
Okay, I don't see any more hands up. I declare that the polls are now closed. As I said, we will announce the unofficial results later in the meeting, and we will formally announce the official results of the voting, with the filing, on a 8-K Form with the SEC within four business days of today's meeting. Now that the formal part of today's meeting is adjourned, I welcome you to stay for Elon's presentation. We'll also leave time at the end for your questions. When you ask your questions, I would ask that you limit them to one question, you try to keep them focused on the business of the company, and that you keep them brief so that everyone can have a turn.
If you have something to say on the agenda, you may, not something away from the agenda. Is it on the agenda?
Okay, go ahead.
It's the microphone? It's on. I wanted to comment on the stock option kind of plan. First, I could not understand what the changes were, that is, from the old plan to the new one. Second, I think that it's important that it's recognized when we vote in favor of this that 100% of the stock in this company will be diluted by 100% in 25 years because it authorizes 4% per year of stock to be issued under that plan. Warren Buffett said with Coca-Cola, it's outrageous. I object to the executive compensation plan. Of course, having already taken all the proxies, comments with respect to resolution are irrelevant. That doesn't seem right in the operation of the meeting as well.
Thank you. Obviously, we have prepared a proxy statement with the board's recommendation on the equity incentive plan that addresses many of those issues. If anyone wants to refer to the proxy, they certainly may. Going back to Elon's presentation just briefly, during the course of his remarks, we 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 materially due to a number of risks and uncertainties, including those disclosed in our most recent Form 10-Q filed with the SEC. Such forward-looking statements represent our views as of today, should not be relied on thereafter, we may disclaim any obligation to update them after today. With that, please welcome Elon Musk.
All right, welcome everyone. As always, thanks for being an investor. We'll do just a few slides and then go into questions. Let's see. I have this complicated device which has two buttons. Blah, blah. Something, something. It's been a great year. Sorry. Let's speak closer to the mic. It's been a great year. We've produced and sold a lot of cars. We're now at 344 million mi driven. You know, sort of pleased to say, sort of, you know, touch wood, that no one has received a serious permanent injury in a Tesla ever in all those miles driven.
I mean, that is certainly one of our proudest accomplishments. And there's been some pretty crazy crashes, I should say as well. We've had a guy. In fact, the thing is that I wasn't, you know, sure that really it would work out so well. I mean, there was this guy that drove through two concrete walls at 110 mi/ hour. I always used to say, "Well, you know, I think the car is really safe unless you drive it off a cliff," and then somebody drove it off a cliff. Fine. That's looking good. We've got 126 locations around the world, from China to Norway. Service centers, lots of Superchargers.
We're actually trying to accelerate the rollout of Superchargers even more. In fact, by the end of this year, we'll probably have doubled that number of Superchargers. There's a huge number of Supercharger locations in process. For Tesla, it, you know, we're we have to come up with the sort of the whole solution to have a really great driving experience all the way from when you think about buying the car to receiving it, driving it, servicing, the whole works. You know, of course, charging it.
I think it's important when you create a product to think of like, well, at a high level, what is someone trying to achieve? You know, obviously with cars, they need to go from one place to another. We want that whole experience to be as positive as possible. We really want people to love their car. In fact, my goal is that people like the Model S more than their house. I think that is actually the case in some situations. You know, there just aren't that many products that really give people joy, and we'd like to be one of those products.
I'm pretty excited about some of the software that's coming out later this year that'll be provided to all Model S owners, that's really gonna personalize the car a lot more. I mean, there's ranging from the highly functional to the, you know, not, not that functional. Like, there's the, you'll, you'll be able to name your car. And, and it'll show up in the mobile app as that name. I've, I found her two, and it's Old Faithful. There's gonna be a lot of sort of customization where the car kinda learns your behavior, and it just automatically adjusts to what you want.
Things like traffic-based directions and, you know, calendar integration and anticipating where you're going, alerting you if there's traffic along the way, and an alternate route may be better, and that kinda thing. Expect to have that rolling out fairly soon. I mentioned the navigation enhancements. In particular traffic-optimized directions, I think is really important. The what we're doing is similar to maybe what you've experienced with Waze, where you have the cars operating collaboratively as a network, a crowdsourced intelligence as to the traffic information. As the number of Model S's in a neighborhood increases, the quality of the traffic will actually improve quite considerably.
We're also bringing in multiple other data sources, so it's like something like 20 million other data sources, but with priority given to the Model S as a data source. You know, places like the Bay Area Peninsula, it should be pretty great. Or West L.A., and, you know. As Teslas increase, that's gonna get better and better. Yeah. We've also introduced a number of hardware improvements over the past year. A lot of subtle things, but that are important. A number of areas like power-folding mirrors, parking sensors, of course the sort of underbody shields.
Which, I mean, aren't really necessary, but, you know, it's sort of, you know, it's really helpful to know that you can drive over a concrete block and be okay. Sales have been pretty good. Still obviously room for improvement, a good start. You know, we're really been production limited, as I think most people know. With the biggest constraint being supply of the battery cells. That constraint is sort of gradually alleviated over the course of this year and the next. We expect to steadily ramp up production. In some cases, there'll be, you know, important step changes, significant step changes in the number of cars that we can produce.
And we'll be going into more markets as well. This is kind of where we started out. Obviously not in a good place with respect to gross margin, ultimately ending up in only with a pretty good gross margin per car sold. We do expect steady improvement in the gross margin despite the, what I think is likely to occur, and we're seeing to some degree occur, which is that the number of options or the value of the options that people are picking for the car is slightly reducing because of, you know, basically affordability.
We expect to see a slight decrease from people spending on the order of $100,000 a car to maybe $95,000 a car, which is still quite a lot. We've expanded to some very significant markets recently. I was Sorry, I'll talk louder. I was over in China, and we have very good reception there. There's a lot of interest in the car. We're making dramatic or significant investments in service centers and Superchargers in China in order to meet the demand. In fact, our biggest constraint really is how fast can we open the service centers and install Superchargers and make sure any local charging issues are solved.
You know, with each market, there are idiosyncratic issues around charging that relate to, you know, building codes, to the way that the electricity grid works. These can be quite difficult to solve. We had some challenges, for example, in Norway, which is our highest sales per capita in the world, but they've got a unique electricity grid. It took us several months to get to a good solution there. In markets that we're opening up right now, we're actually intentionally slowing down the introduction until we're certain that the service that there'll be good servicing and good charging capability, 'cause we don't wanna have people to have a negative experience.
On terms of right-hand drive markets, I'm headed to London this weekend to hand over the first right-hand drive cars, and then we'll be going into Japan, Australia, Hong Kong, and a number of other markets later this year. The Gigafactory, I think you people know what our situation is there. We are getting quite advanced in the planning for the Gigafactory. Overall, I'm quite optimistic about the potential cost reduction and the cost per unit of energy. You know, I think we're targeting a minimum of 30%, a 30% reduction, and I think that's probably conservative at this point. I think we can probably do better than that with the Gigafactory.
I feel also really good about our partnership with Panasonic. We have daily meetings with Panasonic, every week there's sort of a more comprehensive meeting. Panasonic at first wasn't sure about whether these cost reductions could be achieved, but I think they are now convinced they can. Of course, there's, you know, our Model X. I should say that the production version of the Model X actually looks different from this. It looks better. One of the things that drives me crazy about cars is that, you know, very often you'll see kind of a show car or a demo car, the production version is some much worse version of that.
At Tesla, whenever we show off a car as a demonstration item, the production car will always be better than what people saw. Now sometimes that takes a lot of effort, and it's very difficult. That certainly is the case with the Model X. We have two choices, which is either produce an amazing car that I think is gonna blow people away, or produce a pretty good car. I, you know, we wanna have amazing cars that just blow people away. In the case of the Model X, that's just taken a bit longer than we would have liked. In particular, getting the Falcon Wing door right is extremely difficult.
Things that you maybe wouldn't expect are also very difficult, like the second row seats are quite a challenge because what we're aiming for with the Model X is that when you open the Falcon Wing door, you have the second row seats are essentially framed. We want that to feel like a work of art. Like, you, if you open up the door, it should just be this amazing experience. I mean, it's this may sound a bit silly, but it should just be like, "Ah." The seat, I mean, it's just a seat, but we want the seat to feel like a work of art, like something you could have in a museum.
Anyway, that's what we're going for with the Model X, and it's bloody hard. There. Of course, it'll have dual motor all-wheel drive. We expect to start to reach volume production in the second quarter next year. You know, the grand strategy of Tesla has always been a three-step process, where step one was a low volume, high priced car with the Roadster. We've got mid volume, mid to high priced car with the Model S. Generation 3 being the high volume, lower cost car. With Gen 3, with our third car, you know, we're expecting that to be about a $35,000 car with a range in excess of 200 mi.
I should say that $35,000 may not sound all that affordable, but when you consider the savings from use of electricity versus gasoline, in the U.S. that translates effectively to like a gasoline car of about maybe $28,000, or in Europe, a gasoline car of about $22,000-$24,000. Actually, the affordability of it should be quite high. I'm very optimistic about that. We're gonna try to make that third-generation car happen as soon as we possibly can. Obviously, the Gigafactory is a precursor to the creation of that car, or the volume production of that car.
We're gonna make sure that the Gigafactory and the tooling and development of that Gen 3 car move in sync to market release in hopefully sort of the late 2016 timeframe. We've completed our coast to coast connection with the Superchargers. You can travel to, you know, from L.A. to New York via an admittedly circuitous route. I, actually, I don't think we did a good job of explaining to the media like, well, why is this weird route that way? It's because it was originally the route that I was gonna take my family on a road trip.
It ended up taking us a bit longer to complete the route because of heavy icing conditions in the winter. By the time it was completed, the kids were in school, and it would've been difficult to take them off for a week. We just had a Tesla team do a cross-country trip. A bunch of customers did it. Actually, I think a customer did it before we did it. We set a Guinness World Records for the fastest trip from L.A. to New York in an electric car. Of course, by the end of this year, we'll have rolled out a bunch of more routes.
You'll be able to go in a much more direct manner to New York, or from, say, L.A. to Florida. Of course, you can go all up and down the east and west coasts. Anyway, you'll see that map sort of mostly filled in by the end of this year, and then something similar for Europe. We'll be making good progress, I think, in China and other parts of the world on the Supercharger front. All right, questions. If those who have questions could line up at the microphones, I'll just go from one to the other.
No, it's okay. Jeff, do you wanna start? It's not on.
Okay. Okay. Go ahead.
Hi. My name is Benjamin. Since the deal with Toyota had actually fallen through and, you know, they no longer wanted batteries and actually wanted to switch over to hydrogen fuel cells, I wanted to get your opinion on now that gas is gonna be going off, and you're gonna be competing with infrastructure for hydrogen fuel cells and electric charging stations, what is your outlook on that, like the competition between the re-emerging of hydrogen fuel cells in the talks between the car companies and such?
Yeah. First of all, I should say, talks with Toyota didn't really fall through. It's just, you know, we're sort of coming to the end of the electric RAV4 program. Toyota was interested in doing sort of a high-volume deal for battery packs and powertrains, but we're just not in a position to be able to supply them. Until we alleviate the cell supply constraint, it's not really possible for us to do a high-volume deal. What we agreed with Toyota to do is to just sort of put things on hold for now and circle back, maybe in a year or two, once we alleviate the cell supply constraint.
Because otherwise we're simply just moving, you know, one car from, say, Tesla to Toyota, and it's just it's not really accomplishing anything. that's why we're so gung-ho on the Gigafactory, is we've gotta get that done in order to ensure that there's enough lithium-ion supply in the world. as people probably know, I'm not the biggest fan of fuel cells. I usually call them fool cells. I mean, I think, like, a good rule of thumb for any storage technology would be to sort of say, well, let's consider some very high-value situations where electric energy storage is extremely important and gives a product a great advantage. Well, let's think of, like, cell phones. A cell phone that lasts longer is a key strategic advantage.
Gee, nobody's using fuel cells there. Well, okay, what about something really expensive? How about a $200 million satellite? Oh, wow, nobody's using fuel cells there either. Huh. Okay. Case closed.
Thank you.
Okay.
Hello. My remarks are for you, Mr. Musk, also for Dr. Jerome Guillen. Just to remind you that in the developed countries, we have a lot of women who would like to buy Teslas, but they need to be a little bit more women-favored. Those of us who have a sufficient buying power are generally not the younger, but the sort of older generation, and we're not as tall as the younger generation. We have a little bit of difficulty getting to the pedals and also being higher on the seats.
Okay.
My remarks to you, Mr. Musk and Dr. Guillen, who is like the godfather of the Model S, is to make it a little bit more friendly to the women. After all, we are a majority.
Well.
One more word.
Finally, I would like to say that, whoever has a car, they should say "Yum" when they approach the car, and the Teslas are definitely "Yum, yum, yum". Thank you.
Well, thank you. It's a good point. Thank you. I should say we are with the Model X, we're certainly paying more attention to the needs of women in the Model X. I think you're right. We've probably got a little too eye-centric on the S. We're hoping to correct that with the X.
Hello, Mr. Musk. My name is Russell Kinsella, and I'm a satisfied shareholder. My question today is actually about the nontrivial matter of the merchandise Tesla sells in its stores, which also function more or less as a uniform for the Tesla product specialists.
Right.
I just wanted to know if there was any consideration to improve or update these as a way to bring them in line with the Tesla brand. Thank you.
Yeah. I think a good point indeed that we are planning to do that. Yeah.
Thank you.
Thank you. You know, you're right. You're right.
So this is Mitchell from L.A. I have a question about the Model X, and as you ramp up, and obviously it's, there's battery issues, I mean, supply issues, and I'm sure there's more demand than supply. Are you gonna be able to ramp up or are you planning to ramp up even from the initial target that you had for the 2015 year and the years after? Will it come with the option of upgradable seats?
We're gonna try to ensure that vehicle production matches the availability of battery cells. Obviously we have some external dependencies on that front. We're gonna try to ramp up as fast as we possibly can. I think, you know, at some point we'll probably hit some, you know, customer demand limit, we're gonna ramp up as rapidly as we can ramp up production and see what that limit ends up being. It's difficult for us to say with certainty what it is, we're gonna try our best to increase our production, and then see what the demand limit is. On the seats front, I have to admit that historically our seats have not been the best.
We are planning on offering an upgraded seat later this year that will be both sportier and more comfortable, and it will be offered as a retrofit as well. If you wanna upgrade your prior car, you can do that. In the meantime, we actually have made a number of subtle improvements to the seat comfort in terms of improving the foam, sort of the type of foam that's on the seat. We kind of oversprung the seat so that it's a little too tight in terms of the springs under the seat. It causes the seat to crown slightly. We fixed that.
The lumbar support is slightly too forward, so we've also fixed that. All of those changes are going into the seats. Most of them are already done. The lumbar support I think is about a month away. They make quite a substantial difference to the comfort of even the base seat. Yeah, our seats have been like a thing.
All right.
Hello, Mr. Musk. Just a quick question. With regards to Gen 3 or maybe not, from what I understand, Tesla has abandoned the trademark for Model E.
Oh, I got a funny story on that front.
Yeah. apart from an apparent desire to break the world's greatest combo.
Yes.
What motivated this decision? I just kinda wanna get a sense for the thinking there.
Yeah. Let me tell you our sort of very, you know, deep thought process on branding here. We have the S and the X, and then, you know, a friend asked me at a party, "Hey, what are you gonna call a third generation car?" I was like, "Well, we've got the S and the X. We might as well make it the E, you know?" And then it kinda stuck, even though we were just kidding. And then just to sort of add to it, we also just for laughs, trademarked the Model Y. I guess it's things were pretty dry in the trademark world. Nobody picked up on that.
Anyway, then, Ford gave us a call and said they were gonna sue us for using Model E. We're like, "Okay, like Ford's killing S.E.X." I mean, that's terrible.
That's gonna end up on Twitter.
Anyway, like, okay, fine, we won't use the Model E. Now we were thinking like, well, you know, maybe there's something else we can use. We're trying a few other ones and the trademarks are in process. The applications are in process. I can't say what they are. I think we've got something that might be that might work out pretty well.
Hi, Roy Philipose, philosopher and entrepreneur from Philadelphia, Tesla shareholder. Two years ago, I was here asking you about Model S sales, and you had mentioned to me, 8,000 was a break-even unit. It seems like now much more better things have occurred, which is good for all Tesla shareholders. My question today is, you had mentioned that you're planning to step down from Tesla as a CEO at one point. Can you talk more about that? As well as who would you want to be the CEO of the company, after you do step down from that position? Thank you.
Well, you know, nobody's CEO of a, of a company forever. I mean, eventually, you know, they carry you out. You know, in my case, I mean, it is, it is, it is quite difficult, I have to say, being the CEO of two companies. It was never my intention to be CEO. I tried to actually not be CEO quite hard, and eventually it was sort of, it was either that or the company wasn't gonna make it. Or at least I have to give it a try. Yeah, what I've committed to is to be CEO of the company through volume production of the third generation car. That's, you know, somewhere in the, I don't know, four or five-year timeframe.
I'll have to see, you know, how things are going at that point and whether it's, you know, it's, you know, if, if it's sort of manageable to do that on a personal level, you know, without getting burnt out essentially, then I'll keep doing it. Otherwise, I'll probably have to find someone else. We've got a lot of time to sort that out.
You're talking maybe a few years then, pretty much when the volume production car comes?
I think I certainly be CEO for like, say, four or five years, and then it's sort of TBD after that. That's the commitment I made to people at Tesla and also to investors is that I'm gonna make sure that we execute through the high volume, affordable car at a minimum, and then we will evaluate at that point.
Okay. Just a quick follow-up. I've been asking to speak to you now for two y ears, to talk to you, to tell you that I'm also a super genius like yourself.
Okay.
I'm not sorry.
I'm sure I'm one, but all right.
No, I'm sorry. I'm just saying serious. This is all to all benefit of Tesla shareholders in the world. I am a capitalist like yourself. I am also a level 2 stage. I've been waiting for 10 years now for someone to give me a second look, a full second look, if they did, they would see a very advanced mind in front of them. I'm asking you today, can you give me a second look?
Okay. I mean, I'm not sure what a second look and I'm not sure where we're going.
I would like to come on board as vice chairman of Tesla.
Well, we don't really have a vice chairman spot, but, yeah, I mean, I think that's, you know, yeah, I don't think so. I'd have to say, no. I'm so sorry .
I'm sorry. I can also apply for a future CEO position, but at least I would like to come on the board of directors. I apologize. This is to the benefit of Tesla shareholders.
I think we need to move on to another question. My apologies.
I apologize. Thank you for your time.
All right.
Hello, Mr. Musk. I know that your long-term goal is rather than just to sell Teslas, but to accelerate the electric vehicle market around the world. It seems like no one's really matching what we're doing at Tesla with the Supercharger network as far as rapid charging and battery swapping of high energy batteries. I was wondering, to advance the long-term goal, much long-term goal, would it ever make sense to open this Supercharger or a similar charger, maybe a junior charger station, to other manufacturers, maybe on a subscription basis, or to work with them to make their cars compatible as well? Since it seems like no one else just wants to put in the effort to make anything close to the Supercharger in terms of capacity.
So the intent of the Superchargers is not to create some sort of walled garden or anything. We're actually happy to have other manufacturers use the Superchargers. They just need to create electric cars that can accept the energy level or the power level of a Supercharger. The Superchargers, the current generation of Superchargers, put out 135 kW, and we're, you know, planning to go up from there. There's no other electric car that can accept anything close to 135 kW. We're more than happy to have other manufacturers do this, and I've said this publicly on a few occasions. No one's approached us and said, well, they'd like to use it. We're happy to have them do so.
They would just have to contribute to the capital cost. Like, so figure out like, okay, well, what percentage of the time are their cars using the Supercharger network? They can make a contribution proportionate to their customer usage of the Supercharger network. We're very open to such a thing.
Thank you.
Mr. Musk, I'm from Los Angeles, and I would like to buy a rally jacket of the team that went to New York.
Okay.
You don't sell it.
All right. Well, maybe we should.
I recommend following the comment of somebody else about redesigning the Tesla accessories, that that be an accessory. Certainly, most of the people who were there with me watching the guys get started, "Wow, how do we get that?" It's not available. The real issue I am raising today is the Superchargers are unique and placed individually. How about putting them on a metal platform on a flatbed and dropping them in place, and it's done, instead of all the construction you do? Cookie cutter prefab. I invite you to think about it. It may cut cost and speed in delivery.
Okay. Thanks.
Hi, Mr. Musk. I'm Ben Clark. I'm a huge fan, a happy shareholder, happy Model S owner, hopeful future occupant of Mars. I'm very thankful for the time that you give around the world and kind of regularly answering these questions and talking to the public. It's a huge benefit to a lot of current and future engineers and innovators and entrepreneurs. I've heard you talk a lot about your desire to accelerate the advent of electric vehicles. I get the sense that you'd be extremely happy if all the major competitors came out tomorrow and announced long-range electric vehicles that had great styling and performance and low cost.
Yeah. Absolutely.
Even to the point that I think you would feel personally unsatisfied if Tesla Motors was put out of business by all these great electric vehicles driving around.
Well, yeah. I don't know about that.
At least having satisfied your goal of bringing that out.
The automotive market is big. I'm sure there's certainly room for many companies.
I'm just kinda curious, how do you balance your desire to bring the advent of electric vehicles and wanting your competitors to have these great vehicles that are benefiting the world with your kind of fiduciary responsibility of maximizing shareholder value? If you can give any examples kind of how you make those trade-offs and what future decisions you might anticipate.
Yeah, that's a good question. I mean, it is surprising that there hasn't been more activity from other car companies to make serious electric vehicles. I mean, thus far what we've seen is really, you know, the number of electric cars they make is the minimum required to satisfy regulations. When those regulations are ordered down, then they reduce or eliminate the electric vehicle program. It's, you know, it's surprising. I sort of really was hoping that other car companies would engage in more serious electric car programs. I'm trying to think of ways to help that along that would be a good outcome.
I mean, I don't think their success is necessarily to Tesla's detriment, because ultimately we need all cars to go electric. The car market is enormous. I mean, there's 100 million new cars made a year, and there's an existing fleet of roughly 2 billion cars. Even if all cars were electric immediately, all new cars produced, it would take 20 years to replace the fleet. If you look at the sort of puny number of cars that Tesla makes, we're the 22,500 last year. Maybe we'll do sort of 35,000 this year. It's a big percentage increase, but it's a very tiny percentage of the overall market.
We've got a long way to go just to get next to the decimal point in terms of market share. Yeah, like one zero over. Yeah, I mean, I'm contemplating doing something, you know, fairly significant on that front, which would be kinda controversial with respect to Tesla's patents. I would probably wanna write something so that I can articulate it properly and explain the reasoning for the decision.
Okay.
Yeah. Thanks.
Hello. My name's David. I'm a shareholder. I have a question relating to batteries. How concerned are you about a new battery chemistry such as a dual-carbon battery? How quickly could this Gigafactory be retooled to make this new battery?
You know, it's rare that a day goes by when there's not some new battery chemistry that is announced. I should maybe give people a good filter for assessing any new battery chemistry in terms of its potential. A key metric is energy density, so energy per unit mass or volume. This is different from power density. Power density is the rate at which you can extract energy. Energy is like the total amount you have in there. Energy defines your range, and power defines your acceleration and charge rate. The problem with something like the dual carbon approach is that the energy density is very low. It's only about maybe 20% of our current cell energy density.
Now the power density is very high. You can charge it, you know, quickly. We don't have a constraint on power. The Model S really has a lot of power. Range and really the cost per unit energy, those are the two things that are important. Now something like a dual-carbon is actually okay in terms of the cost per unit energy, but it really fails hard on the energy density. There are potential breakthroughs out there, but we have yet to see one, to see even a single example in our lab of a cell working at the laboratory level that is better than the one that we have or the ones that we expect to come out with.
My response always when I hear about electrochemical breakthroughs is, "Please send us a sample cell." That usually, well, that has always resulted in nothing happening.
Thank you.
Hi. Hi, Mr. Musk. I'm Kevin Wang. My question is related to Model X and the Generation 3. Speaking of the other car manufacturer activity, recently I attended the BMW i3 test drive event. Since I have been greatly spoiled by Model S, I wouldn't, you know, walk away as a i3 buyer. However, there's one thing impressed me very much is that the tremendous interest from the consumer showing up. It's kind of a tented event, and they're running the test drive all day long, and there are hundreds of people kind of sign up. It just come to me that, you know, if Tesla has the Model E or Y ready, they'll be selling like hot cake.
Yeah.
Looking in your roadmap, Model X still have the priority. I wonder, you know, is it that it take this much time for you to learn how to build general production, sir, or is it any of the resource constraint like battery? Just wondering if you could share some of the rationale in terms of the priority.
Yeah, I mean, the thing that's important is to have a compelling mass market car. I mean, I drove the i3, and it's not bad, but it's the range is very short.
Right.
It's okay, in other respects, but it would be hard to say for most people that you could replace your gasoline car with an i3.
I'm not impressed by i3 at all. I'm saying that if you have the Model E ready.
Right
That you could take over the market.
Sure. The issue there is in order for us to create a compelling mass market car, we need a lot of battery production, and it needs to be at a affordable enough price that it doesn't destroy the affordability of the car. That's why, you know, the Gigafactory is vital for getting to that level of volume, and for reducing the cost via massive economies of scale, and vertical integration. Now, there will be, I should say, technological innovations in the cell as well as the sort of monster economies of scale. What we're trying to do is dial everything to the maximum to get to that affordable, compelling electric car.
Compelling meaning it's gotta be long range as soon as possible. The soonest we can figure out how to do that is sort of the late 2016 timeframe. That's, that's what we're aiming for. I mean, we could obviously produce a car like the i3 or maybe probably better than the i3 right now. It wouldn't be great. It would be okay. It wouldn't really, you know, it wouldn't be amazing.
Got it. One quick follow-up. That leads to the Gigafactory. As I understand you, right now you choose two states simultaneously. At what timeframe you will go with the final state?
Yeah. We're probably gonna do two o r maybe three states, all the way to creating a foundation and completing the plans and getting approvals and everything. I think it might actually be three s tates that we do it in. I would expect that we do a down select for Gigafactory 1, before the end of the year.
Okay. Thank you.
I would just like to re-ask my question of how quickly could the Gigafactory be retooled for that new battery composition?
It would be fairly straightforward for us to change the anode or cathode composition.
Okay. Thank you.
Yeah. In fact, we expect to evolve the anode and cathode. It's not merely what if that happens. We expect that to happen.
Hi, Mr. Musk. My name is Bob Ashmore. I am a shareholder. I am a Roadster owner and a Model S owner. I have a question about if you are planning on any upgrades or enhancements to the Roadster, and if not, when I can expect another Roadster-type vehicle.
Yes, we are planning on, I think a fairly exciting upgrade to the Roadster. I'm hoping we can get it done later this year. I did say it would be this year, I'm, you know, I'm trying to sort of I mean, yeah, you know, we'll get it done this year. It'll be a cool thing. It's like add scroll. Add scroll to back. You know, we said we'd do it, we're gonna do it. We're gonna do something cool with the Roadster before the end of this year. In terms of a next generation Roadster, that's probably, I don't know, five years away.
Tesla reservation holder. For the past year, I've been day trading your stock. I've finally saved enough money to purchase a P85 fully loaded.
Good.
I'm taking delivery, in July.
Cool.
One of my concerns, well, one of my concerns for the long term is that S&P has downgraded your stock to a junk rating to B- .
Well, technically our debt, not our stock, but yeah.
Yeah. well, yeah, it's a junk rating as a debt, but, they've said that, you know, the stock is not worth long-term investment. I could care less because I'm still making money.
Good.
You know, at the same time, do you see that, Well, I mean, my main question is: what do you think is the best move for Tesla to make to add more value to the stock to make it more of a long-term investment like it was maybe two years ago? Because now the stock has been so volatile that the only way to really make money on it is to short sell day by day. You know, I'm even surprised to be here because on April 10th, I just happened to have a long position in the stock at the close of the day.
Well, I mean, with respect to S&P's rating, we expected they would probably do something like that because they're rating it from the perspective of a debt holder, which they, you know, for debt, I mean, the way debt is typically looked at is it's, is you look at a company's performance in the rearview mirror. You say, "Okay, well what's the historic performance? How many consecutive quarters of profit has Tesla had?" Well, none, so on a GAAP basis. Therefore, you get a bad credit rating. It was certainly to be expected that we would get a bad credit rating from S&P just because, you know, they look backwards.
The, the equity markets, of course, look forwards and say, "Well, what is the net present value of future cash flows? What is this company likely to do in the future?" Obviously we're, we get a lot of support on that front from equity holders. That's why we did a convertible debt offering rather than a, than a pure debt offering because convertible debt is, you know, essentially a forward sale of equity. It's valued as an equity offering. You know, as far as, you know, the long-term future of Tesla, I mean, I'd say, you know, I think there's a lot of potential for growth in the stock price in the long term. You know, the math is pretty straightforward.
I mean, you can sort of say, "Well, what would Tesla look like if it was producing half a million cars a year? You know, and what's the, you know, average sale price at that? And what kind of gross margin would Tesla expect to have?" That would define, at least for the Fremont factory, what the, you know, net present value of future cash flows would be, which would be quite a big number actually. Then if we have multiple factories around the world, then that would, that would obviously get quite a bit bigger. I mean, I think there's certainly the potential there for Tesla to be one of the most valuable companies in the world in the long term, contingent upon our execution, of course.
The much more difficult thing is to say, well, how will the stock market value us in the short to medium term? That is an impossible thing to say because the stock market is kind of a manic depressive. I mean, particularly with respect to Tesla, you know? I mean, the reason Tesla's so volatile is because so much of Tesla's value is a function of market confidence in our future execution. If something happens that diminishes or increases that, it has a highly leveraged effect on our current stock price. There's nothing we can do about that. I wish it was less volatile, frankly. That's sort of the way things are right now.
I'd say Tesla's a very good investment for the long term, but it's impossible to say what it is in the short term.
Sure. Just one last remark, sorry. I was wondering if, you know, after I get my Tesla and after I drive around for a bit, you'd be willing to come have lunch with me?
Well, I appreciate the request. I'm quite time- constrained.
Oh.
I appreciate the request.
Can I at least get an autograph after the meeting?
All right, sure.
Okay. Thank you.
Yeah.
Sorry to do this, we're going pretty far over, so we're gonna limit it to the last two questions, if that's okay.
Okay.
Thanks.
All right.
Hi. I'm an 11-year-old from Burlingame. I invested in Tesla last year as my first stock.
I was wondering if I could have a tour of the factory.
Absolutely. Just talk to a Tesla person afterwards. We'll make sure it happens.
Okay. Thank you.
Hi, Elon. I've been an active member at the Tesla Motors Club Investors Group, and we have a lot of discussions about all things Tesla. One of the questions is kind of like, what's after Gen 3? Because as you mentioned, with 100 million vehicles per year, and also, you know, with this massive transformation going on to electric vehicles, the question is like, is Gen 3 gonna be enough to propel, you know, the world's transport to electric vehicles or does there need to be, like, another cheaper vehicle that will compete sub $30,000, maybe less performance than a 3 Series, you know, competitor, but more like a Camry-ish, you know, family sedan-ish level that's super affordable?
Of course, with battery costs, we're looking probably at 5 - 10 years out, that something like that would be possible. Can you share some of your thinking kind of on, Is a sub 30,000 vehicle in 5- 10 years a possibility? Is that gonna be using a Gen3 platform?
Yeah, absolutely.
Or would that be a separate Gen 4 platform?
Well, I think, you know, as a general rule, what Tesla's gonna do is whatever set of actions we think is most likely to accelerate the advent to sustainable transport. You know, clearly that sort of Gen 3 car is kind of the holy grail. It's like the thing that's missing, you know, is because there are affordable cars that aren't compelling, electric cars that aren't compelling. There's a Model S which I think is a compelling car, but it's expensive. What we're really just missing that critical, affordable, compelling electric car. I mean, that I think is gonna have a huge impact on, you know, in terms of shifting humanity away from burning fossil fuels.
Beyond that, we will take, you know, whatever additional steps we can think of to shift transportation to electric. I think it would make sense therefore to go into trucks since they consume a lot of fuel, and probably into something lower cost than Gen 3, but it's hard to say. I think, but I think probably. Yeah.
Last quick question. What's the Lathrop facility about?
Oh.
information anywhere about that.
Yeah. We're actually expanding our activities in the sort of, in the Stockton area. You know, Lathrop's sort of a city near Stockton. The greater Stockton, Lathrop area, we're setting up a lot of manufacturing activity to supply components to the Fremont factory. As we expand production at Fremont and plan to get to the sort of 500,000 unit a year level, we have to move a bunch of manufacturing that's done in Fremont to other factories. Some of which are our own, some of which are suppliers, because we can't produce at the 500,000 unit level and be as vertically integrated as we are at Fremont.
We expect to do substantial expansion in the Lathrop, the Stockton area to supply the Fremont factory. Well, let's just do a couple more questions. Maybe, if you can say, well, if you think you've got a question that a lot of shareholders would really wanna know the answer to, then I'd like to take your question. Are you highly confident that it's other shareholders are gonna want it? Well, okay, let's take some general audience questions. Sir, in that awesome Tesla shirt that you're wearing.
He's right. There's Antonio right there. Do you wanna answer that?
I'm not dumping my shares. I've sold less than 25% of my fully diluted holdings of the stock. I love the stock, and it's a great company to do well long term. I do run an investment fund, I have to create liquidity to invest in my new investment fund. That's where the money's going. I'm a very long-term shareholder of the company. I own over say [inaudible] of my position, and I continue to own the stock.
All right. Look, we're gonna give it, like, 10 minutes. We'll go here. You and then you.
Tesla cars by far have the best range on the market. For a lot of us, it's still not enough. I'd like to offer you the Tahoe challenge. I live in South Lake Tahoe.
Can you drive there in one stop?
I come to the Bay Area quite often. The challenge is getting up those 7,000 ft from sea level to where I live. The challenge is a car that's affordable that can make the round trip from Tahoe to the Bay Area and back.
Well, I think it'll be a while before that can be done round trip. I mean, let me put it this way. We could produce a car that could do that right now, but the car would be really expensive and have a huge battery. Probably wouldn't be that useful for most people. You should expect to see a steady increase in range, the available range in the cars over time. Go ahead. We'll try and make this super snappy and run, get through a bunch of questions.
Hi, I'm a Tesla shareholder from Taiwan. Unfortunately, we can't buy the Tesla car in Taiwan now, but there are still many component suppliers of Tesla from Taiwan. We all know you, Tesla is working so hard to drive the cost down to produce lower price car so that more and more people can afford. That's why Tesla is trying to build a new production in China and getting cooperation with Foxconn too. Could you share more details about this?
We are increasing our relationship with Foxconn, and I think there's some very promising potential in collaboration with Foxconn. I mean, Tesla will always be a manufacturing company, I think it's important to emphasize. We do feel, you know, that with potential alliances like Foxconn, we could potentially expand our production faster than would otherwise be the case. Right there. At the, at the mic, yeah. Where?
Do you want me to hold it? Okay. You kinda answered a little bit of this about the supply demand earlier, but, it was mentioned that there was some complaints in China about the length of time that it took the customers to receive the car. As we expand worldwide, I was wondering kinda what is the short-term and long-term goals that Tesla has to alleviate the issue?
Yeah. I mean, what we're trying to do in China in particular, or in all markets, is to build out our service and charging infrastructure as fast as possible. Wish we could figure out how to do it faster, but we're going at full tilt. My instructions to the team are to spend money as fast as possible without being wasteful. There's no budget, there's no arbitrary restriction. We're trying to go as fast as we possibly can. Yeah. Yeah, I mean, I think we're going pretty fast as, you know, compared to most car companies. But it's, yeah, we're going at top speed.
That isn't the only kind of creative solution. Like a more short-term solutions like, you know, offering like incentives or telling them a little bit, you know, this is the wait time or how to kind of pacify them a little bit.
Demand is not our issue.
Yeah. Demand is not the issue.
All right. Sorry. Go ahead. Occupy Mars. Fantastic. Oh, sorry. Then we'll go Sorry, I didn't realize you had the mic there.
Thanks a lot for what you're doing for our people here and in space. My question is, maybe next to EVs, the next transformational thing for cars are Autopilot, self-driving type technologies. You mentioned that you're investing in that. Can you give us an update where you are?
I think we're making some really good progress on the Autopilot side. You know, I'm confident that in less than a year, you'll be able to go from highway on-ramp to highway exit without touching any controls.
Oh.
Go ahead.
You mentioned that the third generation will be more like a mass production and a low-cost vehicle car. I think Nissan LEAF already have something like that around like $20,000. So I'm just wondering, in the low cost and mass production area, what's the competitive advantage of Tesla, and how are you going to pitching that market?
I think the issue is with LEAF is that the range is quite low. It's not all that competitive compared to gasoline cars of a similar price point unless you have just very short-range needs. The key is to have a long range affordable car. You know, I'm hopeful that Tesla will be competitive in that regard. I think we will be. Hopefully Nissan and many other companies are making such cars as well. If they do so before Tesla, I say more power to them. Sir.
I'm a Model X reservation holder, 6715. Do you think that it's possible to see my car like around July next year? The other question is on the milliamp hour rating. The current, I think, is 3,100 that's being used. Is there any chance we're gonna see a bump up in that for, in time for Model X to like around 4,000? I've kinda read somewhere.
I'm not sure what you mean by that, but do you mean?
The milliamp ratings for each individual cell.
Oh. Oh.
About 3,100, I think.
There are a lot of constraints on the power output of the system that are not just driven at the cell level. I mean, right now it's, yes, it's sort of more the current collectors and the main contactors and fuses and that kind of thing. We'd have to sort of upgrade the powertrain more generally to have a significant power output improvement. All right, okay, last question. Sorry.
My name is Anne Blankenship, and I'm a mad sports car enthusiast. I'd like to know, is there any possibility that Tesla might participate in the Dakar Rally?
Okay.
A Model X careening down the dunes of Iquique would be your money shot.
Well, I do think that's an awesome race. We have no plans to be involved in any racing activity in the, at least the short to medium term. I mean, really our focus is on developing new products and increasing production. All of the kinda racing stuff is about demand generation. Until we start hitting demand constraints instead of production constraints, it makes sense for us to focus on production. Thank you.
Just a quick final announcement before we before we leave. Thank you for everyone for attending today. Just wanted to let you know that for those who are interested, the unofficial result is that the result of all the resolutions were in line with how the board recommended. We thank you for attending and hope to see you next year. Thanks a lot.