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Tesla Motors, Inc. (NASDAQ:TSLA)

2014 Annual Stockholder Meeting and Public Webcast Call

June 03, 2014 02:00 PM ET

Executives

Todd Maron - Deputy General Counsel

Elon Musk - Co-Founder, CEO and Chairman

James McRitchie - CorpGov.Net

Antonio Gracias - Director

Analysts

Presentation

Todd Maron

Good morning, everyone, good morning. Welcome to Tesla’s 2014 Annual Shareholder Meeting, we are really glad that you could be here with us today. My name is Todd Maron, I am Tesla’s Deputy General Counsel. Momentarily, we will be welcoming Elon Musk, our Co-Founder, CEO and Chairman to the stage. I would now like to introduce our Board who is 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 for today’s meeting, first we will have the formal part of the meeting. It will 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 will have the question-and-answer session.

I will 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 is 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.

Computer share 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 a majority of the outstanding shares represented at the meeting today, so I declare that there is a quorum present and that we may proceed with the meeting. We are 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 dually elected and qualified. Second, to hold the 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 limit on awards that maybe 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 super majority voting provisions on 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 is ready to present his proposal. So Mr. McRitchie if you can step to the microphone we'll give you a couple of minutes here. Thank you.

James McRitchie

Thank you very much. First I want to say that I'm excited to be a shareowner of Tesla. Our company has shown that combating climate change can be more exciting by contributing to it. The best car every tested by consumer reports and with the recently announced EPA power plant reductions our cars will be even cleaner. Tesla is a great company, but 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 super majority voting requirements. And I think that doing so will help us to attract more institutional shareowners. I am not alone and my opposition to super majority 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 by-laws or to take other action that requires, receives a shareowner vote, super majority votes should not be required.

Thank you. And I ask for your I vote.

Todd Maron

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 statements 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? So if you could please find Lisa, or 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 obviously unofficial tally and announce that at the end of the meeting as well. But 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 an 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.

Question-and-Answer Session

Unidentified Analyst

(Inaudible).

Todd Maron

You have something to say on the agenda you made, not something away from the agenda. Is it on the agenda?

Unidentified Analyst

(Inaudible).

Todd Maron

Okay. Go ahead.

Unidentified Analyst

[Is there] microphone? It's [Don]. 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 you’re voting 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 Buffet said with Coco Cola is outrageous. So I object to the these type of competition 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.

Todd Maron

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 want to refer to the proxy they certainly may. Going back to the 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 and we may disclaim any obligation to update them after today.

So with that please welcome Elon Musk.

Elon Musk

All right. So welcome everyone. And as always thanks for being an investor. So we will do just a few slides and then go into questions. So it’s a complicated device which has two buttons, blah, blah, blah…something, something.

So it's been a great year. We've produced and sold a lot of cars. We are now at 344 million miles driven. And pleased to say, sort of touchwood that no one has received a serious permanent entry in Tesla ever in all those miles driven.

And I mean that is certainly one of our proudest accomplishments and there is some pretty crazy crashes I should say as well. We've had a guide, in fact I think that I wasn’t sure that really it worked out so well and it was the guy that drove through two concrete walls at 110 miles an hour. There was and I would just say I think the car is really safe unless you drive if off a cliff, and then somebody drove if off a cliff. Fine.

So that's looking good. We've got 126 locations around the world from China to Norway, service centers a lot's of Supercharges. We're actually trying to accelerate the rollout of Supercharges even more. In fact by the end of this year we'll probably have doubled that number of Supercharges so there is a huge number of Supercharge locations in process.

And for Tesla, we have to come up with 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 and then of course charging it. So 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 and as to a car they need to go from one place to another and so we want that whole experience to be as positive as possible. And really want people to love their car.

And 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. And there just aren’t that many products that really give people joy and we’d like to be one of those products. And I am pretty excited about some of the software that’s coming out later this year that would be provided to old Model S owners. That’s really going to personalize the car a lot more. I mean it is ranging from the highly functional to the not that much, you’ll be able to name your car and it will show up in the mobile app as that name. So I found her too and it’s old (inaudible) and there is going to be a lot of customization with the car kind of learns your behavior and it just automatically adjusts to what you want. So things like traffic-based directions and calendar integration and anticipating where you are going, alerting you if there is traffic along the way and an alternate route maybe better and that kind of things. So we expect to have that rolling out fairly soon.

So, yes, I mentioned the navigation enhancements, in particular traffic optimized directions I think is really important. So, what we're doing is similar to maybe what you’ve experienced with [ways] where you have the cars operating collaboratively as a network, sort of a cloud sourced intelligence as to the traffic information.

So, as the number of Model Ss in the neighborhood increases, the quality of the traffic will actually improve quite considerably and we're also bringing in data source, 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. So, in places like Iberia Peninsula, it should be pretty great or West LA. But as Tesla’s increase that's going to get better and better. And then we've also introduced a number of hardware improvements over the past year. A lot of subtle things but there are important number of areas like power folding mirrors, the parking sensors and of course the sort of underbody shields, which I mean aren't really necessary, but sort of it will be helpful, so that you can drive over concrete block and be okay.

So, sales have been pretty good and still obviously room for improvement, but a good start. And we've really been production limited, as I think and most of you’ll know with the biggest constraint being supply of the battery cells. And that constraint is sort of gradually alleviated over the course of this year and the next. So, we expect to steadily ramp up the production. In some cases, there will be important step changes, significant step changes in the number of cars that we can produce and we will be going into more markets as well.

So this is kind of where we started out. Obviously not in a good place with respect to gross margin, but then ultimately ending up and I think we have pretty good gross margin per car sold. And we do expect steady improvement in the gross margin despite what I think is likely to occur, and we are seeing to some degree occur which is that the number of options over the value of the options that people are [picking] for the car is slightly reducing because of basically affordability.

So we expect to see a slight decrease from people spending on the order of a $100,000 a car to maybe $95,000 a car which is still quite a lot. So we have expanded to some very significant markets recently. I was over in China and we have very good reception there; there is a lot of interest in the car. So, we are 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. With each market there are idiosyncratic issues around charging that relate to building codes to the way that the electricity grid works. And these can be quite difficult to solve. And we had some challenges for example in Norway which is the highest sales per capita in the world but they've got a unique electricity grid and it took us several months to get to a good solution there. So, 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 will be good servicing and good charging capability, because we don't have people to have a negative experience.

And then in terms of right hand drive markets, I'm headed to London this weekend to handover the first right hand drive cars and then we'll be going into Japan, Australia, Hong Kong and number of other markets later this year.

The Gigafactory, I think people know what our situation is there. We are getting quite advanced in the planning for the Gigafactory interval. I’m quite optimistic about the potential cost reduction and that the cost per unit of energy. I think we're targeting a minimum of 30%, [30 side] reduction. And I think that's probably conservative at this point. I think we’ll probably do better than that with the Gigafactory. And I feel also really good about our partnership with Panasonic.

We have daily meetings with Panasonic and then every week there is sort of more comprehensive meeting. And Panasonic at first wasn't sure about whether these cost reductions could be achieved, but I think they are now convinced they can.

And of course this is Model X. So, I should say that the production version of the Model X actually looks different from this, it looks better.

One of the things that drive me crazy about cars is that very often you’ll see kind of the show car or demo car and then the production version is some much worse version of that. And at Tesla whenever we show of a car as a demonstration item the production car will always be better than what people saw. And now sometimes that takes a lot of efforts and it’s very difficult and that certainly is the case with Model X, but we had two choices which is either produce an amazing car that I think is going to blow people away or produce a pretty good car. And we want to have amazing car that just blow people away. So in the case of Model X that’s just taken a bit longer than we would have liked in particularly getting the falcon-wing door right is extremely difficult and then things that you maybe wouldn’t expect 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 were essentially framed and we want that to feel like a work of art like if you open up the door it should give us amazing experience. I mean it may sound a bit silly but it should just feel like --. And then the seat, I mean it’s just a seat but we want the seat to be like feel like a work of art like something you could have in a museum I mean that's where we're going for with the Model X since bloody hard.

And of course it will have Dual Motor, All-Wheel-Drive and we expect to start to reach volume production in the second quarter next year.

And then Tesla is always been -- the ground strategy at Tesla has always been a three step process where step one was little volume, high price product with the Roadster then we've got mid volume mid to high price car with the Model S and then generation three being the high volume lower cost car. And with Gen 3 with our third car, we're expecting that to be about a $35,000 car with a range in excess of 200 miles.

But I should say that 35,000 may sound a little 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 gasoline car of about $22,000 to $24,000. So actually the affordability of it should be quite high, I am very optimistic about that and we're going to try to make that third generation car happen as soon as we possibly can. Obviously the Gigafactory is pretty closer to the creation of that car or the volume production of that car. So, we're going to make sure that the Gigafactory and the tooling and development of that Gen 3 car move in-sync to market release and hopefully, so in sort of the late 2016 timeframe.

Then we completed our coast to coast connection with the Supercharges, so you can travel from LA to New York via (inaudible). And actually, I don’t think we did a good job of explaining through media like why is this weird route that way, and it’s because it was originally the route that I was going to take my family on a road trip.

And then it is taking us a bit longer to complete the route because of sort of heavy icing conditions and winter, and then by the time this completed, the kids were in school and it would have been difficult to take an off for a week, so we just had a Tesla team do a cross country trip, and a bunch of customers did it, actually I think a customer did before we did it. We set sort of Guinness Book of World Record for the fastest trip from LA to New York in electric car.

And then, of course by the end of this year, we will pulled out a bunch of more routes to be able to go in a much more direct manner to New York or from, say LA to Florida. Of course, you can go often down the East and West Coasts, and you will see that map sort of mostly filled in by the end of this year, and then something similar for Europe and will be making good progress I think in China and other parts of the world on Supercharger front.

All right, so I have questions. So, if those having questions could line up the microphones, and I will just go from one to the other.

Elon Musk

Okay, go ahead.

Unidentified Analyst

Hi. My name is Benjamin. And since the deal with Toyota had actually fallen through, and they no longer wanted batteries and actually want to switch over to hydrogen fuel cells, I wanted to get your opinion on, now that gas is going to be going off and you're going to be competing with infrastructure for hydrogen fuel cells and electric charging stations, what is your outlook on that like the competition between the emerging -- the re-emerging of hydrogen fuel cells in the talks between the car companies and such?

Elon Musk

Yes. So, I’d first like to say talks with Toyota didn’t really fall through. It's just we're sort of coming to the end of the RAV, electric RAV4 program, and 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. So, we just – and so, we alleviated the cell supply constraint. It's not really possible for us to do a high volume deal. So what we are going try 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 one car from say, Tesla to Toyota and it’s just -- it’s not really accomplishing anything. So that's why we are so (inaudible) on the Gigafactory, so we've got to get that done in order to ensure that there is 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. And I mean I think 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 [party] great advantage. You can say, well let’s think of like cell phones. A cell phone that lasts longer is a key strategic advantage, “Gee! nobody is using fuel cells there. Okay. Well that’s maybe really expensive, how about $200 million satellite? Well, nobody is using full cells there, either, okay case closed.

Unidentified Analyst

Thank you.

Elon Musk

Okay.

Unidentified Analyst

Hello. My remarks are for you Mr. Musk and also for Dr. Jerome Guillen. And just to remind you that in the developed countries we have a lot of women who would like to buy Tesla’s, but they need to be a little bit more women favored. Those of us who have a sufficient buying power, I’d tell you not the younger, but the sort of older generation, and we’re not as tall as the men or as the younger generation, so we have a little bit of difficulty getting to the pedals and also being higher on the seats.

Elon Musk

Okay.

Unidentified Analyst

So, 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, because after all, after all, we are a majority. And finally, I would like to say that whoever has a car, they should say yum when they approach the car, and the Tesla’s are definitely yum, yum, yum. Thank you.

Elon Musk

Well, thank you. That's a good point. Thank you. So, I should say we are -- with the Model X, we're certainly paying more attention to the needs of women in the Model X, and I think you're right, we've probably got a little too eye centric on the S. So, we're hoping to correct that with the X.

Unidentified Analyst

Hello Mr. Musk. My name is [Russell Cansella] and I'm a satisfied shareholder. My question today is actually about the non-trivial matter of the merchandise Tesla sells in its stores, it's also a function more or less as a uniform for the Tesla product specialists.

Elon Musk

Right.

Unidentified Analyst

I just wanted to know if there is any consideration to improve or update these as a way to bring them in line with the Tesla brand. Thank you.

Elon Musk

Yes. So, I think a good point in deed, but we are planning to do that. Yes. Thank you. You are right.

Unidentified Analyst

So, this is [Mitchell] from LA. I have a question about the Model X, and as you ramp up and obviously it is battery issues -- I mean supply issues, and I'm sure there is more demand than supply. Are you going to 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, and really come with the optional upgradable seats?

Elon Musk

So, we are going to try to ensure that vehicle production matches the availability of battery cells, and obviously we have some external dependencies on that front, but we are going to try to ramp up as fast as we possibly can. So I think at some point we will probably hit some customer demand limit, but we are going to ramp up as rapidly as we can, ramp our production and see what that limit ends up being, but simple for us to say with certainty what it is but we are going to 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, and we are planning on offering an upgraded seat later this year that will be both sportier and more comfortable and will be offered as a retrofit as well, so if you want to 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, the type of foam that’s on the seat, and we kind of over sprung the seat so that it’s still too tight in terms of the springs under the seat, so it closes the seat’s crown slightly, and so we fixed that, and then the lumbar support is slightly too forward, so we have also fixed that.

So, 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, and that makes quite a substantial difference to the comfort of even the base seat. Seats have been like a (inaudible).

Unidentified Analyst

Thank you.

Unidentified Analyst

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.

Elon Musk

I’ve got a funny story on that front.

Unidentified Analyst

Yes. So, apart from an apparent desire to break the world's greatest combo.

Elon Musk

Yes.

Unidentified Analyst

What motivated this decision, it's kind of I want to get a sense for the thinking there?

Elon Musk

Yes. So, let me tell you our sort of very deep thought process on branding here. So, we have the S and the X, and then a friend asked me at a party, hey (inaudible) third generation cars, like well you've got the S and which X, (inaudible). And then, I kind of stuck even though we're just kidding, and then just sort of added to it, we also just (inaudible) trademark the Model Y.

But I guess things are pretty dry in the trademark world, so nobody picked up on that, anyway. And then, Ford gave us a call and said they're going to sue us for using Model E, I don't know like, okay like Ford’s coming sex, I mean that's terrible.

Unidentified Analyst

That’s going to end up on Twitter.

Elon Musk

So, like okay, fine, we won’t use the Model E. And so, now when we are thinking that well maybe there’s something else we can use. So we're trying a few other ones and the trademarks are in process, the applications are in process, so I can’t say what they are, but I think we’ve got something that might be a good, might work out pretty well.

Unidentified Analyst

Hi. [Roy Philipos], philosopher and entrepreneur from Philadelphia, Tesla’s shareholder. Two years ago, I was here asking you about Model S sales and you had mentioned to me 8,000 or so breakeven units, and it seems like now much more better things have occurred, which is good for all Tesla shareholders.

A 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 and as well as who do you want to be the CEO of the company after you do step down from that position? Thank you.

Elon Musk

Well, nobody is a CEO of a company, forever, I mean eventually they carry you out. So, in my case, I mean it is quite difficult I’d say being CEO of two companies. And it was never my intention to be CEO. I tried to actually not be CEO quite hard and eventually was sort of was either bad or the company wasn’t going to make it, so (inaudible) to have to give it a try. So, what I’ve committed to is to be CEO of the company through volume production of the third generation car, so that’s somewhere in, I don’t know, four- or five-year timeframe, and then I have to see how things are going at that point, and whether it’s -- if it is sort of manageable to do that on a personal level without getting burnt out essentially, then I'll keep doing it. Otherwise, I will probably have to find someone else, but we’ve got a lot of time to sort that out.

Unidentified Analyst

So, you (inaudible)maybe a few years, and then pretty much on a volume production cars comes.

Elon Musk

I think I will certainly be the CEO for like say four or five years, and then it’s sort of TBD after that, but that's the commitment I made to people at Tesla and also to investors is that I'm going to make sure that we execute through the high volume affordable car at a minimum, and then we’ll of course evaluate at that point.

Unidentified Analyst

Okay. Just a quick follow up, I have been asking to speak to you now for two years, to talk to you to tell you that I'm also super genius like yourself.

Elon Musk

Okay. Not sure I'm one, but all right.

Unidentified Analyst

No, I'm sorry, I am not. I'm just saying seriously, to all benefit of Tesla shareholders in the world, I'm the capitalist like yourself, I'm also level two stage. I have been waiting for ten years now for someone to give me a second look, a full second look, and if they see a very advanced mind in front of them. So, I'm asking you today, can you give me a second look?

Elon Musk

Okay. I'm not sure what’s the second look, I'm not sure in what regard?

Unidentified Analyst

I would like to come on Board as Vice Chairman of Tesla.

Elon Musk

Well, we don't really have a Vice Chairman spot. But yes, I mean I think that's -- I don't think, I have to say, no. I apologize.

Unidentified Analyst

I'm sorry, I can also apply for future CEO position, but at least I would like to come on the Board of the Directors. I apologize, to the benefit of Tesla’s shareholders?

Elon Musk

I think we need to move on to another question, my apologies?

Unidentified Analyst

I apologize. Thank you for your time.

Elon Musk

All right.

Unidentified Analyst

Hello, Mr. Musk. I know that your long-term goal is rather than just to sell Tesla’s but to accelerate electric vehicle market around the world, and it seems like no one is really matching what you are doing at Tesla with the Supercharger network as far as rapid charging and battery swapping of high energy batteries. I was wondering would it -- to advance the long term goal, much long term goal, would it ever make sense to open the 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 a Supercharger in terms of capacity?

Elon Musk

Yes. So, in terms of Superchargers, it’s not to create some sort of walled garden or anything. We are actually -- have 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. So Supercharges, the current generation Superchargers put out a 135 kilowatts, and we are planning to go up from there, but there is no other electric car that can accept anything close to 135 kilowatts. We are more than happy to have other manufacturers do this, and I’ve said this publicly on a few occasions. No one has approached us and said well they’d like to use it, but we are happy to have them do so. They just have to contribute to the capital cost, like figure out like okay what percentage of the time are their cars using the Supercharger network, and then they can make a contribution proportionate to their customer usage of the Supercharger network. So, we're very open to such a thing.

Unidentified Analyst

Thank you.

Unidentified Analyst

Mr. Musk, I’m from Los Angeles. And I would like to buy a rally jacket of the team that went to New York.

Elon Musk

Okay.

Unidentified Analyst

And you don't sell it.

Elon Musk

Alright, we could.

Unidentified Analyst

I recommend following the comment somebody else about redesigning the Tesla accessories, if that be an accessory, certainly most of the people who were there with me watching the guys get started. Well, how do we get that, it's not available. But 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 flat bid 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 and deliver.

Elon Musk

Okay. Thanks.

Unidentified Analyst

Hi, Mr. Musk, I'm [Ben Clark]. I’m a huge fan, happy shareholder, happy Model X owner, hopeful future occupant of Mars. So, I’m very thankful for the time that you give around the world and kind of regularly answering these questions and talking to 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 electrical vehicles. I get the sense that you’d be extremely happy if all the major competitors came out tomorrow and announce long range electric vehicles that have great styling and performance and low cost…

Elon Musk

Yes.

Unidentified Analyst

Even to the point that I think you would feel personally satisfied if Tesla Motors would put out of business by all these great electric vehicles driving around.

Elon Musk

Well…

Unidentified Analyst

At least having satisfied your goal of bringing that...

Elon Musk

The automotive market is big, I'm sure there is certainly room for many companies.

Unidentified Analyst

So I'm just kind of curious how do you balance your desire to bring the advent of electric vehicles of 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 example as kind of how you make those tradeoffs and what future decisions you might anticipate?

Elon Musk

Yes, it’s 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 the number of electric cars they make is the minimum required to satisfy regulations. And then when those regulations are ordered down, then they reduce or eliminate the electric vehicle program. So, it’s surprising, and I still really was hoping that other car companies would engage in more serious electric car programs. And I am 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 detriments, because ultimately we need all electric cars -- all cars to go electric, and the car market is enormous, and there’s100 million new cars made a year, and there is an existing fleet of roughly 2 billion cars. So even if all cars were electric, immediately all new cars produced, it would take 20 years to replace the fleet.

And if you look at the (inaudible) numbers of cars that Tesla makes, there were 22,500 last year, and they will be sort of 35,000 this year. That's s big percentage increase but it's a very tiny percentage of the overall market, and we've got a long way to go just to get next to the decimal point in terms of market share, like one 0 over.

So, yes, I mean I'm contemplating doing something fairly significant on that front which should be kind of controversial with respect to Tesla's patents, but I would probably want to write something, so that I can take articulate it properly and explain the reasoning for the decision.

Unidentified Analyst

Okay.

Elon Musk

Yes, thanks.

Unidentified Analyst

Hello, my name is 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? And how quickly could this Gigafactory be retooled to make this new battery?

Elon Musk

It's rare that a day goes by when there is not some new battery chemistry that is announced. But I should maybe give people a good filter for assessing any new battery chemistry in terms of its potential. The 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 rates. The problem with something like the dual carbon approach is that the energy density is fairly low, it is only about maybe 20% of current cell energy density. Now, the power density is very high, you can charge it quickly, but the best we don’t have a constraint on power. The Model S really has a lot of power. So range and really the cost per unit energy, those are the two things that are important. Now something like the 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, but that is better than the one that we have or the ones that we expect to come up with. And so, my response always when I hear about electrochemical breakthroughs is, please send us a sample cell that usually – as always has resulted in nothing happening.

Unidentified Analyst

Thank you.

Kevin Weng – Private Investor

Hi, Mr. Musk. I am Kevin Weng. My question is related to Model X and generation third. And speaking of other car manufacturer activity, recently I attended BMW i3 test drive event and since I have been greatly spoiled by Model S, I wouldn’t walk away as a i3 buyer. But however this one thing impressed me very much is that the tremendous interest from the consumer showing up, so it’s kind of attend the event and then running the test drive all day long and then hundreds of people kind of sign up.

So it just come to me that if Tesla test Model E or Y ready, they will be selling like hot cake. And looking in your roadmap Model X still has the priority. So I wonder, is it that it takes this much time for you to learn how to deal with general relations there or is that any of the resource constraint like battery. Just wondering if you could share some of the rationale in terms of priority?

Elon Musk

Yes. The thing that’s important is to have a compelling mass market car. So I mean I drove the i3 and it's not bad, but it's the range is very short. It’s okay in other respects, but just, it'll be hard to say for most people that you could replace your gasoline car with an i3.

Kevin Weng – Private Investor

I am not impressed by i3 at all, I'm saying that if you have the Model E ready.

Elon Musk

Right.

Kevin Weng – Private Investor

That you could take over the market.

Elon Musk

Sure. So 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 affordable enough price that it doesn't destroy the affordability of the car. So that's why -- the Gigafactory is vital for getting to that level of volume and for reducing the costs by 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. But what we're trying to do is dial everything to the maximum to get to that affordable compelling - compelling meaning it’s going to be long range as soon as possible, the soonest we can figure out how to do that is through the late 2016 timeframe so that’s what we’re aiming for I mean we can obviously produce a car like the i3 or maybe probably better than i3 right now, but it just wouldn’t be great. It would be okay and but it wouldn’t really, wouldn’t be amazing.

Kevin Weng – Private Investor

Got it. One quick follow-up, so that leads to the Gigafactory and as I understand right now you chose two states simultaneously. So at what timeframe you will go with the final state?

Elon Musk

Yes. So, we’re probably going to do two or 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 states that we do it in. So I wouldn’t expect that we do a down select for Gigafactory 1 before the end of the year.

Kevin Weng – Private Investor

Okay. Thank you.

Unidentified Participant

I would just like to re-ask my question of how quickly could that new battery chemistry composition - how quickly could the Gigafactory be retooled for that new battery composition.

Elon Musk

It would be fairly straight forward for us to change the anode or cathode composition.

Unidentified Participation

Okay. Thank you.

Elon Musk

Yes. In fact we expect to evolve the anode and cathode, it’s not nearly what if that happens, we expect that to happen.

Bob Ashmore – Private Investor

All right, Mr. Musk. My name is Bob Ashmore, I am a shareholder, I am Roadster owner and a Model S owner. And I have a question about if you’re planning on any upgrades or enhancements to the Roadster and if not when I can expect another Roadster type vehicle?

Elon Musk

So, 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 and I'm I trying not to sort of -- I mean yes, we will get it done this year. There will be cool thing, but [inaudible]. But we said we'd do it, we're going to do it. So, we're going to do something cool with Roadster before the end of this year.

And in terms of next generation Roadster, that’s -- difficult thing is to say, well how -- well the stock market value is in the short to medium term. That is an impossible thing to say, because stock market is kind of manic depressive, I mean particularly with respect to Tesla. But, I mean the reason Tesla is so volatile is because so much of Tesla’s value is a function of market confidence in our future execution. So, if something happens that diminishes or increases that, it has highly leveraged effect on our current stock price. There is nothing we can do about that. I wish it was less volatile, frankly. But that’s sort of the way things are right now. So, I’d say Tesla is a very good investment for the long-term, but it's impossible to say what it is in the short term.

Unidentified Participant

Sure. And just one last remark, sorry. I was wondering if after I get my Tesla and after I drive around for a bit, you’d be willing to come have lunch with me.

Elon Musk

Well, I appreciate the request. I'm quite time constraint. But I appreciate the request.

Unidentified Participant

Could I at least get an autograph after the meeting?

Elon Musk

All right. Sure.

Unidentified Participant

Okay. Thank you.

Todd Maron

Sorry to do this. But we're going pretty far over, so we’re going to limit it for the last two questions, if that's okay.

Elon Musk

Okay.

Todd Maron

Thanks.

Elon Musk

All right.

Unidentified Participant

Hi. I am an 11 year old from Burlingame. And I invested in Tesla last year as my first stock. And I was wondering if I could have a tour of the factory?

Elon Musk

Absolutely, just speak to Tesla person and afterwards we will make sure it happens.

Unidentified Participant

Okay, thank you.

Unidentified Participant

Hi, Elon. I am [Dave B.] [ph] I have been an active member at Tesla Motors Club Investors Group and we have a lot of discussions about [helping] [ph] Tesla. And one of the questions is kind of like what’s after Gen 3 because as you mentioned with the 100 million vehicles per year and also with this massive transformation going on to electric vehicles the question is like is Gen 3 going to be enough to propel 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 competitor but more like a Camry-ish family sedan-ish level that is super affordable? Of course with battery [cluster] [ph] looking probably 5 to 10 years out, that something like that would be possible. But can you share some of your thinking kind of on if that kind of is a sub 30,000 vehicle in 5 to 10 years a possibility, is that going to be using a Gen 3 platform or would that be a separate Gen 4 platform?

Elon Musk

Well, I think as a general rule what Tesla is going to do is whatever set of actions we think is most likely to accelerate the advent of sustainable transport. So clearly that sort of Gen 3 car is kind of the Holy Grail. It’s like the thing that’s missing is because there are affordable cars that aren’t compelling, electric cars aren’t compelling there are -- there is Model S which I think is a compelling car, but it's expensive. So we're really just missing that critical affordable compelling electric car. That I think is going to have a huge impact on in terms of shifting humanity away from burning fossil fuels.

Beyond that we will take whatever additional steps we can think of to shift transportation to electric. So I think it makes 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. So, yes.

Unidentified Participant

Last quick question, what's the Lathrop facility about, couldn’t find any information anywhere about that?

Elon Musk

Yes. So we're actually expanding our activities in the Stockton area. Lathrop is sort of a city near Stockton. So, the Greater Stockton Lathrop area we are setting up a lot of manufacturing activity to supply component to the Fremont factory. So as we expand production at Fremont and plan to get to the sort of 0.5 million unit a year level we have to move a bunch of manufacturing that’s done in Fremont to other factories, some of which are own, some of which are suppliers, because we can't produce at the 0.5 million unit level and be as product integrated as we are at Fremont. So we expect to do substantial expansion in the Lathrop, Stockton area to supply the Fremont factory.

Well, just do a couple of more questions. Maybe if you can say-- if you think you’ve got a question that a lot of shareholders would really want to know the answer to, then I’d like to take your question. Are you highly confident that other shareholders going to want it. Okay. Let’s take some general audience questions, so in that awesome Tesla shirt that you’re wearing.

Unidentified Participant

[Inaudible].

Elon Musk

He is right. There is Antonio right there. Do you want to answer that?

Antonio Gracias

So I am not dumping my shares. I sold less than 25% of my fully diluted holdings to stock, I love the stock and it’s great [company to own] [ph] long-term. I do run an investment fund, so I have to pay liquidity investment fund that’s where the money is going. But I am a very long-term shareholder of the company; I own over 75% my position, I continue to own the stock.

Elon Musk

All right. We’re going to give it like 10 minutes, so let’s go here, you and then you.

Unidentified Participant

Well Tesla cars by far have the best range on the market. But for a lot of us, it’s still not enough and I’d like to offer you the Tahoe challenge. I live in South Lake Tahoe. I come to the Bay Area quite often. And the challenge is getting up those 7,000 feet from sea level to where I live. So the challenge is a car that’s affordable that can make the round trip from Tahoe to the Bay Area and back.

Elon Musk

Okay. Well, I think it will be a while before that could be done - round trip, but I mean we could produce a car that could do that right now, but the car will be really expensive and have a huge battery. So and probably wouldn't be that useful for most people, but you should expect to see a steady increase in range, the available range in the cars over time.

So -- go ahead -- apparently go super snappy and get through a bunch of questions.

Unidentified Participant

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. And we all know Tesla is working so hard to drive the cost down to produce lower price car so that more and more people can afford. So that's why Tesla is trying to build a new production in China and get incorporation with Foxconn too. So, could you share more details about this?

Elon Musk

We are increasing our relationship with Foxconn and I think there is some very promising potential in collaboration with Foxconn. I mean Tesla will always be a manufacturing company and I think it’s important to emphasize but we do feel that with potential alliances like Foxconn we could potentially expand our production faster than would otherwise be the case.

So, right there at the mic. Yes.

Unidentified Participant

You kind of 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. And as we expand worldwide, I was wondering what is the short term and long term goals that Tesla has to alleviate the issue?

Elon Musk

Yes. I mean what we are trying to do in China in particular and all markets is to build out our service and charging infrastructures as fast as possible, I wish we could figure out how to do it faster but we are going at full cells and my instructions to the team are to spend money as fast as possible without being wasteful. So there is no budget, there is no arbitrary restriction, we are trying to go as fast as we possibly we can.

So yes, I mean I think we are going pretty fast as compared to most car companies but yes we are going at top speed.

Unidentified Participant

[Inaudible] kind of creative solution, so like a more short term solution like offering like incentives or telling them a little bit this is the wait time or how it’s going to pacify them a little bit?

Elon Musk

Demand is not our issue, all right, go ahead, [Occupy Musk] [ph] fantastic.

Unidentified Participant

I am sorry.

Elon Musk

Sorry, I didn’t realize you had the mic there.

Unidentified Participant

Thanks a lot for what you are doing for us, both here and in the States. My question is maybe next to EVs and next transformational thing for cars are autopilots, self driving type technologies, you mentioned that you are investing in that. Can you give us an update where you are?

Elon Musk

So I think we are making some really good progress on the autopilot side, and I am confident that in less than a year you will be able to go from highway on ramp to highway exits without touching any controls. Go ahead.

Unidentified Participant

You mention 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, they are around like 20K. 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 pitch in that market?

Elon Musk

Well, I think the issue is with Leaf is that the range is quite low. And so, it's not all that competitive compared to gasoline cars of similar price point unless you have just very short range needs. The key is to have a long range affordable car. And I'm hopeful that Tesla will be competitive in that regard. I think we will be and hopefully Nissan and many other companies are making such cars as well. And if they do so before Tesla, I say more power to them.

Unidentified Participant

I’m a Model X reservation holder 6715. Do you think that it’s possible to see my car like around July next year? And the other question is on a milliamp hour rating, the current I think is 3,100 that's been used. Is there any chance we’re going to see a bump up in that in time for Model X, to like around 4,000 I’ve kind of read somewhere?

Elon Musk

I'm not sure what you mean by that but do you mean the…

Unidentified Participant

The milliamp ratings for each individual cell, about 3,100 I think?

Elon Musk

There are a lot of constraints on the power output, so there a lot of constraints on the power output of the system that are not just driven at the cell level. So I mean right now, yes, sort of more the current collectors and like the main contactors and fusers and that kind of thing. So we’d have to sort of upgrade power train more generally to have a significant power output improvement. So, okay last question. Sorry.

Unidentified Participant

My name is [Anne Lincolnshire] [ph] and I am a mad sports car enthusiast. And I’d like to know is there any possibility that Tesla might participate in the Dakar Rally, because a Model X careening down the dunes of a [Iquique] [ph] would be your [inaudible]?

Elon Musk

Well, I do think that’s an awesome race. We have no plan 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. And all of the kind of racing stuff is about demand generation. And until we start hitting demand constraints instead of production constraints that make sense for us to focus on production. Thank you.

Todd Maron

Just a quick final announcement before we leave, but thank you for everyone for attending today just wanted that 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. So we thank you for attending and hope to see you next year. Thanks a lot.

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Source: Tesla Motors' (TSLA) CEO Elon Musk Hosts 2014 Annual Stockholder Meeting And Public Webcast (Transcript)
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