Tesla-Orama: Interesting comments from the annual shareholder meeting on Model X and other topics

Tesla Motors and its CEO Elon Musk had another week of heavy media coverage – with more being revealed on the upcoming Model X launch, Gigafactory, battery swapping, SpaceX, what shareholders want, and what Bob Lutz had to say……….

  • Tesla annual meetingDuring the annual shareholders meeting last week, Musk said that the all-electric Model X crossover is moving forward and will be ready for deliveries in the third quarter of this year. The company reports that orders have been placed for at least 20,000 of them. Overall, the company expects to sell about 55,000 vehicles this year, with most of that volume coming from the Model S sedan. The Model X, with its “falcon wing” doors, had a two-year delay with questions buzzing on the internet about when it would actually be rolling out. It’s expected to be offered with a variety of different battery-pack sizes and performance levels, similar to the Model S.
  • The Gigafactory lithium ion battery manufacturing plant in Nevada is ready to start production in mid-2016. Partner-company Panasonic Corp. has committed to sending hundreds of its employees to the Gigafactory starting this fall and will be investing around $478 million on the plant this fiscal year.
  • Battery swapping took another blow – Tesla is backing away. During its California test program with Model S owners, only five out of 200 who had been invited tried out the battery pack swap that Tesla had made available. It’s clearly not very popular, and it’s unlikely to be expanded in the future, Musk said. Customers seem to be more interested in using Tesla’s Superchargers that can fuel the Model S battery pack for about 200 miles of range in about 20 minutes of charging. Plus, using the Supercharger is free for Model S owners, unlike the battery swaps.
  • As for its energy storage product, utilities and large companies are much more interested in making the investment than are consumers. The Powerpack, which will go to utilities and large industrial customers, will probably get more than 80% of the total energy sales. Based on negative feedback from consumers about the Powerwall energy storage product, Tesla is increasing the kilowatt power storage capacity without raising the price, Musk said.
  • Speaking of energy storage and working with utilities, Musk made another memorable quote last week during the Edison Electric Institute’s annual convention for investor-owned utilities in New Orleans (and which helped deflate the word “disruption”): “I’m not actually a fan of disruption for it’s own sake. I don’t think we should disrupt things unless it’s…fundamentally better for society,” he said. “I’m not really a fan of disruption; I’m just a fan of things being better.”
  • Two Tesla shareholders, Mark and Elizabeth Peters from Texas, want the company to stop using animal products such as leather seats. Elizabeth said her husband, Mark, had to go through “extreme measures” to get her a vegan Tesla as an anniversary gift. Later in the call, a representative from People for the Ethical Treatment of Animals asked Musk if the animal-rights group could help the carmaker find vegan alternatives to leather. “We’ll look into it,” Musk said.
  • An “autopilot” edition of the Model S, with semi-autonomous features like a lane changer system, will be available in the near future.
  • Being in the auto manufacturing business requires a large amount of capital. Tesla has secured a credit line of up to $750 million backed up by property, inventory and equipment owned by the company, which was disclosed in a Tesla public filing on Friday. That line of credit had been in place for $500 million, and was extended another $250 million by Deutsche Bank, Bank of America, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, Wells Fargo, and Credit Suisse. Tesla has been using up its cash reserves and needs to have access to a sizable credit line. Tesla spent more than $500 million in cash during the first quarter to bring its Model X to the marketplace. Tesla expects to see the Model X generating cash flow in the fourth quarter of this year; delaying the Model X launch again would get in the way.
  • As for the SpaceX interspace commercial transport company (where Musk serves as CEO), it won’t be going public anytime soon. That company recently asked the federal government for permission to begin testing an ambitious internet service from space – that would go into direct competition with Comcast, AT&T, and other internet-service providers. The SpaceX plan would launch 4,000 small and cheap satellites that would send high-speed internet signals to all parts of the earth. Musk has said it “would be like rebuilding the Internet in space.”
  • While former GM vice chairman and Chevy Volt champion Bob Lutz has been impressed with Musk and Tesla Motors, their battery business isn’t winning him over. Appearing last week on CNBC’s Squawk Box, Lutz said he can’t understand the fascination with backup battery storage or manufacturing your own lithium-ion batteries. He thinks that if the energy storage market were truly ready for growth, it would have been tapped by Alessandro Volta in 1800 when he invented the first battery. He also said that building its Gigafactory won’t necessarily make manufacturing lithium-ion batteries more cost competitive. That’s already being done in China and the US, where production is fully automated and labor costs are coming down. “The highest cost in the lithium-ion battery is not the assembly labor; it’s the raw materials,” Lutz said. “And the raw materials have to be procured at a certain price. And everybody pays more or less the same price.”
  • Some automakers are complaining about California’s zero emission vehicle mandate and what it means for staying profitable. Tesla Motors has complained about it from the other side of the coin. In an interview with Automotive News, Diarmuid O’Connell, Tesla’s VP of business development, said that California needs to step up and actually enforce the rule. “I don’t think it was ever conceived that a pure-play electric car company like Tesla could exist, let alone thrive, but we have,” O’Connell said. “The inconvenient truth is that our success has revealed the weakness of the mandate.”

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