Status Update

Apr 26, 2013

Good day, ladies and gentlemen, and welcome to the Tesla Motors Media Announcement. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today, Ms. Sarah Miron. Ma'am, you may begin. Hi. Thank you, Ben, and good morning, everyone. This is Sarah Miron, Head of Communications for Tesla Motors. On today's call, Tesla's CEO, Elon Musk, will discuss a number of changes to Tesla service and then we'll open up the line to questions from the media. We'll conduct the Q and A session live. During the course of this call, we may discuss our business outlook and make forward looking statements. Such statements are predictions based on management's current expectations. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent 10 ks filed with the SEC. Such forward looking statements represent our views as of today and should not be relied upon after today. We also disclaim any obligation to update these forward looking statements. And now I'll turn it over to Ilan. All right. Thanks for joining. So progressively through the Monelift program, we're focused on the things that needed the most attention. So of course at the beginning, it was the design and engineering of the car and then it was the supply chain, pulling the factory, then bringing that factory up to our 20,000 unit a year production rate. And now we're focused on creating the world's best service warranty program to match what many have judged to be the world's best car. So what this is going to involve is several things, well 4 things in particular. We're creating a whole bunch of Model S Performance 85 cars as loaners. So if your car comes in for service you will have actually our very best cars. These will be fully loaded cars that have all the latest options. So when your car goes in for service, it'll actually swap out with a car that is probably better than the car that you were driving. And this also will not become an aging fleet of used cars because the loaners will be available for immediate purchase at a price that is lower by 1% per month of age and $1 per mile. So if somebody likes the service loaner more than their actual car, they can just keep it. But this ensures that the service fleet is constantly refreshed and gives customers the best optionality. And then for a bit of additional fun, customers in most markets will have the choice of taking home one of our Tesla Roadster sports cars when their car is in for service. And I think there's a few things that are better than driving a sports car on an ocean road or through the forest with a top down on a summer day and just listening to the to the sounds of nature because you don't have any engine noise. So that's the first part. And then we'll also be offering Vale service. So the car will be seamlessly switched out from wherever it is at your home business or somewhere else. There's no need for somebody to drive to the service center. We'll just take out service loaner to wherever you are and switch out the cars, move your stuff over and then do the same thing when we return your car. So it'll just be completely seamless and sort of I call it invisible or better than invisible service. Then the third item is that we're making the annual service contract optional. So unlike gasoline cars, electric car doesn't need oil changes, fuel closers, spark plugs, smoke checks and all that. They're only needed if you're burning oil. In fact, you don't even need to replace the brake pads because most of the braking energy is captured by the motor and returned to Patrick. So we're comfortable making the annual checkup entirely optional. And this will value having customers look at the car once a year for alignments and upgrades and that kind of thing. But even if somebody doesn't bring in the car at any point, the warranty is still valid. And then the 4th point is with respect to the battery. The battery is obviously expensive, an important part of the car, But we took a lot of care on the Model S to ensure that the battery would protect itself and always retain a few percent of energy. So if something goes wrong, it's Tesla's fault, it's not the customer's. And except in the case of a collision or opening the battery pack, all damage is covered by warranty, including improper maintenance or unintentionally leaving the pack at a low state of charge for years on end. And the basic intent here is to provide complete peace of mind about owning a Model S even if you never read or followed the instructions in the manual. Thank you. Let's turn it over to questions in 1 minute. Our first question comes from the line of Phil LeBeau from CNBC. Your line is open. Please go ahead. Thank you. Elon, I'm curious, have you heard back from your internal data from your customers that service is a weakness or a weak spot in terms of their relationship with Tesla? Or what exactly is driving the news today? I think that our service is okay but not great. And it needs to be great. So this is not about having okay service or good service. It's really from the perspective of what's the service and warranty program that you wish you could have from any carmaker. That's the perspective we took in creating this. Is there anything better? What's the best service and warranty that we could possibly envision and still afford to do? And this is what we've come up with here. Thank you. Thank you. Our next question comes from the line of David Lamirink from WIRED. Your line is open. Please go ahead. Hey, Mr. Musk. So can you give us a little more detail on what you mean by an unconditional warranty? Does that mean that you were placed at no questions asked, no cost to the user? And then is that transferable when the owner sells the car? Yes. So I mean obviously there's been circumstances where it wouldn't be it wouldn't apply. So for example, if you take a blowtorch to the battery pack or blow it up or use it for target practice, anything like as long as you haven't sort of intentionally tried to destroy it, then it's covered by warranty. So the overarching principle is how do you as the owner we want to give you complete peace of mind. That's what we're trying to achieve. So just don't worry about it. Don't worry I don't want someone worrying about whether they read the manual. And if they don't read the manual, is the battery warranty still covered? Absolutely. Any product that needs a manual to work is broken. So you don't need to read the manual. It has a warranty to cover the battery. And it does transfer to whoever buys it. Okay. Just a quick follow-up. And then will this kind of allow future proofing? So if you guys build a better battery, can the owner get this new battery under the warranty? Yes. So if something does go wrong with the battery, what we're saying is we'll replace the battery with something that's as good or better. Okay. Yes. Great. Thank you. Thank you. Our next question is from Ryan Bean of Automotive News. Your line is open. Please go ahead. Hi, Mr. Musk. How many Model S-eighty five will be built for the service loaner fleet? And will that production be incremental? Thank you. I think over time we're going to buy sorry, over time we're going to build a lot of cars. The initial batch is about $100,000,000 and that's incremental to the 20 ks per year, so it's not subtractive. And yes, so initial batch of 100, but I think over time we'll probably build several 100 for worldwide consumption in this. But it'll be whatever the number is needed to ensure that customers have a good experience. And how many service loans will be placed at each of your retail locations? It's going to vary according to and actually they'll be placed at our service locations. Thank you. It's going to vary according to the number of customers that that service center services. So it'll be anywhere from sort of 2 to 10 type of thing. Great. Thank you. We've got some WAPR service centers in the big metro. Thank you. Our next question comes from the line of Alan Onsman from Bloomberg News. Your line is open. Please go ahead. Hi, Elon. I just wanted to double check. So approximately how long will the vehicles be in the service fleet before you rotate them out? Do you have a fixed number of miles or time? At this point, I don't really know except that I do know that we want to make sure that the service learners are new ish cars. We don't want an aging fleet of overused cars, which can sometimes happen in kind of a service learner situation. So we will adjust the pricing to ensure that the service loaner fleet is really never more than maybe an average of 2 to 3 months old. Okay. Thank you. Yes. There may be some outliers there, but roughly that. Thank you. I feel like a good new car. Our next question comes from the line of Peter Valdez de Pena from CNN Money. Your line is open. Please go ahead. Hello. Hi. Thank you. Just to check, you were not the battery warranty, this simply means that you're going to cover it no matter what, but it's on me longer to be clear what the battery warranty was before. Yes. No, it's all sort of the 8 years period of time. And I mean the warranties have to come to you at some point. But it's fully 8 years and it's at the same length of time. But we want to make sure that people I should also say, it's not like we expect the factory to fail at the 8th year. But there'd be some reasonable sort of period of time for warranty. And yes, so anytime during that period, if it fails, we will replace it with something as good or better. Right. And this keeps you from getting into an uncomfortable situation with a customer over whose fault it was At this point, we don't care. Exactly. It's no fault warranty. Thank you very much. Thank you. Our next question comes from the line of Ron White from the Los Angeles Times. Your line is open. Please go ahead. Good morning. I was intrigued by the idea that if the customer likes the loaner car better than the car they brought in for service, they get to keep it. Would they have to pay the difference in the value of price? Or how would that work? Yes, exactly. So they would just pay the price differential, which as I mentioned would be adjusted by 1% per month of age and $1 per mile and relative to what you recall they've got and then they can skeeve it. Wow. Okay. Thank you. Our next question comes from the line of Donna Howell from Investors Business Daily. Your line is open. Please go ahead. Hi, there. I had just two questions. 1, I was wondering if any particular battery studies or analysis this year factored into the two decisions that you announced this year, both with the warranty on the battery that you're mentioning today and then also what was it a week ago, 2 weeks ago, when you mentioned that you would personally back the trade in value, so to speak? I guess the overarching principle is I want to give people peace of mind. Mind. I don't want people worrying either existing customers or new customers. I want them to have the happiest possible transport experience. Okay. And so it wasn't in other words after you did more analysis on the battery and found out that you are very happy with the battery life in any way that you were happier with it before? Well, the data does support what I'm saying. In other words, we have yet to have a single battery pack actually die at the module level. I mean there have been issues where say a contactor broke or some like a computer chip broke or something in the battery pack, but we've literally had 0 battery packs actually fail at the modular cell level. Great. And then in closing, I was going to ask, you mentioned that the loaners that you'll have are going to be additive to that $20,000 per year, but I was also curious about whether there's any accordioning going on currently with demand. For instance, if once you announced the lease program, if that created a little bit more demand at the low end, so you have more cars available at the high end or if this decision is entirely independent of your current demand? I mean, it's largely independent of our demand. I mean, what I'm really doing is I'm sort of going through piece by piece. There's always pieces to somebody's transport experience, and we want to make each of those pieces as best as good as we possibly can. And service is often a terrible experience for customers. In fact, I should mention a very important point that I forgot to mention, which is that what I've told the Tesla service division is that their job is never to make a profit. And probably some investors will be mad at me for a second. The way it normally works with the order dealer franchise, they don't make that much money on the sale. They make some money on sale, but then they really charge a lot of money in the future in service. And I think that's sort of that's really a terrible thing. And it's really it's not good. So the service division of Tesla is under instructions to operate the business to the 0 profit point. So don't make a loss, don't make a profit. But just go I mean it's sort of like I guess yes, it's just play it to the 0 profit point. Don't try to over service the don't service the cars and try to make money off people over and above the cost of things. So we want service to be minimized, not maximized. Okay. Thank you. Anyway. Thank you. Our next question comes from the line of Mark Vaughan of Autobi. Your line is open. Please go ahead. Hi, Elon. What were the most common problems that drove you to make this announcement? Was it some minor thing like a problem with the door handle? Or was it a larger problem? What drove you to make this announcement? Well, this is not really driven by any kind of tactical issue with the cards. Like I said, it's really just it's our relative focus and particularly my relative focus has moved from design to engineering, supply chain, to manufacturing and now to service. So it's kind of just getting to the service part of the equation. And so it's really sort of what I'd say more of a strategic thing than a tactical decision. There weren't a lot of complaints from owners about the service that they were getting? We had I mean it varies. I mean it sort of depends on which part of the country you're in. In some parts of the country we've had great service. In some parts of the country we've had I would say poor service. But because we didn't quite anticipate the right mixture of product in every market. And in some cases, particularly L. A, unfortunately, we were a little delayed on permitting. So we're operating out of 1 service center instead of what we expected to be which was 3 service centers. So that 1 pro service center got really overwhelmed. Now we've got the permits and everything And so we've alleviated that choke point. But there are some examples like that which were not good, but that's unrelated to this announcement. This announcement is really about just stepping back and saying what's the best way to do service and warranty. If you're warranty program, understanding the fact that a company obviously needs to stay in business, what would be the best what would that be? And that's what we try to do here. Thank you. Our next question comes from the line of David Baker from the San Francisco Chronicle. Your line is open. Please go ahead. Thanks. Good morning. I wanted to go back to the idea of trading in 1 Model S for another. If I were a Model S owner and I'd have my car for a few months and I get this loaner that I actually do like better, how would the trade in value for my old one be calculated? Would you prorate it based on mileage and age or how would you do that? Yeah. We'd pro write it based on mileage and age. I don't have the exact figures. I think it's just right now, but it would be whatever the fair value is that I mean, like if you would normally to do it if you were to normally to take a car and do a trade in, it would be, it's usually assessed by something like the Automotive Leasing Guide. We would track to that kind of a value. So then if you start building up a pool of Model S's that have been traded in, what are you going to do with those? We'll sell them to new customers. Are you is this going to be expanding the sort of resale program that you started with the Roadster? Yes, yes. I mean the Versa, I mean on a quite small scale, but yes, I mean it will be you'll be able to buy either a new Model S or a used Model S. And yes, I think it will help improve the affordability of the car as there are more used units available. I mean, right now, it's almost done, but there will be it at some point. Got it. Thanks. Thank you. Our next question is from Deepa Sitharaman from Reuters. Your line is open. Please go ahead. Hey, Elon. Thanks for taking my question. To what extent was this program designed to allay some of the broader concerns about EVs in general, the range anxiety and the other kinds of issues that electric cars are the other kinds of issues that electric car sales face? And then also, do you expect the sort of service program actually encourage and spur sales of the Model S going forward? Thanks. Yes. So this isn't so much to address that. I mean, this isn't so much to address the range issue. That's sort of going to be the when we do the supercharger announcement, that will be really focused on the range question. That's in a week or 2. But this is trying to address some of the concerns that people have about electric cars such as what happens if my battery dies and that's a big part of the value of my car. Am I responsible for that? What if I make a mistake and the battery is damaged? And it was unintentional. But we wanted to say don't worry about the battery. It's going to be fine. And even if you do something wrong, as long as you don't obviously intentionally set up to destroy the battery pack, it's going to be covered. And I think we made a slight mistake of making our annual service fee mandatory that was an error which we're fixing so it's now optional. So this is about giving Cubo peace in mind about the value of their battery. So in that sense it addresses maybe you could concern that if that's something powered by electric cars. Then in terms of future sales I think this is actually very important for long term sales. I mean I'm not sure how much of an effect it has in the short term, but I think it has a very important effect in the long term. I mean there's an adage in the car industry that you have to sell the 1st car but service sells all the subsequent cars. So if you have good service that means people who buy the car will make this their next car too. But if they have a bad service experience then obviously they're not going to do that. So we want them to have a really great service experience and I think it'll be really powerful for the long term value of the company. Thanks. Thank you. And our final question comes from the line of Paul Eisenstein from the Detroit Bureau.com. Your line is open. Please go ahead. Yes. Thank you very much. Elon, first of all, thanks for solving another issue and No problem. It's fair at that point. Good to catch up with you. A couple of very quick questions, if I may. The first one, I would assume, but that's always a dangerous thing to do, that this is going these are going to be policies you'll be carrying forward with the Model X and products to come. Can you talk about that? And also you've suggested here future upgraded batteries. So can you also talk beyond this about where you expect to go next with batteries? And will you at some point come up with a program where, for example, somebody buys a battery and says, oh, you've just come up with a 400 mile battery or I've got the 230 and I want the 300, would you at some point start to think about upgrade programs? A 400 mile battery, what about a 500 mile battery? Well, I'd make that even better. Indeed. Well, I think there's a good chance that what you're saying could occur. And yes, I mean our interval period for significant technology step changes on the battery front is about 4 to 5 years. So that's if you look at sort of the Roadster to Model S transition that was down that period of time. So that's about the point at which you'd see a significant change. And it would allow us obviously in the same volume and weight to put a lot more range. So that's probably more likely than not. So it would be reasonable for us to say that you are considering the possibility of sometime before we reach the end of the life of the Model S and next generation products to be considering the possibility that somebody could get could upgrade their battery to significantly higher range. I think that that is that's a pretty good likelihood, yes. I think that would be cool. It's just like I mean, it's always I love upgrades. I mean, upgrades are awesome. So I think we're going to probably I mean this is today isn't about that, but I think that would be a logical thing to do in the future. And just back to the first question, so future models like the Model X and the smaller model to follow that you've talked about in the past, the service policies you're having here would probably extend as something that Tesla will be doing going forward? I think with certainty for the Model X, for the 3rd generation vehicle because we're trying to make that affordable as possible, I'm hopeful that we'll be able to do all these things and that's what we're going to try to do. But we may have to unbundle some of these things in order to make the car more affordable. So I'd just say aspirationally for the generation we'd like to improve all these things. But I can't say with certainty. Okay. One last question. We'll be certainty with Model X. Okay. One last thing, if you talk to almost any luxury maker around operating in the United States market, they'll tell you that all wheel drive has become a requirement in certain key sections of the market of the U. S. As you know, Mercedes is now going to even go all wheel drive on their AMG models, all but the SLS and for now the SL. Is all wheel drive something I know this is not in line with what we're talking about today, but it is a pretty important one considering the luxury market. Is that something you're considering at this point? Well, we've actually said that the Model X is going to come out with I think a revolutionary all wheel drive because it's going to have a dual motor capability. So it'll actually have a motor in the front and a motor in the back. So you can dynamically shift torque. Yeah. Yeah. Yes. At the millisecond level, you can shift torque front to rear and it's much, much more responsive than just a mechanical connection as is the case for gasoline cars. I mean it's really going to be kind of mind blowing on in terms of its road holding for the Model X. Yes. But beyond the Model X which obviously for that segment would to, is all wheel drive something that you foresee as being more broadly a part of your lineup? Because as you just mentioned, all wheel drive in a battery vehicle is potentially very easy and potentially very much more effective? I don't want to say anything is punitive, but I would certainly share your sentiments. Good. Thank you very much. Good to talk with you. All right. All right. Was that the last question? Yes, sir. Okay, great. All right. Thanks very much. Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of