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特斯拉三季度电话会议全文翻译稿

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发表于 2017-12-22 13:57 | 显示全部楼层 |阅读模式

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特斯拉三季度电话会议全文翻译稿
2017.12.22
特斯拉公司(NASDAQ:TSLA)2017年第三季度电话会议
2017年11月1日下午5:30
电话会议录音:http://t.cn/RlbACzN (以公司官网披露的录音资料为准)
英文原稿:http://t.cn/Rlby5b5 (后文附有英文原文)
出席高管:
Jeffrey K. Evanson - Tesla, Inc.
Elon Reeve Musk - Tesla, Inc.
Deepak Ahuja - Tesla, Inc.
Jeffrey B. Straubel - Tesla, Inc.
Doug Field - Tesla Inc.
Jonathan McNeill - Tesla, Inc.
发言内容:
Jeffrey K. Evanson - Tesla, Inc.
今天Elon Musk,JB Straubel, Deepak Ahuja和Jon McNeill也一同参加了会议。我们的第三季度业绩已经公告。本次电话会议,我们将讨论公司的业务前景,并基于我们的现状做出前瞻性陈述。由于存在一些风险和不确定因素,实际结果可能会有很大差异,包括我们最近向美国证券交易委员会提交的文件中提到的那些事。
在进入问答之前,Elon有些观点想与大家分享。
Elon Reeve Musk - Tesla, Inc.
我现在是在Gigafactory开电话会议,因为现在公司最重要的产品Model 3的产能爬坡出现了问题,Model 3正式在这里生产。我一直习惯待在特斯拉存在最大问题的地方。我相信好的公司公司应该从生产前线就开始领先。我稍后会谈到一些Gigafactory的问题。
首先,给大家介绍下特斯拉的里程碑式的数字——我们已经累计交付超过了25万辆车,并在上季度创下了Model S和Model X的网络订单记录和交付纪录。
五年前,我们只交付了2500辆汽车,特斯拉在五年内的交付量增长了一百倍。我预计五年后的交付量至少再上一个数量级,甚至可能接近两个数量级。但是对于怀疑者们,我想问你们中的哪一个预测到特斯拉的交付量会从2500台增长到现在的25万台。我猜答案是零。质疑者们也该反思,你们对特斯拉未来的假设是否有效,是否过于悲观。
我们Model 3的生产每周都有显著进展。我们的供应链或我们的任何生产流程都没有问题。但显然生产中还是存在瓶颈,生产Model 3有数千道程序,而每一步我们都谨慎前行。
事实上,Model 3内部有10,000个不同的零部件,制造Model 3有成千上万道汽车生产工序,我们会和最困难的工序作斗争。所以尽管大多数人都觉得生产进展的非常好,但是还是有一些问题的。
我们已经深入了解瓶颈最严重的环节,我们预计在2018年第一季度末每周可以生产5000台Model 3,在这个宏伟计划中,这是一个相对较小的转变。Model 3是一个为期十年的计划,我们现在谈论的是10年计划中的几个月,这几个月产能如何相对来说这是无关紧要的。
我们有明确的规划,我们也了解瓶颈是什么。虽然有困难,但我们正努力去改善。值得注意的是,根据我们现有制造环节布局的实际情况,我们估计满产产能能够达到每周6,000辆到7,000辆/周,大大超过5000辆。我们对未来进一步优化生产过程持乐观态度,未来增加少量资本性支出,产能基本能达到接近10,000辆/周。
我们通过改进机器人、缩短路径、强化工厂、在生产困难的地方添加额外的机器人等方式,使生产进程加快。速度是终极武器。而Model 3的设计意图在于其制造的便利性,与Model S、Model X相比,Model 3更容易生产。
到目前为止,Model 3生产的主要约束是电池模块的组装。电池模组制造有四个主要生产区域,3区和4区生产情况良好,1区和2区情况不佳。特别是2区,我们有一个系统集成承包商出现了问题,但是直到最近我们才认识到问题的严重性,这是一个非常复杂的制造过程。我们不得不从头开始重写所有的软件,并且重做了许多机电元件。
我们已经设法在四周内重写编程软件,但其实我们还有很长的路要走。因为与机电元件一起工作的软件需要制造和安装,并将这些元件置于原位并重新构建,这比重写软件需要更长的时间,也比软件具有更多的外部限制。
我在Gigafactory度过了很多个深夜,JB也一直在这里。我们调配了我们最好的工程师来从根本上修复2区,然后修复1区。
好的方面是,我们现在对于修复1区和2区有了必要的、详细的了解。我们还对1区和2区有了一个新的设计,比汽车的设计销量高三倍。所以当投入后,我们会有三条模块生产线,三条生产线本质上是相同的。第4生产线将会采用新设计,将是比其他三条线结合起来有效三倍。所以我们对未来拥有高效生产电池模组非常有信心,并且这不会成为未来发展的制约因素。但是,它还需要一些时间来研发。与正常汽车行业的速度相比,这就像闪电一样快。我们还需要在有限的时间内改善另一些东西。我们的供应商告诉我们它很好,但实际上还是有一些问题,现在这部分内容已经被划分到特斯拉在美国的内部自动化集团来解决,我们有一个来自特斯拉Grohmann的大型团队也在努力解决这个问题,并且取得了非常快速的进展。就像我说的那样,我亲自下到那条生产线上,到有问题的机器旁边。而JB基本上是在Gigafactory度过的。
另外我想提一下,有很多有关特斯拉裁员的文章,这些都是非常荒谬的。世界上的每个公司都有年度绩效评估,我们的年度业绩审查具有极高的标准,这个标准远远高于其他汽车公司,这是因为我们需要与更大的汽车公司竞争。我们不能永远是一个与大公司具有相同技术水平的小公司。如果有两个水平一样的拳击手,一个大个子一个小个子,那大个子明显会打垮那个小个子。所以小个子拳击手最好有更多的技能否则就会被击倒,这就是为什么我们的标准很高。标准高不是因为我们对员工刻薄,是因为如果不提高标准,我们就会倒闭。尽管如此,在我们的年度绩效评估中,只有2%的人没有达到要求,这个大概是33000人中的700人,这是一个非常低的比例。 通用电气在很长一段时间内要求每年解雇10%的员工,不过不知道通用电气现在是否仍然这样做。
与其他公司比较,我们公司的解雇率是十分低。这些报道出现的原因是这些记者和编辑的职业诚信度非常低,他们会为他们所在的阵营提供任何内容的文章。这是毫无意义的报道,他们没有报道还有几千名员工被晋升的情况,并且近一半的晋升人员是在制造链。
问答环节
Q1:Elon,谢谢你带我们进一步深入讨论特斯拉的工厂和生产瓶颈。你们的这些行动是否会改变或者说如何改变Model 3的利润?特斯拉现在每周基本的产能和到2017年底你期望达到的产能是多少?谢谢。
A:我不想谈以一周为周期的东西,人们对周生产量解读过度了。现在有太多的不确定性,产能在垂直爬坡,并不能给出一个准确的四季度产能的数据。我对第一季度末的生产非常有信心,也许我预期产能的达成时间会来得更早。到年底将周产能将过千,但究竟多少很难说。每隔两三周,Model 3的产能变化都会非常巨大。Model 3的产能提升更像指数函数图,开始爬坡会很慢,后期的爬坡速度将十分惊人。Model 3的长期毛利我们有信心做到25%甚至更多。在材料成本或制造费用、法律、间接费用或折旧或其他因素方面都没有因为这几个月的突发状况而改变。
Q2:Elon,你描述了Model 3,把其比作“生产地狱”,在生产过程中我们要解决的问题比即将产生的问题更多吗?
A:让我们假设第9级是最差的。我们曾在第9级,但我们现在正处于第8级,或者可能更像是第7级。在三四周之前,当我意识到我们在第9级的时候真的很沮丧,然后我们现在达到了8级,现在我可以看到一条阳光之路。所以我现在觉得很乐观,如果你在3周前和我讨论这个的话,我会相当悲观。 但现在我们需要做什么很明显,就是每周工作七天来生产。我曾在星期天凌晨2点,帮助区域2的模块生产线机器人校准。所以我正在尽我所能,JB也在尽其所能。整个团队都在努力,这些问题或许会用更长的时间来解决。
Q3:在去年8月发行的2025年到期的担保债券会成为资产结构的永久性部分吗,还是只是用来资助解决与Model 3延迟相关的问题的?谢谢。
A: 这笔债务是8年的期限,而且银行在这段时间内确实给了我们这笔资金。
Q4:你们多次提到Model 3比Model S和Model X更容易制造,可以让我们了解一下这三种车型的产量和你们近期在努力达到的10倍产量之间的区别吗?
A: Model 3的自动化程度大大提高,但当自动化生产线出现问题时很难用人力来弥补。一旦产线完全建成,产能提升会非常明显,高自动化程度生产也是确保Model 3高毛利的重要因素之一。Model S和Model X,因为自动化程度低,可以通过提升劳动时间来实现高水平的生产。实现全自动化产线确实也很困难,需要大量时间去做编程工作。我们用来组装机器人所用场地面积大概是传统公司生产基地四分之一。我们做零部件的方式和生产设计都使得生产制造变得更简单。
Q5:所以,在自动化电池组装改进的工作中,现在正投入的是什么,是人还是时间,或是两者都要呢?
A:我们投入了大量的人来修理机器,偶尔也会有例如机器永久地坏了这种问题,我们就必须绕开机器人来手动操作,直到我们完全修复。产线有着极其复杂的电机和软件方面的挑战,设计这样的产线和我们推出的一款全新车型的难度没有什么区别。因此,尝试补充供给或弥补机器的漏洞是非常困难的。
Q6:首先祝贺你们取得里程碑式的成就。关于自动驾驶的竞争最近激烈了许多,我想问一下特斯拉的硬件能力。我们今天参加了NVIDIA举办的技术大会,NVIDIA的最新自主解决方案比Tesla的强10倍,他们说他们可以达到5级自动化, NVIDIA显卡每年的改善看起来真的很重要,Elon,你能否从硬件角度谈论你认为需要做什么来发展自动驾驶?
A:我认为我们能用现在的硬件来实现完全的自动化驾驶,通过当前的硬件达到近乎人类本身的驾驶水平。但问题在于如何判定自动化的可靠程度,以及什么样的可靠性标准是监管机构可以接受的。现在,监管机构可能有需要确保自动驾驶能产生巨大正面影响,才会允许实现全面的自动化。很快在硬件方面上我们会更有发言权,虽然我们现在还没准备好,但是在这方面我非常乐观。对于已注册完整软件功能的客户,我们将推出可选功能。如果该领域的监管要求进行计算机升级,更新电源,我们也会相应更新。但我们对硬件的竞争力有信心,我们确信我们的硬件比任何竞争对手都要好。
Q7:好的。你说Model 3的预收款余额增加了。你能告诉我们具体有多少吗?
A: 我们不会给出具体的数字,我们只给出合并的数字,您可以在我们的资产负债表上看到客户预收款。
Q8:关于第四季度和第一季度的季度现金流的问题。很明显,Model 3出产上有一些延迟,考虑到复杂性这是可以理解的。我只是好奇,因为特斯拉未来两个季度的现金流,会第三季度是相似的吗?这25亿美元的库存中有多少是你在第四季度可能卖出的成品?
A:随着Model 3的产能提升,我们的现金流量将在未来几个季度大幅增长或明显改善,这是Model 3为我们提供流动资金的良性循环。并且,我们支付供应商晚于客户支付资金给我们。而且在本季度,我们的资本支出支付将开始下降,因为我们付清了接下来几个季度里所有Model 3剩余的相关资本支出。所以在未来两到三个季度应该有改善的趋势。
Q9:就生产和交货而言,听起来像是比以前预想的更加具有不确定性。所以我想知道,你现在可以从库存中产生什么样的现金?
A: 首先,我们S和X的库存会下降,而且考虑到这些短期的延迟,我们必须谨慎地花钱。因此,我们正在管理资本支出和运营成本,以配合我们的发展。所以,例如,与我们的商店、服务中心或增压器相关的资本支出正在放慢速度。所有这些措施都将帮助我们节约现金流。
Q10:就Model 3增产而言,之前定下的在2018年某个时候达到每周10,000辆的目标完成得怎么样?现在是要超越了吗?以前投资者估计,如果能在2018年底达到这个目标,就可以产出超过25万辆汽车。如果能在年中达成这个目标的话,就会产出超过32.5万辆。基于目前的情况,对2018年产出的Model 3来说,全年产出量的合理期望值是多少?
A: 现在做出这个预估还太早了。但是,如果按第一季度末的5000辆/周的产能推算,我们有信心可以维持18年1w辆/周的产能。到Model 3产生足够的现金流的时候,我们确实需要对重大资本支出的支持。我们想弄清楚当前我们可以从现有的5000辆进步到多少,然后从中学习,以便重新设计更有效的资本支出。正如我们前面提到的那样,我们发现一部分生产线每周能够达到6000辆或7000辆,甚至更多。我们通过缩短路径长度,加快机器人工作速度,在生产瓶颈出处增加机器人,简化程序,重新设计部分生产环节,来显著改善生产周期时间。
Q11:毛利率是否与产能爬升情况有关?第四季度毛利可能会降低吗?当你有25万/年的产能时,能够做到25%的毛利吗?还有如果生产受到限制,是否有能力来继续长期保持这个水平的毛利?
A:到那时,我们可以对这些事情进行微调,但总体而言,我再强调一下,这些都是短期的问题,并没有改变我们对Model 3毛利率的长期预测。
Q12:我想知道如果这些生产瓶颈是别人的错误导致的,那么这值得你花时间来回收一些可能由承包商引起的费用吗?
A:首先,我认为一切都是我们的错或者说我们的错占很大一部分比重。所以,我不想外部化责任,选择错误的承包商是我们自己的错,并且直到最后才意识到这一点也是我们自己的错。我们将能够追回一些数量的费用,但这肯定不会弥补营收和现金流量的损失。所以能够追回一些损失,但不会那么重要。
Q13:另外一个问题是因为整改,Model S和Model X的毛利有所下降。我想知道,是否可以更明确地谈谈这个问题,还有会采取什么样的纠正措施?
A:Model S和Model X很大程度是停产整改。我们推出了100KWh的电池组的Model S,对应最大续航里程是335英里。因此,我们不再使用90千瓦的电池组,但对应的成品车都在库存中,我们会降价清空。这是毛利率下降的一个原因,我们以后不会再重蹈覆辙了。除此之外,我们确实卖了更多的100千瓦的车,比我们预测的要多,但是75千瓦的订单上涨更快,这也对毛利产生了影响。随着对100KWh车型的需求量的上升,第四季度和明年第一季度的毛利率将有所增加。我们在第二季度100KWh车型的成功生产,在第三季度推动了强劲的需求。我们也只是增加了Model S和Model X的价值量,特别是S,我们希望Model S和Model 3之间有更大的区别。因为Model S包含了更多的内容,所以Model S基本成本有所上升。例如,完整的Model S有空气悬挂,许多优秀的元素被设计在里面了,以便更清楚区分Model S和Model 3的定位。市场对Model S的需求反应非常强烈。在第三季度,美国Model S车销售量超过奔驰S级车销售量的两倍。我们的销量超出了奔驰S级车,再加上奥迪A7和A8,宝马7系和保时捷Panamera的销量总和。所以市场确实对增加的价值做出了回应。
Q14:S 和X的市场份额都上升了吗?
A: 跟第二季度相比Model S和Model X的市占率有所上升。有人问到为什么我们减少S和X的生产,实际上我们并没有减少很多,只是从每周约2,000台下降到1,800台,我们这样做是为了消化库存,因为库存实在太高。此外,我们想从Model S和X产线中抽调第三班人手去Model 3线上。同时,我们也提高了S和X的生产效率。以前每周做2000台时需要三班轮班。如果将产能提升到2500台/周,将需要一堆资本支出。所以我们规划S和X的产量每年约为100,000台,并调整供应链。但是我们希望继续提高S和X生产线的生产效率,预计明年将产能从1800每周提高到2000每周,仍然用两班人手,这意味着生产每辆车的劳动时间在减少。但是,我们希望第四季度比第三季度卖出更多车,以减少Model S和X的库存。
Q15:如何解释明年的高水平资本支出,为了提升Model 3产能到一周10000辆吗?而且还有报道说你投资了另一家中国工厂。所以2018年的资本支出会比2017年低吗?
A:到下个季度我们公布完整的2018年工作计划时再回答这个问题更好,那时我们根据计划中不同部分能够给你关于我们资本支出更清晰的解答。我之前提到,在花钱之前我们先要确定好对产能的提升的程度。我们会观察现有Model 3产线的情况,选择最具效率的生产线,未来加以复制。我们现在是在黑暗中射击,找不到目标。 特斯拉在2019年以前不会在中国有重大的资本支出,至少2018年不会有实质性的资本支出。现在在中国的规划是为三年后在中国开展生产而粗略选择的目标,主要用于服务中国市场,或许也会辐射部分其他亚洲国家。这家工厂将来为当地市场生产Model 3和Model Y,不会生产Model S和X。只有在中国建设工厂,才能为当地提供真正具有经济性的车型,但这一方案在三年后实施。
Q16:想明确一下,到底什么时候Model3的产量会指数型增长?
A:现在就开始指数型增长。如果你往前几周或往后几周,周产量都会有巨大的区别。但到第四季度末期能够一周生产上千辆,第四季度之后的几周将会增长非常迅速。产量将会垂直增长。关于送货公告,我们也会给你一些反馈,第四季度的收益汇报将会非常清晰和易于理解。
Q17:中国工厂的产能会如何?
A:具体数字还不确定,但至少为十几万辆每年的产能,甚至更多。
Q18:你刚刚谈到增长和资本支出的平衡,坦白说,我想这是我第一次听到你谈论潜在的平衡问题。往常特斯拉总是尽可能做的更多更快,以保持电动化进程中的领导地位,建立先行者的优势。所以,在激进增长问题上的犹豫,你是担心资金不够可能需要募集资金吗?这是在这个组织追求速度与量的时担忧的问题吗?你是在担心有效利用资本的问题吗?这种选择问题的根源是什么?为什么资本支出会是一个选择问题?
A:在目前继续增长的情况下,我们应该谨慎地全面考虑问题。确实,我们想保证有足够的资金支撑高速增长。在汽车工业中这样的增长率是疯狂的。特斯拉比福特增长最快时期的增长率还要高,我们现在的增长率差不多每年是70%-80%。下一年度将更高,我们的增长率将持续惊人。这样下去,特斯拉将成为世界上最大的汽车公司,在产量上也是如此。Model X用了一半的时间内就达到了Model S的需求量。Model 3的需求量将会是Model S 的5倍。
Q19:你谈到一旦Model 3的销量上去你就能够很快产生现金流。表面上来看,只要你达到特定产能水平,现金流就不成问题,但是你并不急着达到那样的水平,我对此感到很惊讶。在这方面有什么问题吗?我很难理解为什么你不想尽快快速扩大规模增加销售量,产生正现金流。
A:我们正在努力尽快达到5000/周的产能,并且我们将会尽快达到10000。我们只是说我们会全面考虑,在时间上保证战略平衡。增长达到10000这件事,我们应该花多长时间,9个月,12个月或者15个月。这对传统汽车制造商来说是非常短的时间跨度。
Q20:这季度S和X的毛利是多少?并且,你认为这季度宣传活动推动S和X的销量上升了吗?
A:要因为我们是定制订单,安排在第三季度的订单会在第四季度运出。我们继续提高效率并且研究组合转变,这很费时间,我们将继续看到改善,并且对S和X的毛利有充分的信心。第四季度售出的车减少了库存,有些还是更老的车型。另外,租用服务的增长速度略低于汽车销售业务,这使得毛利下降了一到两个点。不过我们认为四季度,这个情况会有好转,毛利将回到二十多。
Q21:我想深入地了解一下服务收入和支出水平,特斯拉收入同比增长了1.8亿美元,成本上涨了2.47亿美元。你能谈谈这个变化的驱动因素,包括动力传动系统外包业务的剩余部分,CPO业务,服务借款的实际车辆费用,以及PP&E为人员和服务基础设施的成本。
A:我认为您所看到的是,随着我们增加Model S和X型以及Model 3的规模,我们希望在需求出现时基础设施服务能够跟得上,因此在其中增加固定资产投资。就传动系统而言,您提到的传动系问题现在看来很少出现,S型和X型的可靠性不断提高。上个季度,CPO业务贡献了约2.38亿美元的收入,我们预计到2017年将达到10亿美元,同时,业务也在快速增长。我们自己也在做CPO的整修,整修系统和为汽车服务的基础设施是同一个,因此整修系统的成本也就是这么一点点。
Q22:我想了解一下Deepak的账务处理问题,例如在第二季度生产的这100多辆P100D汽车,Musk先生谈到它们被计入贷款科目的情况下,能否说下贬值问题? 当他们被转让出售时,会计怎么处理的?
A:它们被资本化为存货,因为这些汽车是可销售的。当这些车辆出售时,与这些汽车相关的折旧会在COGS中得到确认,不归属于服务中心的成本。
Q23:您还提到了焊接和最终装配的限制。 装配步骤显然是给其他地方带来限制的。我想知道你是否可以谈一下焊接,以及当你达到你的年终运行率时,整个生产线的不同部分之间是否仍然存在差异? 或者你认为一切的成本都将在大致相同的水平?
A:焊接的影响与Gigafactory生产限制的影响在不同水平,但焊接是整个装配线中更复杂的部分之一,影响也不像PACK那样大。我们正在增加数机器人来解决焊接问题,这是我们整个生产线中最重要的机器人聚集区。这部分问题也在好转。我们正在建造的机身质量优良,测试中冲击性能表现非常好。 我们每天都在大量生产这个,并且领先于生产线的其余部分。
Q24:然后,作为资本问题的后续进展。我记得去年你说产量从5,000到10,000将需要大量的资本,但是你有信心资本少于从0到5,000的数量。现在你在这方面有了一些现实的经验,我想知道你是否有不同的意见,或者如果你可以讲一下那个想法的后续进展吗?
A:与第一阶段相比,我们下一阶段的资本支出的效率将会大大提高。速度是创新或生产的最终武器。而且我们正在将可操作机器人的速度推到极限,并且要求我们供应商让机器人发展更快。因此资本性支出的效率非常关键。 显然,我们将要设计大量的机器人元素,以及机器人内部元件。但现在的供应商反应太慢了。
Q25:你能谈谈从租用形式购车比例吗? 能谈一谈你为什么觉得有必要在降低价格的同时增加Model S和Model X的价值?
A:比例大概是5%。就价格而言,X型是一直以来被认为跟其他机型相比有更大的降价空间。100KWh的车型因为产能限制价格偏高,但我们不希望这样,所以把价格降低一些, 然后将一些Model S的内容加进去。因此我们认为价格偏高时,我们主动降价,然后添加一些新功能,这样才能有明确的区分。 我们不太清楚市场对Model 3的反应是什么,我们的估算也不正确。
Q26:关于中国的战略的问题。Model 3产能爬坡对永磁体需求也急剧上升,基于中国的出口限制和在采矿方面环保的要求,在中国市场布局采购以保持Model 3供给的增长有多重要?
A:我们更多是从需求方面考虑中国。我们正在建造完整的汽车产业链,并将产品通过海运送到全世界最大的电动汽车市场。确保我们能占据中国市场、避免让消费者承担进口关税、让Model 3在中国更有经济性,才是我们中国建厂的初衷。而在中国采购原材料相比之下不是那么重要。
Q27:我意识到这块不是你们关注的焦点,此前预期的太阳能在下降,那么你们觉得何时可以再次开始增长? 这可以归功于太阳能屋顶的功劳吗? 还是基于销售变化? 今年到2018年的储能的跨越是否会受到Model 3的约束呢? 或者还是在自己独立的轨道上运营?
A:我们认为太阳能需求会反弹,因为我们将太阳能销售转移到所有的商店,这是一个更有效的需求生成渠道。我们有信心未来太阳能屋顶需求巨大。 我们也正在通过太阳能瓦片的审核。我的房子里就有太阳能屋顶瓦片,他们的存在很弱,因为与屋顶融合得很好。太阳能屋顶产品预计能够持续工作至少25到30年。我们尝试在六个月的时间内,做太阳能屋顶的加速实验室测试。让这些业务滚动只需要一点时间,但一旦滚动,它将成为一个巨兽。而且我们在早期的客户家中继续安装试点工程。 未来还有很多其他项目。而今年底,我们仍然打算在布法罗的大部分生产线上开始最终生产,这部分的产生会与Model 3的生产隔开来。储能产品也正在增长。为了完成南澳大利亚项目,我们还是要做更多准备的,包括在波多黎各和加勒比地区的部署。所以储能业务与电动车的生产是完全分开的。而在未来路上,会有一些电池的冲突问题。我们现在专注于改进Model 3的产线。在同一建筑物中的电池PACK产线现在是完全独立的。
英文文字稿原文来源:seekingalpha
Tesla, Inc. (NASDAQ:TSLA) Q3 2017 Earnings Call
November 01, 2017 5:30 pm ET
Executives
Jeffrey K. Evanson - Tesla, Inc.
Elon Reeve Musk - Tesla, Inc.
Deepak Ahuja - Tesla, Inc.
Jeffrey B. Straubel - Tesla, Inc.
Doug Field - Tesla Inc.
Jonathan McNeill - Tesla, Inc.
Analysts
James J. Albertine - Consumer Edge Research LLC
Adam Michael Jonas - Morgan Stanley & Co. LLC
Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.
Romit Jitendra Shah - Nomura Instinet
John Murphy - Bank of America Merrill Lynch
Ryan Brinkman - JPMorgan Securities LLC
Alexander Eugene Potter - Piper Jaffray & Co.
Rod Lache - Deutsche Bank Securities, Inc.
Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
Brian A. Johnson - Barclays Capital, Inc.
Joseph Spak - RBC Capital Markets LLC
Colin Rusch - Oppenheimer & Co., Inc.
Robert Cihra - Guggenheim Securities LLC
Operator
Good day, ladies and gentlemen, and thank you for your patience. You've joined the Tesla Motors Third Quarter 2017 Financial Results Q&A Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference maybe recorded.
I would now like to turn the call over to your host, VP of Investor Relations, Mr. Jeff Evanson. Sir, you may now begin.
Jeffrey K. Evanson - Tesla, Inc.
Thank you, Latiff, and good afternoon, everyone. Welcome to Tesla's third quarter 2017 Q&A webcast. I'm joined today by Elon Musk; JB Straubel; Deepak Ahuja; and Jon McNeill. Our third quarter results were previously announced in the update letter we published at the same link as this webcast.
During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties including those mentioned in our most recent filings with the SEC.
During the question-and-answer portion of today's call, please limit yourselves to one question and one follow-up, so we can get to everybody in the queue.
Before we jump into the Q&A, Elon has some opening remarks. Elon?
Elon Reeve Musk - Tesla, Inc.
So, sorry, one minute, I have a bit of a cold, so, yes I'm actually – we're doing this call from the Gigafactory because that's where the production constraint is for Model 3, the most important thing for the company, and I always move my desk to wherever – well, I don't really have a desk, actually. I move myself to wherever the biggest problem is in Tesla, so I'm at – I really believe that one should lead from the front lines and that's why I'm here.
I will go into some of the Gigafactory issues later in the call, but I'd like to start off by acknowledging some I think pretty amazing milestones for Tesla. One thing that I thought was really profound was that we surpassed cumulative deliveries of vehicles. We surpassed a 0.25 million cumulative deliveries since the company's inception and had record Model S and Model X net orders and deliveries last quarter, so things are really going quite well.
To put that into perspective, five years ago we had only delivered 2500 cars, so the Tesla fleet has grown by a factor of 100 in five years. I would expect five years from now to be at least an order of magnitude beyond where we are right now and possibly even close to two orders of magnitude. But for the skeptics out there, I'd like to say – ask them which one of you predicted that Tesla would go from 2500 units delivered to 250,000 units delivered now. I suspect the answer is zero.
So consider your assumptions for the future and whether they're valid or perhaps pessimistic.
So for Model 3, we continue to make significant progress each week. We've had no problems with our supply chain or any of our production processes. Obviously, there are bottlenecks. There are thousands of processes in creating the Model 3, and we will move as fast as the slowest and least lucky process among those thousands.
In fact, there's 10,000 unique parts, so to be more accurate, there're tens of thousands of processes necessary to produce the car. We will move as fast as the least competent and least lucky elements of that mixture. So while the vast majority are going incredibly well, there are some problem areas. After I give the business overview, I'll do a deep dive into the biggest problem area.
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. I think in the grand scheme of things this is a relatively small shift, the Model 3 is a 10-year program, and so we're talking about a few months out of a 10-year program. It's in the grand scheme of things net present value calculation, this is immaterial.
And we have a clear path to that. We understand the bottlenecks. It's difficult to fully understand these things but we actually try to do them. And it's worth noting that some of our manufacturing areas we're actually seeing capabilities that we estimate in the 6,000 unit to 7,000 unit per week capability, well in excess of the 5,000 unit capability and we're optimistic with further optimization that many of our production processes will meet very little and in some cases no, so I'm not saying no, but almost no CapEx to reach something close to 10,000 units a week.
It's remarkable how much can be done by just beating up robots, shortening the path, intensifying the factory, adding additional robots at choke points and just making lines go really, really fast. Speed is the ultimate weapon. And the design intent of the Model 3 being that its design manufacturability is turning out to be accurate, it is far easier to build this car than a Model S, and vastly easier than a Model X.
The primary production constraint really, by far, is in battery module assembly. So a little bit of a deep dive on that. There are four zones to module manufacturing it goes through four major production zones. The zones three and four are in good shape, zones one and two are not. Zone two in particular, we had a subcontractor, a systems integration subcontractor, that unfortunately really dropped the ball, and we did not realize the degree to which the ball was dropped until quite recently, and this is a very complex manufacturing area. We had to rewrite all of the software from scratch, and redo many of the mechanical and electrical elements of zone two of module production.
We've managed to rewrite what was about 20 to 30 man years of software in four weeks, but there's still a long way to go. Because the software working with the electromechanical elements need to be fabricated and installed, and getting those atoms in place and rebuilt is, unfortunately, a lot longer, and has far more external constraints, than software.
This is where I spent many a late night on the Gigafactory working on. JB has been here constantly, and we reallocated many of our best engineers to fundamentally fixing zone two of the module line, and then is zone one.
On the plus side, we now have a very detailed understanding of what is necessary to fix zone one and zone two. We also have a new design for zone one and two that is about three times more effective than the car design. So when we put in – and there are three lines of module production. Lines one, two, and three are essentially identical.
Line 4, which will be the new design, will be at triple the effectiveness of – will be as good as the other three lines combined. So we're very confident about a future path of having incredibly efficient production of modules, and that this will not be a constraint in the future but, unfortunately, it just takes some amount of time. This is like moving like lightning compared to what is normal in the automotive industry. There's still some finite amount of time necessary to fix something that we thought was in good shape. We were told by our supplier it was in good shape, but was really not. So this has now been classified Tesla's internal automation group in the U.S. – and Tesla Automation U.S. and Tesla Grohmann from Germany, we have a large team from Tesla Grohmann also working the issue, and making very rapid progress.
And like I said, I am personally on that line, in that machine, personally where I can. And JB is basically spending his life at the Gigafactory. So that's the sort of deep dive on that front.
The other thing I want to mention, there are a lot of articles about Tesla firing employees and layoffs , these are really ridiculous. And any journalist who has written articles to this effect should be ashamed of themselves for lack of journalistic integrity. Every company in the world, there's annual performance reviews. In our annual performance review, despite Tesla having an extremely high standard, a standard far higher than other car companies, which we need to have in order to survive against much larger car companies; you can't be a little guy and have equal levels of skill as the big guy.
If you have two boxers of equal ability and one's much smaller, the big guy's going to crush the little guy, obviously. So little guy better have heck of a lot more skill, and that is why – or he is going to clobbered. So that is why our standards are high. They're not high because we believe in being mean to people. They're high because, if they're not high, we will die. Despite that, in our annual performance reviews, only 2% of people didn't make the grade. So that's about 700 people out of 33,000. This is a very low percentage. GE, I don't know if they still do, but they certainly for a long time had a policy of firing 10% of their employees performance every year, no matter what.
If you were to stack Tesla's performance later releases compared to other companies, the number would be low. So the only reason these articles had any play whatsoever is because journalists and editors with low integrity, they'll provide any context for where they stood because the actual article would've read, Tesla fires 2% of its employee base for performance-based reasons, a remarkably lower number compared to other companies. But of course, that would be a meaningless article, so they forget to include that. Shame. And then also, it was not reported that several thousand employees were promoted, and almost half those promotions were in manufacturing.
Right. I think, let's move to questions.
Jeffrey K. Evanson - Tesla, Inc.
Okay, Latiff, let's go to the question queue, please.
Question-and-Answer Session
Operator
Our first question comes from the line of James Albertine of Consumer Edge. Your line is open.
Q1:James J. Albertine - Consumer Edge Research LLC
Great. Thank you and good afternoon everyone. I wanted to ask with respect to – and Elon, thank you for doing the deeper dive into the zones and the bottlenecks. How does this change the trajectory or does it change the trajectory from a margin perspective on the Model 3? And then maybe as an aside, can you tell us where you are today on a production per week basis and where you expect to be by the end of 2017, just so we can get an idea of the ramp? Thanks.
Elon Reeve Musk - Tesla, Inc.
I don't want to go into like the week by week stuff. The reason it's tricky is because people just read too much into it. The ramp curve is a step exponential, so it means like as you alleviate a constraint, the production suddenly jumps to a much higher number. And so, although it looks a little staggered if you sort of zoom out, that production ramp is exponential with week over week increases.
I'd like to state a number at the end of Q4, but there's too much uncertainty right now to give that with any precision. Now I do feel confident about the end of Q1, maybe sooner. But really, we're like in a vertical climb here. So it's really hard to say. Yeah.
Deepak Ahuja - Tesla, Inc.
And then also to your earlier point, Deepak here. It does not change any of our projections in terms of the long-term...
Elon Reeve Musk - Tesla, Inc.
Yeah.
Deepak Ahuja - Tesla, Inc.
...target gross margin.
Elon Reeve Musk - Tesla, Inc.
Right.
Deepak Ahuja - Tesla, Inc.
These are all short-term issues.
Elon Reeve Musk - Tesla, Inc.
I mean, by the end of the year, it will be in the thousands. It's well advanced. Yeah. Yeah.
James J. Albertine - Consumer Edge Research LLC
I'm sorry, well into the thousands per...
Elon Reeve Musk - Tesla, Inc.
Yeah. In the thousands by the end of the year. But where exactly, it's hard to say. And literally, if you move the calendar by, like, two or three weeks, you would see giant changes. So the quarter-to-date will fall somewhat sort of arbitrarily in that exponential curve. So even in a matter of a few weeks which would show a very different number people tend to extrapolate on a linear basis instead of an exponential. In fact, most people wouldn't know what exponential is.
So is it tends to be a straight-line extrapolation, but really on a very steep exponential. So it's really an S-curve. Yeah. So it starts off really slow and then it ramps very rapidly on an exponential basis. It does start to go sort of linear right in the middle and then it sort of asymptotes off at the target production capacity, really target a whole supply chain or factory for a given production capacity. And yeah, trying possible. We're highly confident of the long-term margin number of 25% or higher for Model 3. Deepak, I mean...
Deepak Ahuja - Tesla, Inc.
Yeah. None of our projections in terms of our material cost or manufacturing, legal and overhead or depreciation or the other elements have changed as a result of these last few months to modifying the target.
James J. Albertine - Consumer Edge Research LLC
Okay.
Deepak Ahuja - Tesla, Inc.
Okay.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Jeffrey K. Evanson - Tesla, Inc.
All right, we have a lot of people in queue, so let's move on to the next question, please.
Operator
Thank you. Our next question comes from Adam Jonas of Morgan Stanley. Your line is open.
Q2:Adam Michael Jonas - Morgan Stanley & Co. LLC
Thanks everybody. Just one question, one follow-up. Elon, you described Model 3, the Model 3 launch as production hell. I mean, you have a cold, but how hot is it in hell right now? And is it getting hotter or less hot? I mean, are we solving more problems than are coming up?
Elon Reeve Musk - Tesla, Inc.
I mean, emphasize what each level means really, but let's say level 9 is the worst, okay? Well, we're in level 9. We're now in level 8 and I think we're close to exiting level 8. I thought we could probably be more like a level 7 by now and I have to tell you, I was really depressed about 3 or 4 weeks ago when I realized that we're kind of in level 9, then we got to level 8, now I can see sort of a clear path to sunshine. And so I feel really pretty optimistic right now. If you talked to me 3 weeks ago, I would have been quite pessimistic and I was sort of quite down in the dumps.
But now it's pretty obvious what we need to do. It's just a matter of work to get there, working seven days a week to do it. And I have personally zone 2 module line at 2:00 AM on a Sunday morning helping diagnose robot calibration issues. So I'm doing everything I can. JB is doing everything he can. The whole team is on it, we're on it. And we are on it, we've got it covered, it's going to take us a few months longer than we expected.
Q3:Adam Michael Jonas - Morgan Stanley & Co. LLC
Got it. Just one follow-up for Deepak. On the secured bonds due 2025 the issuance from last August, was this meant to be a permanent part of the cap structure or is it more a bridge loan to help fund some of the near-term cash absorption issues related to the Model 3 delay and things of that nature? Thanks.
Deepak Ahuja - Tesla, Inc.
It is an eight-year tenure on that debt offering and the banks do give us that capital for that timeframe.
Jeffrey K. Evanson - Tesla, Inc.
All right, Latiff. Let's go to the next question, please.
Operator
The next question comes from Tyler Frank of Baird. Your line is open.
Q4:Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.
Hey. It's Ben Kallo from Baird. Elon, you guys talked a lot about the Model 3 being easier to manufacture than the S and the X. Could you just give us a sense about the difference in manufacturing the volume of the three compared to basically 10 times the volume that you're trying to get to in the near term? Then I have a follow-up.
Elon Reeve Musk - Tesla, Inc.
Yes. There's vastly more automation with Model 3. Now the tricky thing is that when one automation doesn't work, it's really harder to make up for it with men and labor. So with S or X, because a lot less that was automated, we could scale up labor hours and achieve a high level of production. With Model 3, it tends to be either the machine works or it doesn't or it's limping along and we get short quite severely on output. So yes, I mean, JB do you want to add?
Jeffrey B. Straubel - Tesla, Inc.
I think you were spot on. The design on the whole is much easier to build but it's also intensely automated, which is part of what lets us realize the margin and the cost targets. But that does become difficult to bring that automation online. That's where we are.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Deepak Ahuja - Tesla, Inc.
And Doug is on the line, perhaps he can .
Elon Reeve Musk - Tesla, Inc.
Maybe cite a few examples.
Doug Field - Tesla Inc.
Sure. The number of actual what we call a pitch which is a station for a robot to work on the car in general assembly is about one-fourth of the typical industry average for number of stations it used to build a car. So the way we do subassemblies and the care we've taken and designed for manufacturing does make it much simpler. But as JB said, each of those stations is fairly automated and requires time and engineering to make it work.
Q5:Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.
I guess my follow-up's on that point. So, in the battery assembly in automation, things that you're working through in the software for configuring the robots, I'm thinking of this, is it a certain number of man hours that have to go into this to get it fixed, or like you know the fix or what are you throwing at it right now, is it people or is it a time requirement too or all of the above?
Elon Reeve Musk - Tesla, Inc.
Yeah, we're throwing a huge amount of people at fixing the machines, and then occasionally there's, like, some part of a production manufacturing process where the machine is permanently broken and then we have to have a bypass to a manual operation.
Jonathan McNeill - Tesla, Inc.
Until we fix the automation.
Elon Reeve Musk - Tesla, Inc.
Yeah, until we fix the automation, but that's really – it's really inefficient because the system is really not designed for a manual bypass to a machine or a machine where the software is not right or whatever the case may be.
Jonathan McNeill - Tesla, Inc.
It's just an extremely...
Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.
Got it.
Jonathan McNeill - Tesla, Inc.
– extremely complicated machine with combined electrical, mechanical, and software challenges. It's not that different than what we do bringing up a brand-new car.
Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.
Yeah.
Jonathan McNeill - Tesla, Inc.
And a lot of the...
Elon Reeve Musk - Tesla, Inc.
It is harder to supplement with manual than S or X because the system is designed as a very tightly integrated automated system. So it's very unwieldy to try to supplement or make up for a machine not working with manual activity. So, we think like – it's like a – if you had a spreadsheet and a couple of cells in the spreadsheet were manually calculated, well, yeah, you could still do your spreadsheet stuff, but it's going to be a lot slower, until the last cell is automated and then it's going to be super fast.
Jeffrey K. Evanson - Tesla, Inc.
All right. Let's go to...
Benjamin Joseph Kallo - Robert W. Baird & Co., Inc.
Thank you, guys.
Jeffrey K. Evanson - Tesla, Inc.
...the next question, please.
Operator
Our next question comes from Romit Shah of Nomura Instinet. Your line is open.
Q6:Romit Jitendra Shah - Nomura Instinet
Great. Thank you and congratulations on the milestone. The competitiveness of Autopilot is something that's come up a lot recently, and I just wanted to ask about your hardware capabilities. We're actually at a technology conference today hosted by NVIDIA and their newest autonomous solution according to NVIDIA is 10x more powerful than the version that Tesla is using and they're saying they can get you to level 5 autonomy and so along those lines the year-over-year improvement in the NVIDIA board just seems really significant, and I was just curious Elon if you could just talk about what you think you need to do from a hardware perspective to advance Autopilot?
Elon Reeve Musk - Tesla, Inc.
Well, first of all, I think that we will be able to achieve full autonomy with the current hardware. The question is, it's not just full autonomy, but full autonomy with what level of reliability, and what will be acceptable to regulators. But I feel quite confident that we can achieve human level – approximately human level autonomy with the current computing hardware.
Now regulators may require some significant margin above human capability in order for a full autonomy to be engaged. They may say, it needs to be 50% safer, 100% safer, 1000% safer, I don't know. I'm not sure they know either. But that's – but I think I'm confident that we can get to approximately human level with our current hardware. And yeah, we'll have more to say on the hardware front soon, we're just not ready to say anything now. But I feel very optimistic on that front.
For customers that have signed up for full software capability, we'll push that option. The – if it does turn out that, that a computer upgrade is necessary in order to meet the regulatory requirements in that area, we will replace the computer with something with greater power, which is sort of, unplug the old one, plug the new one in. But we feel confident of the competitiveness of our hardware strategy. I would say that, we are certain that our hardware strategy is better than any other option, by a lot.
Q7:Romit Jitendra Shah - Nomura Instinet
Okay. And if I could ask, you said that the deposit balance for Model 3 strengthened. Can you give us what that actual balance was?
Deepak Ahuja - Tesla, Inc.
We don't give specific balance of – for deposits by car line. We just give the combined number, which you can see on our balance sheet for customer deposits.
Jeffrey K. Evanson - Tesla, Inc.
Okay. Latiff, let's go to the next question, please.
Operator
Yeah. So our next question comes from John Murphy of Bank of America Merrill Lynch. Your question please.
Q8:John Murphy - Bank of America Merrill Lynch
Good afternoon. Just a question on quarterly cash flow for the fourth quarter and the first quarter. I mean, it sounds like, obviously, there's some delays here on the Model 3, which is understandable, given the complexity. I'm just curious as we think about cash flow for the next two quarters, would we think about them relatively similarly to what we just saw in the third quarter, plus what you would – whatever you would sell out of inventory, so it might be a bit better? I'm just trying to understand, Deepak, how much of that $2.5 billion in inventory is finished goods that you might be able to sell out of in the fourth quarter?
Deepak Ahuja - Tesla, Inc.
Well, firstly, as we continue to ramp up Model 3, our cash flow from operations is going to increase or improve significantly over the next few quarters. And it's – this is the positive virtuous cycle of cash flow or working capital that Model 3 provides us, because we effectively pay our suppliers later than we collect from our customers, and also this quarter, our CapEx payments will start to decline as we pay off, over the next couple of quarters, all the remaining Model 3 related CapEx. So there should be an improving trend over the next two quarters, three quarters.
Q9:John Murphy - Bank of America Merrill Lynch
But to be fair, Deepak, I mean, it sounds like this is a little bit more uncertain than you thought before, as far as production and delivery. So I'm just trying to understand, what kind of cash you can generate out of the inventory that you hold right now?
Deepak Ahuja - Tesla, Inc.
Yes. So firstly, our inventory is going to come down on S and X, and also, what's important is, it is – given these short-term delays, we have to be prudent in how we spend our money. And so we are managing our CapEx and OpEx growth to be in line with the growth of our fleet. And so, for example, CapEx related to our stores or service centers or Superchargers. We are slowing that down to be in line, and that's logical of the cargo for fleet. So all those actions will come through in terms of helping us conserve cash.
John Murphy - Bank of America Merrill Lynch
Okay. I'll follow-up with detail later. Thank you.
Deepak Ahuja - Tesla, Inc.
All right.
Operator
Thank you. Our next question comes from Ryan Brinkman of JPMorgan. Your line is open.
Q10:Ryan Brinkman - JPMorgan Securities LLC
Great. Thanks for taking my question. Just with regard to the ramp-up of the Model 3 production, 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?
I think before, investors were estimating that, if you could hit it at the end of 2018, you'd do over 250,000 vehicles. If you could hit it more toward the middle, you'd do over 325,000. But what now would be a reasonable expectation, based upon what you know, for the Model 3s that do get built in 2018?
Elon Reeve Musk - Tesla, Inc.
It's a bit too early to make . 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.
Deepak Ahuja - Tesla, Inc.
And we want to figure out how much we can push the 5,000 up from the existing...
Elon Reeve Musk - Tesla, Inc.
Yeah. That's true.
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 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 chokepoints exist, simplifying some of the processes, and a few minor part redesigns, it's remarkable how much you can improve cycle time. So...
Ryan Brinkman - JPMorgan Securities LLC
Okay. Actually, that's helpful.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Ryan Brinkman - JPMorgan Securities LLC
Maybe just as a follow-up...
Elon Reeve Musk - Tesla, Inc.
No, go ahead.
Q11:Ryan Brinkman - JPMorgan Securities LLC
Oh, I was just going to say, is the gross margin discussion also related to this at all? I mean, I see the reduced outlook for 4Q. But do you feel any differently about, for example, the ability to do 25% margin when you're doing kind of 250,000 run rate? And as long as the production is going to be restrained, do you have any ability to continue to preference for longer maybe the higher-margin, higher trim level variance of the Model 3, to help with that?
Deepak Ahuja - Tesla, Inc.
We can fine-tune those things when we get there, but overall, our – and I'm reinforcing this again, these are all short-term issues, and it doesn't change our long-term prognosis on Model 3 gross margin.
Ryan Brinkman - JPMorgan Securities LLC
Okay. Great.
Jeffrey K. Evanson - Tesla, Inc.
All right. Latiff, let's go to the next questioner, please.
Operator
Our next question comes from Alex Potter of Piper Jaffray. Your question please.
Q12:Alexander Eugene Potter - Piper Jaffray & Co.
Yeah, thanks very much. I was wondering, I guess, to the extent that these production bottlenecks are ultimately somebody else's fault, is it worth your time trying to claw back some of the costs that you're presumably incurring due to the subcontractor, I guess, dropping the ball, as you put it?
Elon Reeve Musk - Tesla, Inc.
Yeah. I think, first of all, I think at the end of the day, everything is our fault – and my fault most of all. If we pick the wrong subcontractor, we're the fault. So, I don't want to – just to be externalizing responsibility, really it's our fault for picking the wrong supplier and then not realizing it until way late in the game. We will be able to claw back some amounts, but it certainly will not make up for lost revenue, lost free cash flow. So – some amount, yeah, but it's not going to matter that much.
Deepak Ahuja - Tesla, Inc.
The goal is right now to fix the problem.
Elon Reeve Musk - Tesla, Inc.
Yeah, exactly.
Q13:Alexander Eugene Potter - Piper Jaffray & Co.
Okay. Fair enough. I guess, one other issue you referenced a gross margin headwind on the S and X due to trim and mix. Was wondering, if you could talk maybe a little bit more explicitly about what that was. And then what the corrective measures you taking to address that?
Elon Reeve Musk - Tesla, Inc.
Yes. Jon can answer that.
Jonathan McNeill - Tesla, Inc.
Yes, this is Jon, I can address a piece of this. So a large chunk of it was discontinued trims. We've introduced the 100-kilowatt battery pack, which has a 335-mile range in Model S. And as a result of that, we discontinued the 90-kilowatt pack. And as those cars were in inventory, we reduced price to move them out. And so that was a piece of the gross margin headwind that won't repeat as we go forward. And in addition to that, the mix did shift. We sold more 100-kilowatt cars, actually, than we predicted we would, but order rate went up for the 75's even faster. And so we sold more 75-kilowatt cars in the mix than we predicted, and that had a gross margin impact as well.
Given demand is – it continues to increase for the 100-kilowatt pack and the mix shift is occurring more towards that product. We'll see as we indicated in the letter, increasing margins as we roll into Q4 and then into Q1. So this is – the heart of the discontinuation really was the success of us debottlenecking the 100-kilowatt production we talked about in Q2 and really rolling that into strong demand in Q3.
Elon Reeve Musk - Tesla, Inc.
Yeah. We also just increased the amount of value that's in a Model S and...
Jonathan McNeill - Tesla, Inc.
And with X.
Elon Reeve Musk - Tesla, Inc.
Yeah, and X, but particularly Model S, because we're hoping there to be greater differentiation between the S and Model 3. So the base – the fundamental cost of a Model S increased because of more included content. So the full Model S have air suspension, for example, yes, much of the premium elements were included by default, just because there needs to be a clearer the reason for people to buy a Model S or a Model 3.
Jonathan McNeill - Tesla, Inc.
And the market responded really strongly to that in terms of demand. So in Q3, the Model S in the U.S. outsold the Mercedes S Class by two times – over two times actually. And if you added up the sales of Audi A7 and A8, the BMW 7 series and Porsche Panamera, we outsold all those, combined.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Jonathan McNeill - Tesla, Inc.
So the market really did respond to the increased value.
Elon Reeve Musk - Tesla, Inc.
Yes.
Jonathan McNeill - Tesla, Inc.
Yeah. And all of our deliveries came down, so our market share in the U.S., it went up in Q3 for S and X.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Q14:Alexander Eugene Potter - Piper Jaffray & Co.
S & X both?
Jonathan McNeill - Tesla, Inc.
That's right.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Jonathan McNeill - Tesla, Inc.
Compared to Q2.
Elon Reeve Musk - Tesla, Inc.
And I saw some of the articles from our quarterly earnings letter about sort of question kind of S and X, why we reduced production on S and X. We didn't reduce it very much. It's just sort of from about 2,000 units a week to 1,800, and we did that in order to breakdown inventory. So just because inventory was too high. We also just needed much people on Model 3 line. So we thought we will take the third shift from Model S and the X, and apply it to Model 3. Because really, running out of the labor pool, honestly. It's like we're a second labor pool dry both in Gigafactory and in Fremont. And so it's like – yes. It's just so many people that can make it to the Gigafactory. And then we're all finding that we're able to improve the efficiency of production of the S and X.
Previously it required three shifts to do 2,000 units a week. And so – I just want to appreciate like the whole supply chain, and everything -- it's all sized to 2,000 units a week. So likes they're walking spontaneously make 2,500 units a week because the entire supply chain all the parts, everything's going to go to 2,500 and that requires a bunch of CapEx, then you got to match, can imagine sort of increased stores everything is going to increase. So sort of like decide on what seems like the right number, sort of the right numbers about 100,000 units a year combined S and X, and resize the supply chain accordingly.
But we expect to continue making production efficiency improvements on the S and X line and be able to take that from 1,800 units a week to 2,000 units a week in probably over the next year. And still be on two shifts, which is labor hours are reducing per vehicle and that gets us to our sort of roughly 100,000 units a year week cadence and we can work on supply chain efficiencies and the like. But we do expect to – and one point, we expect to sell more cars in Q4 than we did in Q3. So we expect sales and deliveries to be higher in Q4 than Q3. But to reduce Model S and X inventory, to achieve that.
Jeffrey K. Evanson - Tesla, Inc.
Okay, next question please.
Operator
Next question comes from Rod Lache of Deutsche Bank. Your line is open.
Q15:Rod Lache - Deutsche Bank Securities, Inc.
Hi, everybody. Just had a question about how we should be thinking about capital spending maybe at a high level next year. It sounds like you're going to be deploying some capital to increase to 10,000 units per week. And obviously there've also been some reports about you investing in another assembly facility in China. So is your CapEx still expected to be lower in 2018 versus 2017?
Deepak Ahuja - Tesla, Inc.
So, Rod, in terms of the China factory, I'll leave for Elon to make comments on that. But I think it may be better if we hold on, broadly speaking, to that question to the next quarter when we provide full 2018 guidance and give you better clarity on our capital spend for the different elements in our plan.
Elon Reeve Musk - Tesla, Inc.
I suspect it's comparable and similar, honestly, to 2017. We have some – obviously some – it's somewhat of a strategic choice. Do we have higher CapEx and higher growth or lower CapEx and lower growth? Yeah, so it's – but we can – we can move that lever wherever it makes sense, where it makes sense to do so. As I mentioned earlier though we want to make sure we know what to scale before we spend money on it. So for the Model 3, figuring out which production lines can be simply accelerated and which production lines need to be duplicated, we'd far rather accelerate a production line than duplicate it. If we were to make those CapEx decisions right now, we'd be making them – we're kind of shooting in the dark.
Jeffrey B. Straubel - Tesla, Inc.
Yeah.
Deepak Ahuja - Tesla, Inc.
Yeah.
Elon Reeve Musk - Tesla, Inc.
But in respect to China, I wouldn't expect any significant CapEx on China until 2019. It won't be material in 2018.
Rod Lache - Deutsche Bank Securities, Inc.
Okay.
Elon Reeve Musk - Tesla, Inc.
The China plant is sort of something like – this is just a like don't say , but it's sort of a rough target of start of production in about three years and it would be serving the China market and perhaps some other countries in the region and that's really the intent, is to be able to provide Model 3 and Model – won't be making Model S and Model X, but we'll be making probably Model 3, probably Model Y primarily for the local Chinese market and it's really the only way to make the cars affordable in China, but it's three years out, so.
Q16:Rod Lache - Deutsche Bank Securities, Inc.
And just to clarify two points. Is your objective to have something that's kind of three-month sized in China? And I wanted to also clarify your earlier comment about when exactly the production of Model 3 goes exponential. Were you suggesting that that...
Elon Reeve Musk - Tesla, Inc.
Exponential, right now.
Q17:Rod Lache - Deutsche Bank Securities, Inc.
Is that why – I guess, yeah off of a low number but are you getting to a few thousand per week already by the end of this year or did you mean to say that you'll have a few thousand produced in total by the year-end?
Elon Reeve Musk - Tesla, Inc.
Oh, no, no. Again, it's really tricky because of that being exponential. If you were to move the calendar date by plus or minus a few weeks, you'd see gigantic differences in weekly output. But what I meant is something like a few thousand units per week at the end of Q4.
Rod Lache - Deutsche Bank Securities, Inc.
Okay.
Elon Reeve Musk - Tesla, Inc.
But there's , if you said okay, what about a few weeks after Q4? I'd say, yeah, definitely. So, it's just going to be very, very – rising very, very sharply at that time.
Deepak Ahuja - Tesla, Inc.
To be clear, Elon is not going to provide guidance. He's just giving – you are giving...
Elon Reeve Musk - Tesla, Inc.
This is my guess.
Deepak Ahuja - Tesla, Inc.
Exactly.
Elon Reeve Musk - Tesla, Inc.
It will be vertical climb here, it's like – from one moment to the next .
Rod Lache - Deutsche Bank Securities, Inc.
It sounds like you'll be able to provide some pretty high confidence update on the fourth quarter earnings call.
Jeffrey B. Straubel - Tesla, Inc.
Yes.
Elon Reeve Musk - Tesla, Inc.
For sure. Yes. Absolutely.
Jeffrey B. Straubel - Tesla, Inc.
Yeah.
Deepak Ahuja - Tesla, Inc.
Even with the deliveries announcements, we'll have some feedback for you as we mentioned...
Rod Lache - Deutsche Bank Securities, Inc.
Okay. Great.
Elon Reeve Musk - Tesla, Inc.
Yeah. We'll have very good understanding and high clarity on the Q4 earnings call.
Rod Lache - Deutsche Bank Securities, Inc.
Okay. And then the China size, is this a Fremont type of project?
Elon Reeve Musk - Tesla, Inc.
I mean, it's something in the hundreds of thousands of vehicles per year. I'm not sure where it is exactly in the – it's at least a couple of hundred thousand vehicles a year, maybe more.
Rod Lache - Deutsche Bank Securities, Inc.
Okay. Great. Thank you.
Jeffrey K. Evanson - Tesla, Inc.
All right. That's all you will get out of him. Thanks. Next question, please.
Operator
Our next question comes from Toni Sacconaghi of Bernstein. Your line is open.
Q18:Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
Yes. Thank you. I have a question and a follow-up, please. Elon, you just talked about sort of this trade-off between growth and capital spending. And quite frankly, I think it's really the first time that I've heard you talk about that potential trade-off. Usually, Tesla's been all about doing as much as quickly as possible to lead the move to electrification, to establish a first-mover advantage, et cetera. So is the hesitancy in going all-out growth, is that a concern that you might run out of cash and have to raise more cash? Is that a bandwidth concern for the organization in terms of trying to do too much, too quickly? Is that a concern about using capital effectively? What's at the root of that decision? And why is there even a decision, I guess, is the question.
Jeffrey B. Straubel - Tesla, Inc.
I would say that it's probably a bit of both. I mean it's prudent for us to think through all of that as we are continuing to grow. Certainly, we want to be in a certain sense of fiduciary responsibility that we have in addition to just growing like crazy. So...
Elon Reeve Musk - Tesla, Inc.
I mean these are mad substantial growth rates for the auto industry. I think we made some comparison of Tesla growth rate relative to Ford in the Model T era, and we're talking about a rate of growth faster than the Model T, which is the fastest in history. So these are nutty growth rates.
Jeffrey B. Straubel - Tesla, Inc.
It's really not the first time we've thought about this.
Deepak Ahuja - Tesla, Inc.
Yes. We have talked about that. And our growth rate, I don't recall the exact numbers, but I think it's been in the 70%, 80% every year. And next year even at 5,000, it will be like crazy compared to this year. So growth rate continues to be extraordinary.
Elon Reeve Musk - Tesla, Inc.
Yes. Yes. Our growth rate continues that anything like that in the coming years I mean, if it continues to be something like that, Tesla will be the largest car company in the world by volume as well.
Jeffrey B. Straubel - Tesla, Inc.
I mean, Toni, it may be helpful, it accelerates with new product introductions too. Model X reached Model S demand rates in half the time, so twice the rate of demand build, so not only are we growing but we're accelerating as we grow.
Elon Reeve Musk - Tesla, Inc.
Yeah, exactly, Model 3 will be I'd call it five times – it will be five times Model S...
Jeffrey B. Straubel - Tesla, Inc.
And if you look at the timing and it's order of magnitude shifts a bit downward. Yeah.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
I guess, the question is...
Elon Reeve Musk - Tesla, Inc.
...
Q19:Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
But really perhaps to punctuate a little bit more, you've talked about pretty soon you're going to be close to cash flow generative once you get the volume on the Model 3. And so I'm just surprised why you're actually not trying to step on that as quickly as possible because ostensibly once you get to that level, then cash flow really doesn't become a problem. And so, is there any difference in that view? Otherwise I'm just struggling to sort of reconcile why you don't want to get to scale, get to volume, get to positive operating cash flow, as quickly as possible?
Deepak Ahuja - Tesla, Inc.
Just to be clear, we are trying to get as fast as we can to 5,000, and then we will work as fast as we can to get to 10,000.
Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
Yes.
Jeffrey B. Straubel - Tesla, Inc.
Yeah, I don't think we were saying we wouldn't do it. We were just saying we would think through it and make the strategic trade-offs, in terms of timing. But we'd think through it.
Deepak Ahuja - Tesla, Inc.
...
Elon Reeve Musk - Tesla, Inc.
I mean sort of like interpretations of time scales. For us, it's like, well, should we have the growth to 10,000, be – take 9 months, 12 months or 15 months?
Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
Okay. Fair enough.
Jeffrey B. Straubel - Tesla, Inc.
So these are like flash-in-the-pan timescales for other manufacturers.
Q20:Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
Right. Okay. If I could just follow up on a separate topic, on the Model S and Model X gross margins, they look like they must have fallen materially, unless Model 3 gross margins were worse than minus 1000%, so maybe you can help us understand what Model S and Model X gross margins were this quarter and, given most of the one-time stuff has gone and the mix shift is favorable, why wouldn't they snap back to be similar or better next quarter? And do you think that the promotional activity helped drive volume for Model S and Model X this quarter?
Deepak Ahuja - Tesla, Inc.
Yeah, I mean, firstly, your analysis is completely off from what we see internally, and the mix shift that we saw, part of that continues in Q4.
Jeffrey B. Straubel - Tesla, Inc.
Yeah, largely because we're largely custom orders, so those orders were placed in Q3 that we will ship in Q4.
Deepak Ahuja - Tesla, Inc.
And then as we continue to achieve efficiencies and also work on that mix shift, which takes time, we will continue to see improvement, and have full confidence in Model S and Model X gross margin.
Elon Reeve Musk - Tesla, Inc.
Yeah. The cars being sold in Q4 are inventory rundown and some, you know, particularly in (55:31) older models...
Jeffrey B. Straubel - Tesla, Inc.
Service loaners.
Elon Reeve Musk - Tesla, Inc.
...the service loaners, and those grow slightly lower, average like less than a custom order vehicle, that has a point or two effect on gross margin. But yeah, I mean, it should get back to the mid-20s, essentially, in Q4.
Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC
Okay. Thank you.
Jeffrey K. Evanson - Tesla, Inc.
Next question please.
Operator
Our next question comes from Brian Johnson of Barclays. Your line is open.
Q21:Brian A. Johnson - Barclays Capital, Inc.
Yes. Thank you. Want to just drill down on the service revenue and expenses line, not something we often talk about, but a lot of the other questions have been asked. Looks like year-over-year revenues were up $180 million, costs were up $247 million. Could you just talk about the drivers of that change, between what's left of the drivetrain outsource business, the CPO business, the service loaner actual vehicles expense, and then the cost of the PP&E for the actual people and service infrastructure?
Jeffrey B. Straubel - Tesla, Inc.
Yes. I think what you see there is, the increase in PP&E for the service infrastructure we wanted to get out in front of demand as we're increasing both Model S and Model X fleet size, and also Model 3. So we opened a location just about every four days in Q3. And to get ahead of that demand, you probably saw that we put 180 mobile vehicles on the road. And we plan to double that this quarter. And so a lot of that, what you see, is PP&E.
In terms of the drivetrain, the drivetrain issue that you mentioned, that's mostly behind us; in fact, we see very little of that now. The reliability for Model S and Model X continues to improve, and you asked about the CPO business. The CPO business, for us, last year – or last quarter was about a $238 million revenue business. We expect that to grow to $1 billion run rate – or $1 billion business for all of 2017. And so that business is growing rapidly at the same time. And we're running those – we do our own CPO refurbishment. We do that in the same service infrastructure that we're servicing the cars. So you see a little bit of that cost into that line as well.
Q22:Brian A. Johnson - Barclays Capital, Inc.
Okay. And my follow-on for Deepak, probably, is, can you walk us through the depreciation when you produce, for example, in second quarter, those 100 P100D cars Mr. Musk talked about going into the loaner fleet? How do those get depreciated while they are in the loaner fleet? And when they're transferred to be sold, what's the accounting on that?
Deepak Ahuja - Tesla, Inc.
Yes. They are capitalized as inventory, because these cars are salable. And when these cars get sold, the depreciation related to those cars gets recognized in COGS.
Brian A. Johnson - Barclays Capital, Inc.
Okay. So it's not in the cost of the service centers?
Deepak Ahuja - Tesla, Inc.
No.
Brian A. Johnson - Barclays Capital, Inc.
Right. Okay. Thanks.
Jeffrey K. Evanson - Tesla, Inc.
Next question, please.
Operator
The next question comes from Joseph Spak of RBC Capital Markets. Your question please.
Q23:Joseph Spak - RBC Capital Markets LLC
Hi, thank you. You also mentioned some constraints in bodyshop, welding and final assembly. And final assembly, obviously, makes sense given constraints elsewhere. I was wondering if you could talk a little bit about welding. And then, as you get to your year-end run rate, is there still going to be a discrepancy between sort of different parts of the entire line? Or do you think everything is going to be roughly at the same level?
Deepak Ahuja - Tesla, Inc.
Doug, would you like to take that on?
Doug Field - Tesla Inc.
Well with respect to welding, the rate is controlled by – are you specifically asking about the video, or do you have another...
Joseph Spak - RBC Capital Markets LLC
I'm sorry. In the letter, it said bodyshop welding, it listed as a constraint.
Doug Field - Tesla Inc.
Yeah.
Deepak Ahuja - Tesla, Inc.
Yeah.
Doug Field - Tesla Inc.
No, it is not the same constraint. It's not the same level of constraint as the Gigafactory, but it is one of the more complex parts of the overall assembly line. So to reach our overall production goals, that has to ramp significantly. But again, it's not at the same level of constraint as modules. And it's really driven just by the sheer number of robots in the bodyshop. It's the highest concentration of robots anywhere in our overall production line. But it is coming up well. The bodies that we're building are of excellent quality. We've had fantastic crash results in testing them. And we're building more and more every day. We're ahead of the rest of the production curve.
Q24:Joseph Spak - RBC Capital Markets LLC
Okay. And then, as a follow-up on the capital question. Elon, I think a year ago on this call, you said to go from 5 to 10 would require a fair amount of capital. But you were confident that it would be less than going from 0 to 5, and now that you have some real-world experience with the ramp, I'm wondering if you have any different views or if you could put a little bit of a finer point on that comment?
Deepak Ahuja - Tesla, Inc.
Yeah. I mean, we actually feel even more strongly that our efficiency of CapEx on the next phase will be significant compared to the first phase.
Elon Reeve Musk - Tesla, Inc.
Yeah, absolutely. Some elements will require almost no CapEx. It really comes to realize that the – you really want to make a factory that grows incredibly fast. Like really I think speed is the ultimate weapon when it comes to innovation or production. And we are pushing robots to the limit in terms of the speed that they can operate at, and asking our suppliers to make robots go way faster, and they are shocked because nobody has ever asked them that question. It's like if you can see the robot move, it's too slow. We should be caring about air friction like things moving so fast. You should need a strobe light to see it. And that's incredibly critical to CapEx efficiency. And obviously we're going to be designing a lot of the robotic elements and what makes the robots internally. So yes, because current suppliers are just too slow to respond in some cases.
Jeffrey K. Evanson - Tesla, Inc.
Okay, we have 10 more questions in the queue so we're obviously not going to get to everybody. Elon, do you want to take just a couple more?
Elon Reeve Musk - Tesla, Inc.
Sure.
Jeffrey K. Evanson - Tesla, Inc.
Okay. Next question, please, Latiff.
Operator
The next question comes from Colin Rusch of Oppenheimer. Your line is open.
Q25:Colin Rusch - Oppenheimer & Co., Inc.
Thanks so much. Could you talk about the percentage of sales that are coming from these loaners of the fleet vehicles? We're trying to reconcile the MSRP declines that you implemented and what it looks like is a little bit more severe ASP decline. And then also, if you could talk a little bit about why you felt that it was necessary to add value to the Model S and Model X while lowering price? It seems like you should be able to drive volumes with one or the other.
Jeffrey B. Straubel - Tesla, Inc.
Yeah. I think to the first question I would say it's roughly about 5%.
Jonathan McNeill - Tesla, Inc.
Yeah. Very low single-digit in terms of the service loaner sales as a percentage of total units.
Jeffrey B. Straubel - Tesla, Inc.
Yeah.
Deepak Ahuja - Tesla, Inc.
Yeah.
Elon Reeve Musk - Tesla, Inc.
Yeah. As far as the prices, Model X was always – it was really the one that saw more of a price reduction than other things. And then 100-kilowatt hour pack, the 100-kilowatt pack cars was artificially priced high because we have like really production constraint on that pack. It was never our intention to price them quite that high, so we reduced it a little bit. And then added some content S to both.
So we sort of split it between some price reductions where we thought things were a little overpriced, and then added some content just to have a clear differentiation. We weren't quite sure what the response would be to the Model 3. So maybe we might have overcorrected a little bit, but that's kind of where it is.
Q26:Colin Rusch - Oppenheimer & Co., Inc.
Okay. And then just moving to the China strategy. Obviously, with the permanent magnet requirements for the DC motor for the Model 3 and what we've seen historically with export restrictions in China and improved environmental enforcement in terms of mining practices, how important is that to the strategy of moving into China and maintaining your supply lines for the growth of the Model 3?
Jonathan McNeill - Tesla, Inc.
I think we think about China more from a demand side than anything. We're building complete cars and we're shipping them across the ocean and into the largest electric vehicle market in the world. So what really pulls us into China primarily is to be able to supply that market. And to make the cars more affordable, as Elon said, so that we're not forcing consumers to experience tariffs if you bring those cars in. That's a much bigger impact than I think the supply chain or sourcing materials issue.
Jeffrey K. Evanson - Tesla, Inc.
Okay. Next question?
Operator
The next question comes from Rob Cihra of Guggenheim. Your line is open.
Q27:Robert Cihra - Guggenheim Securities LLC
Great. Thank you very much. I recognize it's not the biggest focus right now, but just curious on solar declining as you had expected. But just wondering when you think that can start growing again. Is that a function of Solar Roof? Or is that sort of moving past your sales changes? And then, I guess, similarly on energy storage, the ramp, sort of exiting this year into 2018, is that constrained by Model 3? Or is that on its own separate track? Thanks.
Elon Reeve Musk - Tesla, Inc.
Yeah. We do expect the solar demand to rebound as we move solar sales into all of our stores, which is a much more efficient channel for demand generation. And that's just what sort of conventional solar. The Solar Roof stuff, we expect is going to be – we're confident it's going to have extremely high demand. And we're just going through the validation process for the solar tiles.
And they're working right now, I should point out. So I have the Solar Roof tiles on my house. And I didn't even notice that they're there that they blend in so well. So look really good but a roof is expected to last a long time, at least 25, 30 years. And so there's certain rate at which we can do accelerated lab testing on (1:07:38) components and maybe try to accelerate lab testing on a 30-year roof in sort of six months, but it's hard to do it less than about six months and then we got to pack that into the production process.
So I have no doubt that this will be a very significant part of the business down the road. It just takes a little while to get those behemoth rolling, but once it gets rolling, it's going to be a behemoth.
Jonathan McNeill - Tesla, Inc.
And we continue to install pilot engineering in early customer homes. We continue the cadence for that.
Elon Reeve Musk - Tesla, Inc.
Yes. You have one in your house. Your house in the....
Jonathan McNeill - Tesla, Inc.
Yes. And JB has installed one and quite a few others at this point, 1 to 10 . And we still are on track to turn on most of the production line in Buffalo at the end of this year to start ramping final actual production versus this in the final factory.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Jonathan McNeill - Tesla, Inc.
And maybe to your about the separation for Model 3, those production areas are largely separate.
Elon Reeve Musk - Tesla, Inc.
For the pack size.
Jonathan McNeill - Tesla, Inc.
Yeah, storage versus vehicles. The energy storage production is actually growing at the really – actually doing really well by our ability to complete the South Australia project or be on track to complete that, that's...
Elon Reeve Musk - Tesla, Inc.
In Puerto Rico.
Jonathan McNeill - Tesla, Inc.
As well as the deployments in Puerto Rico and elsewhere in the Caribbean. That's been running at nominal rate and doing quite well. So those are quite separate.
Robert Cihra - Guggenheim Securities LLC
Thank you.
Elon Reeve Musk - Tesla, Inc.
And down the road, there will be some cell conflict. I think if you sort of fast forward a year or two, we really need to think about cell production as being a constraint and going into cell production couple of years out, making sure that we have cobalt – because it's actually – not a lot of cobalt, I meant to say nickel...
Jeffrey B. Straubel - Tesla, Inc.
Nickel, graphite, aluminum.
Elon Reeve Musk - Tesla, Inc.
Yeah, separator like .
Jeffrey B. Straubel - Tesla, Inc.
The module lines that we're operating to assemble the cells into modules are totally separate.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Jeffrey B. Straubel - Tesla, Inc.
So this Model 3 line that we're focused on right now and improving quickly but the energy module line in the same building for instance now is a totally separate line.
Elon Reeve Musk - Tesla, Inc.
Yeah.
Jeffrey K. Evanson - Tesla, Inc.
Okay. I think that's, unfortunately, all the time we have today. Appreciate all your great questions and we look forward to talking to you next quarter. Goodbye.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.
团队成员
杨 藻/首席分析师 SAC 执业证书编号:S1110517060001
工学学士,经济学硕士,2010~2011年间就职于深圳发改委新能源汽车办,随后先后就职于凯基证券和浙商证券,2016年8月加入天风证券,担任新能源与电力设备组首席分析师。
李恩国/分析师 SAC 执业证书编号:S1110517010001
天津大学工学学士、管理学硕士,获2016年水晶球分析师公用事业行业公募榜单第三名。七年国家电网公司跨区电网设备采购及设备质量管理经验,2014年加入国海证券,2016年12月加入天风证券,覆盖电力设备板块,并覆盖部分新能源标的。
李丹丹/助理研究员
上海社会科学院产业经济学硕士。2016年7月加入天风证券,现为天风电力设备与新能源行业助理分析师,覆盖光伏、新能源汽车充换电设备板块。
杨星宇/助理研究员
英国杜伦大学硕士。2017年2月加入天风证券,曾任职于浙商证券。
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