Tesla's Conference Call – Zinger Edition

There have been plenty of articles that detail the cash situation, or the tech situation, or the sales situation for Tesla (NASDAQ:TSLA). But listening to the latest fourth-quarter conference call, there are just too many gems to pass up a lighter look at. From the change in statements, and some rather wild claims, we can maybe put together a better picture of what is happening behind the scenes.

Let’s get started!

After the normal obligatory Forward-Looking statements clause, which in legalese means “nothing we say really must be true or accurate,” Elon got started. We’ll skip the normal accolades part and get into some red meat.

Elon Reeve Musk – Tesla, Inc.

And overall, I think, while there were challenges associated with Model 3 ramp, we were in a deeper level of health than we expected, so a few levels deeper than we’d like to be, but swiftly exiting, I think.

Ok. Fair enough. Production ramp of the Model 3 has some serious issues.

I also want to thank our suppliers, particularly those involved in the Model 3… And they’ve really burned the midnight oil, spent weekends and taken a lot of risks and suffered alongside us in the challenges associated with the ramp.

Midnight Oil? Was that a play on words? Yes, thanks suppliers for helping our cash flow by enabling us to push out payments. Very good.

So I’m hopeful that people think that if we can send a Roadster to the asteroid belt, we could probably solve Model 3 production. It’s just a matter of time, and really our bars on the timing are really quite small in the grand scheme of things.

Since we are all actually in a computer simulation, we really are all small in the grand scheme of things. The odds that we are at base reality is “One in Billions,” famously stated by Elon. I’m starting to see where this is going.

As for Model 3 production, we continue to make significant progress every day, and we’re targeting a weekly production rate of 2,500 vehicles by the end of March and 5,000 by the end of Q2.

Wait a minute… Let’s go back to the Q3 call, you know three months ago…

So, based on what we know now as we’ve gotten really into the details of some of the worst bottlenecks, we expect to achieve a production rate of 5,000 Model 3 vehicles per week by late Q1 2018, so probably sometime in March. – Elon Musk Q3 call.

So, we’ve gone from 5,000 per week at the end of March to targeting 2,500 per week at… the end of March? But we’re still on schedule? I believe this was the headline Tesla Sticks with Model 3 Production Targets

And as you’ve seen in the letter, the quarter-over-quarter production of Model 3 is rising exponentially.

Oh. What exponent are we using by the way?

At some point in 2018, we expect to begin generating positive quarterly operating income on a sustained basis, operating 5,000 per week of Model 3 production.

Hey, what happened to 10,000? Wasn’t there something on the third-quarter conference call about that?

Ahh yes – here it is…

Back in the third quarter, this question:

Ryan Brinkman – JPMorgan

I can see what’s happening with the 5,000 per week target from 1Q to 4Q – or from – now it’s 1Q versus 4Q. But I think it’s less clear, from reading the letter, what’s happening with the previous guidance of the 10,000 units per week at some point in 2018. Is that now like beyond 2018?

And Elon with this cagey answer – again back in Q3

Elon Reeve Musk – Tesla, Inc.

But I mean, if you extrapolate from 5,000 units towards the end of Q1, we do want to call upon significant CapEx until we are confident about cash flow on Model 3, so then that’s a question of how long it takes to implement. I mean, that’s where you get to 10,000 units a week for Model 3, which is a number we are confident can be sustained from a drive standpoint.

Also a chime in from Deepak Ahuja from the third quarter:

Deepak Ahuja – Tesla, Inc.

And then learn from those, and figure out, how do we redesign whatever we do over the next spend more efficiently our CapEx. So, it’s the right thing to do.”

Elon – still from the third-quarter call:

Elon Reeve Musk – Tesla, Inc.

Yeah, exactly. As we mentioned earlier, we’re finding that some parts of the line very clearly are capable of 6,000 or 7,000 units a week, and maybe more than that, just by shortening path length, speeding up the robots, adding some robots where the choke points exist, simplifying some of the processes, and a few minor part redesigns, it’s remarkable how much you can improve cycle time. So…

But here we are – 90 days later – no more talk about 10,000 a week.

With this new guidance – here comes Rod Lache:

Rod Lache – Deutsche Bank Securities, Inc.

Wanted to just ask a couple of questions. One is just to get a little bit more color from you on Model 3, what the production run rate is at the moment.

And

On the last call you talked about I think two of the four zones at Gigafactory that were still kind of an issue in manual operation. Have those been resolved? And once you get to 2,500, is the ramp to 5,000 – does that just merely involve increasing line speeds?

Elon Musk ready with a snappy reply:

Elon Reeve Musk – Tesla, Inc.

Sure. I’ll try to give you as much color as possible. I am reminded of – I think it may have been Churchill’s line about sausage. If you like sausage…

Yes! Yes! I like sausage:

…and respect the law, you should watch neither being made.

Hmmm. Maybe I’ll skip breakfast.

So, I wouldn’t read too much into the day-to-day battles of this or that. But I’ll give you the color, but don’t read too much into it.

I guarantee you that I will not read too much into it.

Then there is this gem:

Elon Reeve Musk – Tesla, Inc.

Module production is fundamentally the limiting factor on Model 3 output, which is ironic since battery modules really should be the thing we’re best at.

Yeah – crazy right?

And I think in part we were probably a little over-confident, a little complacent in thinking that this is something we know and understand. And put a lot of attention on other things and just got too comfortable with our ability to do battery modules because we’ve been doing that since the start of the company.

Attention on other things? You mean like this? Hey – very cool by the way.

Or was it this?

Or this?

Maybe this one?

And we’ve tackled that on multiple levels, so we have a design that is nearing completion for a new automated system for Zone 1 and 2 that is being led by our Tesla Grohmann team.

Hmm – why does that sound German?

And then we have what we call a semi-automatic line, which is a series of small automated stations manned by people.

And we call that “manual” – as in “manned.” Otherwise I have a semi-automatic Van. You see, I push the clutch and then I pull the gear shift and it “automatically” shifts to second gear. What did you call that again Elon?

Our semi-automatic – our sort of semi-manual, semi-automatic line is exceeding all three of the automatic lines right now.

Oh, that’s what you call it. Wait a minute – it’s exceeding all three of the automatic lines right now? Why do I not feel good about that?

Elon thinks for a minute about what he just said – and taps out:

I mean, JB, is there additional color you’d like to – on that?

Jeffrey B. Straubel – Tesla, Inc.

Sure. That’s a great summary of it.

Elon Reeve Musk – Tesla, Inc.

It’s not artisanal.

Good word usage right there. I looked it up to make sure it meant what I thought it did.

Jeffrey B. Straubel – Tesla, Inc.

So, we’re continuing to expand that, those semi-auto lines, and that is effectively bridging the gap as we re-design the full automation and bring that online.

Ok, bring that online… from where?

Elon Reeve Musk – Tesla, Inc.

Yes. We expect the new automated lines to arrive next month in March, and then it’s already – it’s been – it’s working in Germany. So, that’s got to be disassembled, brought over to the Gigafactory, and re-assembled and then brought into operation at the Gigafactory. It’s not a question of whether it works or not. It’s just a question of disassembly, transport, and reassembly.

I knew that sounded German from before! From Germany? That was NOT on the last conference call. So we have to disassemble, ship, reassemble before we get to 2500 a week?

Jeffrey B. Straubel – Tesla, Inc.

Exactly.

Thought so.

Elon Reeve Musk – Tesla, Inc.

So, yes. So, we expect to alleviate that constraint. That – with alleviating that constraint, that’s what gets us to the roughly 2,000 to 2,500 unit per week production rate.

Note the 2,000 to 2,500 a week – not 2,500 per week – nuances are important.

Any other constraints we need to worry about?

The next constraint would be material conveyance at our Fremont vehicle plant, so there’s a very sophisticated automated parts conveyance system. We think it’s probably the most sophisticated in the world, or at least we’re not aware of one that is more so, and the software for that is quite complex. So that would be the next constraint on production to get to 5,000 is the conveyance system in Fremont.

Oh – that sounds pretty simple.

Next up – some guy posing as an analyst:

Adam Michael Jonas – Morgan Stanley & Co. LLC

Thanks, everyone. I also want to add my congrats for the launch yesterday. That twin Falcon landing was probably the sickest thing I’ve ever seen in my life on…

Dude. It was rad.

Adam Michael Jonas – Morgan Stanley & Co. LLC

First question is for – yes, it was just nutty. Totally nutty.

Elon Reeve Musk – Tesla, Inc.

Nutty. Yes.

Indeed bro… it was… awkward.

But then Adam gets his game face on:

Adam Michael Jonas – Morgan Stanley & Co. LLC

Deepak, a question for you. Given the negative trade cycle, your negative working cap, some of the modeling analysts are doing kind of simulating when you get to 2,500 or 5,000 or maybe somewhere in between that, that some of the arrangements you made with your suppliers who have been very helpful, that you might temporarily run enough negative working cap to even have operating cash flow exceed CapEx. Is that something that’s possible? Or, again, I know there’s execution behind that clearly, but is that something out of question, temporarily even?

Deepak gets a nudge and wakes up:

Deepak Ahuja – Tesla, Inc.

We got to look at it from a full quarter perspective. The negative working cycle is amplified by the rate at which we ramp our production, given our present plans of getting to 5,000 by end of Q2. It’s a fairly gradual – it’s exponential from where we started, but it’s not going to create a situation where our cash flow from operations will exceed CapEx.

Still cash burn. Deepak smiles, goes back to sleep.

Adam clearly wants to know what Elon will be doing after work and asks the succession question.

Adam Michael Jonas – Morgan Stanley & Co. LLC

Just wanted to ask, do you see your successor as CEO of Tesla someone currently within the company right now, or from outside the company, kind of how do you see that?

Elon Reeve Musk – Tesla, Inc.

I think that there’s no active search going on. There’s not even – active or passive search going on for a new CEO of Tesla. I expect to remain CEO for the foreseeable future.

But at some point if there’s somebody really spectacular inside or outside the company who could take on that role and who would want to have that title and that role, and that would be fine with me, and I would focus on product development, which is design and engineering, which is what I like doing best. So, there are no plans to make a change at this time.

Yep – tough to replace. By the way, anyone seen Jonathan McNeill? He was on the third-quarter call… meanwhile:

Romit Jitendra Shah – Nomura Instinet

It sounds like from the letter that you could do more than 100,000 S and X in 2018, but you’re constrained by the 18650s. And I’m just curious what would it take to see the 2170 cells in these vehicles?

Yep see, production constrained, just like the script.

Jeffrey B. Straubel – Tesla, Inc.

Well, this is JB. It’s something we’ve of course contemplated, but it’s quite a large change to the architecture of the module and the battery pack overall. And while the 18650 supply is somewhat of a cap at about 100,000 units per year, even just a few months ago we didn’t feel that expanding and making some long-term bets on expanding that supply with Panasonic in Japan was really the right risk.

And Elon again:

Elon Reeve Musk – Tesla, Inc.

So, you really have to then shift everything to say, okay, if you want to make 20% more S and X, everyone has to make 20% more.

There have to be investments in new lines or it’s going to require over time, which negatively affects gross margin. Kind of design the manufacturing machines are to create, and then you’d have to redesign the machine or go redline. And so I think we feel pretty good about the 100,000 a year for S and X, and we want to focus on just improving the efficiency of production and gross margin.

In other words – that’s it – 100,000 combined X and S per year. No more growth in that line.

Next question from Romit:

Romit Jitendra Shah – Nomura Instinet

Okay. The other thing you guys mentioned was upcoming autonomous coast-to-coast drive, which we’re really looking forward to. Could you give a little bit more color on timeframe, when something like that would be available for customers?”

Elon admits they’ve just been busy.

Elon Reeve Musk – Tesla, Inc.

Yes, so we actually – I’ve been meaning to address this because obviously I missed the mark on that front. Our focus is very much on Model 3 production, so everything else kind of took a second place to that.

But then he goes full Elon:

Elon Reeve Musk – Tesla, Inc.

But we could have done the coast-to-coast drive, but it would have required too much specialized code to effectively game it or make it somewhat brittle and that it would work for one particular route, but not the general solution.

Uhuh – but what about “exponential”, we haven’t heard that much today.

Elon Reeve Musk – Tesla, Inc.

I am pretty excited about how much progress we’re making on the neural net front. And it’s a little – it’s also one of those things that’s kind of exponential where the progress doesn’t seem – it doesn’t seem like much progress, it doesn’t seem like much progress, and suddenly wow.

You see, exponential doesn’t always mean much progress. It’s like a step thing, with a lot of “thrashing.”

Elon Reeve Musk – Tesla, Inc.

And you look at say something like what Google DeepMind did with AlphaGo. It went from not being able to beat even a pretty good Go player to something that could beat the European champion, then it could beat the world champion, then it could thrash the world champion, then it could thrash everyone simultaneously. Then they made AlphaZero, which could thrash AlphaGo,

That’s a lot of thrashing. Not an advisable safe word I might add. Wonder if it will be like that for self-driving?

Elon Reeve Musk – Tesla, Inc.

It’s going to kind of be like that for self-driving. It will feel like well this is a lame driver, lame driver. Like okay, that’s a pretty good driver. Like holy cow, this driver’s good. It’ll be like that.

For a guy who seems worried about the AI apocalypse, he seems pretty happy to put us in a car with AlphaZero. But that’s another topic.

Ryan Brinkman comes in asking the hard questions:

Ryan Brinkman – JPMorgan Securities LLC

As you put solutions in place one by one to unclog Model 3 production bottlenecks in Fremont or at the battery module line in Reno, are you finding that the ultimate solution is more or less expensive to implement than your original plans, which called for 25% gross margin on the vehicle? Do you feel any differently now about the cost to manufacture the Model 3 or its gross margin potential versus prior to the start of production last July?

Elon says what?

Elon Reeve Musk – Tesla, Inc.

I think we feel good about that. I think like – I think we probably are, we’re probably able to exceed that next year, probably. Like our understanding of manufacturing has improved dramatically. We can think of a huge number of ways to make it far better, far more efficient. I’m really excited about how much we’re learning about manufacturing. That’s why I said I think long-term strength of Tesla will be the manufacturing plants, potentially productizing the Gigafactory, which is like the world’s biggest product basically. Make it like – make a nuclear Aircraft carrier look pretty small by comparison.

I see, Productizing the Gigafactory. Where their strength is manufacturing… Bonus points for proper use of the buzzword “productizing.”

And then from Ryan, how about cash?

Ryan Brinkman – JPMorgan Securities LLC

I’m just curious what your thoughts are with regard to when you also might generate free cash flow. Is that less of a medium-term focus as you prefer to invest operating cash flows from the Model 3 into the Semi truck, the Roadster, and Model Y?

In a sing song trade-off between Elon and a well rested Deepak, they basically said they could have free cash flow, but it makes more sense to invest instead.

Elon Reeve Musk – Tesla, Inc.

Yes. We could be positive cash flow, like I think pretty significant positive cash flow probably in like third quarter, which is like maybe four, five months from now. But we think it makes sense to invest in Model Y and – yeah.

Deepak again:

Deepak Ahuja – Tesla, Inc.

Future growth of our energy products, Model 3, future growth of that, so.

Elon Reeve Musk – Tesla, Inc.

Our energy products, yeah. The opportunities we see are – we see really good opportunities there.

Deepak Ahuja – Tesla, Inc.

Makes good business case, good business sense to invest.

But then this gem from Elon – seems no one in the car business knows how to build cars. Their lines should move at 40 km per hour.

Elon going Elon again:

Elon Reeve Musk – Tesla, Inc.

What I find sort of interesting is that our competitors – the car industry thinks they’re really good at manufacturing…

What I sort of find interesting is that you don’t think they are very good at it.

…they just don’t realize just how much potential there is for improvement.

And

I went through this math I think on a prior earnings call, but like it sounds like some of the fastest car factories produce a car maybe every 25 seconds. That sounds fast. But if you think of a 5-meter long car, including gap, and a 4.5 meter car with a half meter gap or something, that’s only 0.2 meters per second. Like grandma with a walker can exceed the speed of the fastest production line we’re in, so really not that fast. Walking speed is one meter per second, so five times faster than the fastest production line on earth.

Uhoh – even Deepak seems sketchy on this one:

Deepak Ahuja – Tesla, Inc.

That’s interesting comment.

And then, a makeshift brainstorming session breaks out.

Elon Reeve Musk – Tesla, Inc.

Why shouldn’t it at least be jogging speed? I mean in the limit, companies should start caring about the aero drag in the factory, which that’s maybe around 20 miles or 30 miles an hour, or call it 30 kilometers an hour, 40 kilometers an hour. It’s like, stuff should be moving at that speed.

Alrighty then… Aero drag in the factory.

Next question on CapEx and why so high for 2018.

Antonio M. Sacconaghi – Sanford C. Bernstein & Co. LLC

You commented in the shareholder letter that capital expenditures for 2018 were expected to be a bit higher than 2017. I’m wondering if you could tell us what exactly is in that, call it roughly, $3.5 billion. Are you going to get to full like 10,000 car per week capacity? Is that in the $3.5 billion? What will Gigafactory production be? And in the slightly more than $3.4 billion, is that also including the investments, Elon, that you mentioned on Model Y? So where exactly is this level of capital spending going to take us in 2018?

Good question.

The answer – they need it for all sorts of stuff like:

Deepak Ahuja – Tesla, Inc.

I mean, our biggest – our very high level, sort of breakdown, our biggest investment is obviously in the Model 3. And that includes completion of the payments that we still have to make on the capacity we are putting in place now as well as significant investment in our required up front for the next phase of Model 3 production to 10,000 plus per week… and the rest is all the many other things we talked about, whether it’s energy storage, whether it’s –

Elon again:

Elon Reeve Musk – Tesla, Inc.

Primarily Y and energy storage.

Deepak reminding Elon of the many other things:

Deepak Ahuja – Tesla, Inc.

And then our infrastructure spend, superchargers, stores, service centers, we want to significantly increase the service capacity, we want to significantly increase our supercharging capacity.

Elon realizing he’s right:

Elon Reeve Musk – Tesla, Inc.

Yeah.

Antonio with his follow up:

Antonio M. Sacconaghi – Sanford C. Bernstein & Co. LLC

So is the – $3.5 billion and the greater than 50% to Model 3, is that going to complete all the required equipment to get us to 10,000 a week at the end of the year or are we still going to have incremental capital expenditures?

Deepak gives him the cold water:

Deepak Ahuja – Tesla, Inc.

To sort of finish off your first thought or question, no, we will still have further investments in 10,000 per week capacity of Model 3 happening next year, as a lot of that will be concluded next year. There’s always a lag in our cash outflow, and while we continue to test the equipment and verify it. So that’ll continue in 2019.

It won’t be near 10,000 this year. It will spend at least 3.5 billion, and it will need to spend more next year to get the 10,000 model 3s per week. So not going to happen in 2018.

Next comes one of the stranger exchanges with Brian Johnson, wondering why Tesla thinks it is better than Toyota (NYSE:TM).

Brian A. Johnson – Barclays Capital, Inc.

…could you maybe give us some more discussion really on the managerial culture, the process level? How you would benchmark yourself for example against a Toyota factory, which seems to be able to launch a new product in about three or four months to ramp up?

Elon does not like this question:

Elon Reeve Musk – Tesla, Inc.

Well, I’m pretty sure Toyota cannot ramp up a new product in three months. In fact, I’m 100% certain about that. Deepak spent many years at Ford before joining Tesla.

Deepak Ahuja – Tesla, Inc.

Yes. Generally, companies including Toyota take anywhere from six months to a year when they come up with an all new product.

Elon Reeve Musk – Tesla, Inc.

And old news like that’s – they are still, it’s not really – the amount of technology that changes is not that much.

Deepak Ahuja – Tesla, Inc.

It’s a major platform, so it’s not all new as a Model S or an X that we’ve done. So it is longer.

Elon Reeve Musk – Tesla, Inc.

Right. They’re not fundamentally new technologies.

Deepak Ahuja – Tesla, Inc.

Yes.

Brain is unconvinced and comes back with another volley.

Brian A. Johnson – Barclays Capital, Inc.

Okay. But within that then what are the differences though in the way you’re going to be managing the factory?

Elon Reeve Musk – Tesla, Inc.

The most fundamental difference is thinking about the factory really as a product, as a quite vertically integrated product.

Jeffrey B. Straubel – Tesla, Inc.

It’s treating it as more of an engineering and a technical problem as well.

Brian A. Johnson – Barclays Capital, Inc.

Right, which is the Toyota Production System.

Zinger of the day! Well played Brian.

Elon vehemently disagrees:

Elon Reeve Musk – Tesla, Inc.

Yeah. We don’t think so.

JB tries to come to the rescue:

Jeffrey B. Straubel – Tesla, Inc.

I think that generally it’s more of an optimized operational problem, being extremely lean and really managing the flows of materials and the supply chain. They’re great at it, but this is I think a different approach, looking at it really from a deep technical lens in terms of automation, robotics, process.

Then Elon comes back… strangely:

Elon Reeve Musk – Tesla, Inc.

You still have a lot of workers, you still have a lot of people, and it’s just like with the Model S, say, we have a large service organization that has scheduled maintenance, that has things that break, there are crashes that need to be repaired, there’s technology upgrades.

Ok, where is going with this?

But you don’t actually ship people with the Model S. That would be weird.

Yes – that would be a bit weird.

It’s not like tiny people in the car.

Uh huh.. Not Gremlins is it? I didn’t like that movie.

So you have – we expect that the Tesla factory has a lot of people around the factory, but very few people in it.

Not sure how that would be all that different than Toyota. It doesn’t ship cars with tiny people in them either – that would be weird.

Brain tries one last time:

Brian A. Johnson – Barclays Capital, Inc.

How do you manage the people in the interim?

Doug Field – Tesla, Inc.

The model at Foxconn was very different where very quick product ramps and very high scale was achieved through manual processing of also what is fundamentally a product whose simplicity is orders of magnitude below ours. An iPad is less complicated than our center screen in many ways. So it’s a very different order of magnitude in terms of the kind of product you’re building..

The iPad is an “orders of magnitude” easier to build than the model 3 iPad screen? Really, an order of magnitude – like x10 x100?

Brain gives up.

Brian A. Johnson – Barclays Capital, Inc.

Okay. Thanks.

Then Elon in his own “oh, by the way moment”:

Elon Reeve Musk – Tesla, Inc.

Actually, one thing we forgot to mention is John McNeill, who is heading up our sales and service group is departing the company. We wish him well in his future career. And going forward, I will be having the sales and service report directly to me. There are no plans to search for a replacement.

Ahh, I knew we were missing John, where could he be?

Looks like he’s not coming back.

After a question from John Murphy on why Tesla thinks it can make 20% more cars than Toyota could at Freemont, he asks about the model Y and its million units per year.

John Murphy – Bank of America Merrill Lynch

…or as we look at the Model Y and its million-units capacity, we’re definitely looking at a new facility?

Elon punts this question till the future:

Elon Reeve Musk – Tesla, Inc.

I’m pretty excited about the Model Y stuff, and I think I want to present that in a more cohesive fashion. It’s probably not the next earnings call, but call it six months from now.

Fair enough. We’d love to hear it in the future. Sounds like a bit of capex though that you talked about above, you know – part of that $3.5 billion?

So about that extra capacity at Freemont. How are we going to run parts there again? They have another impromptu brain storming session.

Jeffrey B. Straubel – Tesla, Inc.

The material flow delivery that Elon mentioned, as we develop very high density and velocity lines, the limit starts to become how we get material to that line. We’ll solve that for the Model 3 line, but eventually within three months, the limit to production may be how many trucks we can get in how quickly, both material.

Elon Reeve Musk – Tesla, Inc.

Look, we use the Hyperloop for that.

Jeffrey B. Straubel – Tesla, Inc.

Yes. Actually…

Elon Reeve Musk – Tesla, Inc.

We are looking at building tunnels, using The Boring Company’s thing, because we have, for example, our seats production is at a separate building on Page. And we have a bunch of trucks moving seats back and forth between both the primary Fremont production and the seat factory. And we actually get constrained on how many trucks can we dock and undock at the seat factory, which is only, I don’t know, half a mile or a mile away from the vehicle plant. So it’ll be pretty easy to just have a tunnel, do an automated conveyance from seats to the factory.

Oh… that seems simple. Use the Boring company thing and then the Hyperloop thing to move the parts. No trucks needed.

John wakes Deepak up one more time with a cash flow question:

John Murphy – Bank of America Merrill Lynch

Apologies, Deepak. You did a great job with working capital in the quarter. I mean, I think some of us might kind of throw stones and say it might not be repeatable, but you did it and you got the cash in the door. So it’s done and it was like that’s some pretty good work here. How repeatable do you think the benefit from working capital is going forward?

Deepak Ahuja – Tesla, Inc.

Yeah. Some of those are not repeatable. We significantly reduced the finished goods inventory of S and X in Q4, which will not repeat itself going forward. And that was a huge impact on working capital. Customer deposits may not be as well, as you’ve pointed out.

Summary

In addition to making sure I will never be employed at Tesla, I took some liberties and had a little fun with some of the comments from the call. I can assure you, however, anywhere I quoted that was the exact quote.

Some main points:

• 10,000 model 3s per week is not achievable in 2018. Now the goal is 5,000 per week by mid-year.
• Tesla has pushed out its guidance from even three months ago to 2,500 per week by end of March from 5,000 on Model 3.
• To get to 2,500, it needs to dissemble, ship, and reassemble production equipment from Germany. This is no small feat. Via containers, this could take over a month just in shipping. The company is expecting arrival in March. Not a lot of time to get the line up and running to meet the target.
• The cash flow management for this quarter is simply not repeatable.
• The $3.5 billion capex number will not get it to 10,000.
• TSLA will need another facility for Model Y. How about semi-trucks?
• 100,000 model X and S combined is the limit without significant investment, which it is not planning.
• Need to use the Boring company and a new Hyperloop to move parts to get it to 600,000-700,000 units a year at Freemont.
• Elon wants assembly lines to run at 40km per hour. I want to see that.
• The company seems to think it can manufacture with better practices than world class auto companies, but there is no evidence of that fact yet.

Conclusion

Elon Musk is an amazing individual. As my background is nuclear propulsion, and manufacturing, I can say that doing something one time is not so hard. But doing the same thing 1,000 times in a row is a “step progression” in difficulty. Imagine making a free throw. You could train yourself pretty well to be able to make one most of the time, maybe 90%. But try to implement a system to make 100 free throws in a row 90% of the time. Manufacturing needs to be leaps and bounds ahead of that. To utterly dismiss the skills of Toyota and other large scale auto companies is a bit of a leap too far. But then again, he is Elon Musk – we’ll see. Good luck trading out there. I’ll wish Tesla the best, but I’ll be checking the put option premiums from time to time.

Disclosure: I am/we are long 385 TESLA PUT OPTIONS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.