Good day, ladies and gentlemen, and welcome to the Tesla, Inc. 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. Should anyone require operator assistance, you may press star and then zero on your touchtone telephone. 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 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&A session live, so please press star one now if you'd like to get in queue to ask a question. 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-K 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.
Now, I'll turn it over to Elon.
All right. Thanks for joining. Progressively through the Model S program, we're focused on the things that needed the most attention. Of course, the beginning, it was the design and engineering of the car, and then it was the supply chain, building the factory, then bringing that factory up to our 20,000 unit a year production rate. Now we're focused on creating the world's best service and warranty program to match what many have judged to be the world's best car. What this is going to involve is four things in particular. We're creating a whole bunch of Model S Performance 85 cars as loaners. 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.
When your car goes in for service, you'll actually be swapped out for the car that is probably better than the car that you were driving. 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. If somebody likes the service loaner more than their actual car, they can just keep it. This ensures that the service fleet is constantly refreshed and gives customers the best optionality. For a bit of additional fun, customers in most markets will have the choice of taking one of our Tesla Roadster sports cars when their car's in for service.
I think there's few things that are better than driving a sports car on an ocean road or through the forest with the top down on a summer day and just listening to the sounds of nature because you don't have any engine noise. That's the first part. We'll also be offering valet service. 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 a service center. We'll just take a 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. It'll just be completely seamless and our goal is invisible, better than invisible service. The third item is that we're making the annual service contract optional.
Unlike gasoline cars, an electric car doesn't need oil changes, fuel filters, spark plugs, smog 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 the battery. We're comfortable making the annual checkup entirely optional. There's still value to having Tesla look at the car once a year for alignments and upgrades and that kind of thing. Even if somebody doesn't bring in the car at any point, the warranty is still valid. The fourth point is with respect to the battery. The battery's obviously expensive, an important part of the car.
We took a lot of care in the Model S to ensure that the battery would protect itself and always retain a few percent of energy. If something goes wrong, it's Tesla's fault, it's not the customer's. 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. 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 one minute.
Ladies and gentlemen, if you'd like to ask a question at this time, please press star and then one on your touchtone telephone. 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? What exactly is driving the news today?
I think that our service is okay, but not great. It needs to be great. This is not about you 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 car maker. 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? This is what we've come up with here.
Thank you.
Thank you. Our next question comes from the line of Damon Lavrinc from Wired. Your line is open. Please go ahead.
Hey, Mr. Musk. Can you give us a little more detail on what you mean by an unconditional warranty? Does that mean that you will replace it, no questions asked, no cost to the user? Is that transferable when the owner sells the car?
Yeah. Obviously, there's certain circumstances where it wouldn't apply. For example, if you take a blowtorch to the battery pack or blow it up or use it for target practice. As long as you haven't intentionally tried to destroy it, then it's covered by warranty. The overarching principle is, as the owner, we want to give you complete peace of mind. That's what we're trying to achieve. Just don't worry about it. I don't want someone worrying about whether they read the manual, and if they didn't read the manual, is the battery warranty still covered? Absolutely. Any product that needs a manual to work is broken. You don't need to read the manual to have the warranty cover the battery. It does transfer to whoever buys it.
Okay. Just a quick follow-up. Will this kind of allow future-proofing? If you guys build a better battery, can the owner get this new battery under the warranty?
Yeah. 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.
Yeah.
Great. Thank you.
Yeah.
Thank you. Our next question is from Ryan Beene of Automotive News. Your line is open. Please go ahead.
Hi, Mr. Musk. How many Model S 85s will be built for the service loaner fleet, will that production be incremental? Thank you.
I think over time we're going to build a lot of cars. The initial batch is about 100, and that's incremental to the 20k per year, so it's not subtractive. Yeah. The initial batch is 100, but I think over time, we'll probably build several hundred for worldwide consumption in this. It'll be whatever the number is needed to ensure that the customers have a good experience.
How many service loans will be placed at each of your retail locations?
It's going to vary actually, they'll be placed at our service locations.
Thank you
it's going to vary according to the number of customers that center services. It'll be anywhere from two to 10 type of thing.
Great. Thank you.
We've got some whopper service centers in the big metros, so yeah.
Thank you. Our next question comes from the line of Alan Ohnsman from Bloomberg News. Your line is open. Please go ahead.
Hi, Elon. I just wanted to double-check. 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 loaners are on newish cars. We don't want an aging fleet of overused cars, which can sometimes happen in a service loaner situation. We will adjust the pricing to ensure that the service loaner fleet is really never more than maybe an average of two to three months old.
Okay. Thank you.
Yeah, there may be some outliers there, roughly that.
Thank you.
It should feel like a good new car.
Our next question comes from the line of Peter Valdes-Dapena from CNN Business. Your line is open. Please go ahead.
Hello. Hi, and thank you. Just to check, the battery warranty, this simply means that you're going to cover it no matter what, but it's not any longer, to be clear.
Right
than the battery warranty was before.
Yeah, no, it's still the eight years period of time. The warranties have to come to an end at some point.
It's for eight years , and it's the same length of time. I should also say, it's not like we expect the battery to fail at the eighth year.
Right.
There has to be some reasonable period of time for warranty. Yeah. Anytime during that period, if it fails, we will replace it with something as good or better.
Right. This keeps you from getting into an uncomfortable situation with a customer over whose fault it was. At this point, it's just like, we don't care.
Exactly. It's no-fault warranty.
All right. Thank you very much.
Thank you. Our next question comes from the line of Ronald 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?
Yeah, exactly. They would just pay the price differential, which as I mentioned, would be adjusted by 1% per month of age and $1 per mile-
Okay
Relative to whichever car they've got, and then they can just keep it.
Wow. Okay. Thank you.
Thanks.
Our next question comes from the line of Donna Howell from Investor's Business Daily. Your line is open. Please go ahead.
Hi there. Just two questions. One, 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 also, what was it, a week ago, two 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.
I don't want people worrying, either existing customers or new customers. I want them to have the happiest possible transport experience.
Okay. 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. There've been issues where, say, a contactor broke or a computer chip broke or something in the battery pack. We've literally had zero battery packs actually fail at the module or cell level.
Great. In closing, I was going to ask, you mentioned that the loaners that you'll have are going to be additive to that 20k per year, but I was also curious about whether there's any accordion effects 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's entirely independent of your current demand.
I think it's largely independent of our demand. What I'm really doing is I'm sort of going through piece by piece. There's all these pieces to somebody's transport experience, and we want to make each of those pieces as good as we possibly can. 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. Probably some investors will be mad at me for saying that.
The way it normally works with auto dealer franchises, they don't make that much money on the sale. They make some money on the sale, they really charge a lot of money in the future in service. I think that's really a terrible thing. It's bad. It's not good. The service division of Tesla is under instructions to operate the business to the zero profit point. Don't make a loss, don't make a profit, but just play it to the zero profit point. Don't try to over-service. Don't service the cars and try to make money off people over and above the cost of doing so. We want service to be minimized and not maximized.
Okay. Thank you.
Anyway.
Thank you. Our next question comes from the line of Mark Vaughn of Autoweek. 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?
This is not really driven by any kind of tactical issue with the cars. Like I said, our relative focus, and particularly my relative focus, has moved from design to engineering, supply chain to manufacturing, and now to service. It's kind of just getting to the service part of the equation. It's really 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?
It varies. 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 because we didn't quite anticipate the right mixture of product in every market. In some cases, particularly L.A., unfortunately, we were a little delayed on permitting. We're operating out of one service center instead of what we expected to be three service centers. That one poor service center got really overwhelmed. Now we've got the permits and everything, we've alleviated that choke point. 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 a customer and you could design any service and warranty program, understanding the fact that a company obviously needs to stay in business, what would that be? 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 one Model S for another. If I were a Model S owner and I'd had 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 prorate it based on mileage and age. I don't have the exact figures at my fingertips right now, but it would be whatever the fair value is. If you were to normally to take a car and do a trade-in, it's usually assessed by something like the Automotive Lease Guide.
We would track to that kind of a value.
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.
Mm-hmm. Is this going to be expanding the resale program that you started with the Roadster?
First, on a quite small scale, yeah. You'll be able to buy either a new Model S or a used Model S, yeah, I think it'll be good. It'll help improve the affordability of the car as there are more used units available. Right now there's almost none, there will be at some point.
Got it. Thanks.
Okay, thanks.
Thank you. Our next question is from Deepa Seetharaman 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 car sales face. Do you expect this sort of service program to actually encourage and spur sales of the Model S going forward? Thanks.
Yeah. This isn't so much to address the range issue. When we do the Supercharger announcement, that'll be really focused on the range question. That's in a week or two. This is trying to address some of the concerns that people have about electric cars, such as, what happens if my battery dies? 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? We want to just say, "Don't worry about the battery. It's going to be fine. Even if you do something wrong, as long as you didn't obviously intentionally set out to destroy the battery pack, it's going to be covered." I think we made a slight mistake making our annual service fee mandatory. That was an error, which we're fixing.
It's now optional. This is about giving people peace of mind about the value of their battery. In that sense, it addresses maybe a concern that some people have about electric cars. In terms of future sales, I think this is actually very important for long-term sales. 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. There's an adage in the car industry that sales sells the first car, but service sells all the subsequent cars. If you have good service, that means people who buy the car will make this their next car, too. If they have a bad service experience, then obviously they're not going to do that.
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. Our final question comes from the line of Paul Eisenstein from TheDetroitBureau.com. Your line is open. Please go ahead.
Yes. Thank you very much. Elon, first of all, thanks for solving another issue.
No problem, sorry about that
Good to catch up with you. Couple of very quick questions, if I may. The first one, I would assume, but that's always a dangerous thing to do, that these are going to be policies you'll be carrying forward with the Model X and products to come. Can you talk about that? Also, you've suggested here future upgraded batteries. Can you also talk beyond this about where you expect to go next with batteries? 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." Will you, at some point, start to think about upgrade programs?
A 400-mile battery. What about a 500-mile battery?
Well, I'd like that even better.
Indeed. Well, I think there's a good chance that what you're saying could occur. Our interval period for significant technology step changes on the battery front is about four to five years. If you look at the Roadster to Model S transition, that was about that period of time. 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. That's probably more likely than not.
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.
I think, yeah
a possibility that somebody could upgrade their battery to significantly higher range.
I think that's a pretty good likelihood, yeah. No, I think that'd be cool. I love upgrades. Upgrades are awesome. Today isn't about that, but I think that would be a logical thing to do in the future.
Just back to the first question. 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 third-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. That's what we're going to try to do. We may have to unbundle some of these things.
in order to make the car more affordable. I'd just say, aspirationally, for the third generation, we'd like to include all these things. I can't say with certainty.
Okay. One last question.
We'll be certainty with the Model X. Yeah.
Okay. One last thing. If you talk to almost any luxury maker around, operating in the U.S. market, they'll tell you that all-wheel drive has become a requirement in certain key sections of the market, 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. It'll actually have a motor in the front and a motor in the back. You can dynamically shift torque-
Yeah, vectoring system, yeah
Yeah. At the millisecond level, you can shift torque front to rear, and it's much more responsive than just a mechanical connection, as is the case for gasoline cars. It's really going to be mind-blowing in terms of its road-holding for the Model X.
Yeah, beyond the Model X, which obviously for that segment would have 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 that's definitive, I would certainly share your sentiments.
Good. Thank you very much. Good to talk.
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 the day