Urgency for Electric Vehicles:

Elon Musk emphasized the pressing need for the automotive industry to transition to electric vehicles (EVs). He cited the urgent requirement for sustainable transport options, particularly in the backdrop of declining oil prices, as an impetus for accelerating EV adoption.

Tesla’s Open-Source Approach:

Musk pointed out that Tesla has open-sourced its patents to support the growth of electric vehicles. This move is designed to make it easier for other manufacturers to innovate and expedite their electric vehicle programs.

Availability of Supercharger Network:

Musk mentioned that Tesla’s Supercharger network is open for use by other carmakers. This step aims to alleviate some of the infrastructure challenges commonly associated with EVs, thus making them more accessible to the public.

Future of Transport:

Musk was optimistic about the future, stating that he believes all forms of transport—with the exception of rockets—will eventually go fully electric. He noted that it’s not a question of if, but when this transition will happen.

Risks of Fracking Technology:

Musk warned about the increased availability of oil and gas due to advancements in fracking technology. He estimates that fracking could increase accessible fossil fuel reserves by an order of magnitude, thereby amplifying potential harm to the climate.

Independence from Oil Prices:

Finally, Musk argued that the transition to electric vehicles shouldn’t rely on economic factors like high gas prices to be compelling. He stressed the need to make EVs inherently desirable, instead of depending on scarcity or price fluctuations in fossil fuels to drive their adoption.

High-Risk Ventures:

Elon Musk acknowledged that launching businesses in the automotive and aerospace sectors would traditionally rank low in terms of risk-adjusted returns. These are not the types of businesses most entrepreneurs would naturally opt for due to the high level of inherent risk.

Changing the Perception of Electric Cars:

Musk’s ambition for Tesla was to dispel the prevailing notion that electric cars were akin to golf carts—slow, ugly, and inefficient. By introducing the Tesla Roadster, he aimed to demonstrate that electric cars could be fast, attractive, and functional, thereby changing public perception.

Market Validation:

After developing cars like the Roadster and Model S, Tesla had to prove there was a demand for such vehicles. Musk mentioned that their third strategic objective was to show that a compelling, long-range, mass-market electric car was feasible, referring to their future Model 3.

Overcoming Financial Struggles:

Musk shared candid details about the financial difficulties both SpaceX and Tesla faced, particularly around 2008. Despite failed rocket launches and challenges in securing investment, they persevered. He highlighted that the pivotal moment for Tesla’s survival came with an investment from Daimler, not government funding.

Investment and Personal Sacrifice:

He recounted that to keep Tesla afloat, existing investors, as well as Musk himself, had to pour in additional funds. Musk invested $20 million of his own money and even had to borrow money for rent thereafter.

Initial Expectations and Current Sentiments:

Musk stated that when Tesla first started, he estimated only a 10% chance of success for the company. Although the discussion cut off before he could elaborate on his current feelings, the context implies a significant shift in confidence levels from those early days.

Assured Success:

Elon Musk expresses confidence in Tesla’s future, stating some level of success is now assured for the company. The question remaining is the magnitude of that success. Musk mentions that Tesla could either become a niche car maker with a minuscule market share or surpass that to achieve broader impact.

Production Goals:

Musk clarifies that Tesla’s production goal for 2020 is 500,000 cars but hints at ambitions to exceed that number. He projects that by 2025, Tesla could be producing “a few million cars a year.” The primary mission is to transition the world to electric cars, which drives Tesla’s emphasis on increasing production volume.

Industry Influence:

Beyond producing electric cars, Musk believes Tesla’s most significant impact will be on accelerating other automakers’ shift to electric vehicles. He acknowledges that the current enthusiasm for electric vehicles within the industry is low but notes that Tesla aims to change that by demonstrating what’s possible.

Challenges in Adoption:

Musk identifies several challenges in the broader adoption of electric cars in the auto industry. He mentions that many are skeptical about the economics and demand for electric vehicles, leading to a “chicken and egg” problem that hampers large-scale investment and production.

Financial Viability:

On Tesla’s economic viability, Musk indicates that the company has been able to achieve a gross margin in the mid to high 20s, suggesting financial sustainability. He maintains that Tesla’s economics do work, further solidifying the company’s leadership role in the electric vehicle market.

Investment in Growth:

Elon Musk discusses Tesla’s current negative cash flow, attributing it to significant investment in automating the Model X production line, expanding sales and service infrastructure, and other developmental work. Tesla’s focus is on scaling production and overall growth.

Profitability and GAAP Accounting:

Musk states that Tesla could be profitable if they were not aggressively growing. He confirms that the company adheres to Generally Accepted Accounting Principles (GAAP), but due to the high investment in growth, they aren’t profitable under GAAP at the moment.

Retail Network Expansion:

On the topic of retail and service infrastructure, Musk talks about establishing Tesla’s own stores before considering franchise dealers. He mentions that the company’s focus is on production growth rather than demand generation. Only after achieving a stable production rate would Tesla consider partnering with franchise dealers.

State-by-State Strategy:

Musk explains that Tesla currently focuses on negotiating state-by-state regulations for direct sales, rather than a national solution. He mentions a White House petition for national direct sales but states Tesla is not yet pursuing federal solutions.

Importance of Customer Experience:

In the retail space, Musk emphasizes the need to ensure an excellent customer experience. He is open to partnerships only if they align with Tesla’s high standard for customer service.

Legislative Challenges:

Discussing challenges in states like Texas and Michigan, Musk feels optimistic about reaching compromise legislation that would allow Tesla to operate a few of its own stores. He emphasizes that the request for a few direct-sale stores is reasonable and in line with the ethos of states like Texas.

The Production-Demand Balance:

Finally, Musk makes it clear that Tesla has been production-limited rather than demand-limited. He suggests that the shift to partnerships or other retail models will depend on when Tesla can meet production rates that saturate demand, which he expects could take a few years.

Profitability Goals:

Elon Musk addresses the question of Tesla needing to show a profit in the future. He states that Tesla will likely be profitable once the Model 3 is in full-scale production, aiming for the year 2020. At that point, they expect to produce half a million cars annually. Even while investing in future technologies, Musk believes that Tesla should be profitable at this scale.

Model 3 and Sales Expectations:

Musk clarifies that Tesla aims to produce 500,000 cars by 2020, specifically mentioning the Model 3 as a pivotal factor in achieving this target. Though he refrains from disclosing the number of Model S’s sold last year due to an upcoming earnings call, he says Tesla is pleased with the number of cars produced and ordered.

Sales Metrics:

Musk elaborates on the unique sales metrics for Tesla. Unlike traditional automakers who consider sales and deliveries synonymous, Tesla uses built-to-order models, making orders a more relevant indicator of demand. He points out that Tesla has a typical waiting time of one to four months for delivery, making the number of orders an important metric to consider.

Challenges and Media Perception:

Musk notes that Tesla faces challenges in meeting delivery targets. For example, they had to revise their aspiration from delivering 35,000 to 33,000 cars, mostly due to issues around the Christmas break. He also mentions that Tesla needs to better educate the media about differentiating between deliveries and actual demand, to prevent misconceptions.

Reporting Frequency:

When questioned about why Tesla doesn’t report monthly sales and delivery numbers, Musk suggests that they may in the future. He doesn’t see a significant difference between reporting numbers monthly and quarterly, but acknowledges that more frequent reporting could benefit the media.

This segment reveals Musk’s thoughts on Tesla’s path to profitability, the significance of the Model 3, and the company’s unique challenges in sales and reporting metrics.

Batch Production and Monthly Reporting:

Elon Musk explains that Tesla produces cars in batches designated for specific regions, like Asia, Europe, or the U.S. These cars are then delivered in waves, which can create significant monthly variations in delivery numbers. He argues that these fluctuations don’t reflect changes in consumer interest but are merely a function of when shipments are made. Due to this, he feels that releasing data on a monthly basis could confuse people.

Increasing Demand in U.S. and Europe:

When asked about Tesla’s U.S. sales, Musk confirms they are rising but does not provide specific numbers. He states that over the last year, there has been a significant increase in demand in both North America and Europe. He singles out Europe as “surprisingly excellent” in terms of demand.

Challenges in China:

Musk notes that sales were weaker in China, attributing it to miscommunications, especially around the issue of charging. While he believes that Tesla has resolved the charging concerns in the country, they need to correct public misperceptions about it.

Global Demand Overview:

Musk gives a general assessment of Tesla’s global demand. He mentions that while China was “unexpectedly weak” in the fourth quarter, other regions like North America, Europe, and even Hong Kong and Australia showed good to excellent demand. The slack in Chinese demand was more than compensated for by other markets, and Musk expects the issues in China to be resolved by mid-year.

The segment elucidates Tesla’s unique production and delivery strategy, and provides insights into the company’s performance and challenges in various global markets.

Model X Delays:

Elon Musk acknowledges the delay in the launch of Tesla’s Model X, attributing it partly to his “inherent optimism” that led him to underestimate timelines. He asserts that the vehicle will be “phenomenal” and confirms it will be released in the summer. Special attention is being paid to extensive validation testing, particularly for the Falcon Wing doors, which are a new design innovation in the SUV space.

Model X Features:

Musk highlights the unique features of the Model X, such as its Falcon Wing doors and the lower center of gravity due to the floor-pan battery pack. He believes these features provide the Model X with the utility of a minivan and the center of gravity of a sports car. Musk stresses he does not make these claims lightly, and is highly confident in the car’s future success.

Industry Partnerships:

In the context of calls for industry consolidation to reduce development costs, Musk clarifies he is not actively seeking partnerships at the moment. He mentions previous collaborations with Daimler and Toyota, but states that Tesla’s current focus is on increasing its own production capability and completing the Model X. Any partnership discussions would be preliminary and might only bear fruit in a few years.

Production Priorities:

Tesla’s immediate focus is on improving production capacity, launching the complicated Model X, and preliminary work on the Model 3. Musk points out that until Tesla’s Gigafactory is operational, they will not have the battery cell capacity to entertain deals with other automakers.

The segment delves into the challenges Tesla faces in launching the Model X, its features, and the company’s stance on partnerships in the evolving automotive landscape.

Gigafactory as a Necessity:

Elon Musk discusses the Gigafactory as a high-stakes venture essential for Tesla’s future. According to him, the scale of batteries needed is so enormous that someone has to make the investment to build this factory. Musk says that if Tesla didn’t contribute, he doesn’t see any other company taking the initiative.

Financial Contributions:

Musk provides insights into the financial aspects of building the Gigafactory. The total cost for bringing the Gigafactory to full capacity is around $5 billion. Tesla is expected to contribute over $2 billion, while their partner Panasonic is expected to contribute slightly less. Additional partners will contribute around $500-600 million. Musk clarifies that contrary to popular belief, the State of Nevada is only contributing a few hundred million in the form of land grants.

Media Misconceptions:

Musk addresses the media’s portrayal of Nevada’s contribution, stating that Tesla isn’t getting a $1.3 billion check from the state. Nevada’s actual contribution is less than 5% of the Gigafactory’s total cost. Other incentives mainly involve tax abatements on equipment purchases for the next 10 to 20 years.

Cost Reduction Goals:

The Gigafactory aims to reduce battery costs by 30%, a key factor for the affordability of the Tesla Model 3. The factory aims to have an output level making it comparable to the combined output of all other lithium-ion battery factories in the world. Musk states with high confidence that a 30% cost reduction is achievable by 2020, with continued reductions afterward.

Scaling Service Infrastructure:

Lastly, Musk touches on Tesla’s plans to evolve its service model to meet increasing demand. He highlights that a focus for Tesla is acquiring many service centers and hiring people to build out the service infrastructure. He hints at upcoming innovations that will elevate their service to a different level.

Personal Accountability:

Musk notes that if the Gigafactory fails to achieve its cost-reduction goals, he should be held accountable and even fired. He emphasizes the project’s crucial role in making electric vehicles scalable and affordable.

Quality Over Quantity:

Elon Musk focuses on the quality of service rather than its quantity. He hints at an upcoming announcement that has the potential to revolutionize service, aiming to make service feel like “invisible love.” According to Musk, an ideal service is one that is so seamless and efficient that customers hardly notice it happening. Once completed, they should only feel satisfaction.

State of the Industry:

Musk is asked whether the industry currently meets his ideal of “invisible love” in service. He unambiguously states “No,” emphasizing that there is room for improvement in the service sector of the automobile industry.

Government Subsidies:

Musk challenges the notion that his companies depend heavily on government subsidies. He states that Tesla, SpaceX, and SolarCity received no government funding for their first half-decade. For Tesla, the first government loan came seven years after the company’s inception and was designated for specific projects like the Model S and a powertrain factory.

Financial Perspective:

The government loan Tesla received was only a fraction of the total funds the company has raised. Musk contrasts this with other automobile companies that have received much greater loans. He insists that Tesla’s story is remarkable not for the level of government support it received, but for how little it got in comparison to its competitors.

Sales and Tax Credits:

When asked about Tesla’s ability to sell cars without government tax credits, Musk affirms that they could. He points out that Tesla operates in 34 countries, most of which do not offer such incentives. While acknowledging that the $7,500 U.S. tax credit has a “slightly positive catalytic effect,” he does not see it as a deciding factor in Tesla’s sales.

Zero Emission Credits:

Musk explains the origin and purpose of Zero Emission Vehicle (ZEV) credits, asserting that they were designed to address public health issues arising from emissions. He emphasizes that these credits are available to any manufacturer willing to produce zero-emission vehicles, and therefore, they are not a special handout for Tesla.

Through the course of the discussion, Musk provides insight into his philosophy on quality service, clarifies misconceptions about his companies’ reliance on government subsidies, and elaborates on various financial aspects impacting Tesla.

On Talent Retention:

Elon Musk refutes the claim that he’s lost a lot of talent at his companies. He cites attrition as a normal part of business operations, emphasizing that the longevity of key executives is what matters. Musk argues that turnover at his companies is less than industry average. He gives examples such as the average tenure of a general counsel at Tesla aligning with industry standards and SpaceX’s general counsel serving for 13 years, three times the industry average.

On Media Coverage:

Musk criticizes a Wall Street Journal article that he describes as “asinine,” saying it is full of statements that are “either obvious, wrong, or obviously wrong.” He points out inconsistencies in the article, specifically mentioning that a former Tesla communications executive returned to the company, countering the notion that people don’t like working for him.

Stock Price and Public Perception:

Musk discusses the drawbacks of being a public company, noting that stock prices are subject to speculation. He clarifies that his tweets or public announcements have nothing to do with stock prices. The focus is on long-term investors, as they are the ones the company truly cares about. He expresses indifference towards those who are only in it for short-term speculation.

Marketing and Production Constraints:

Musk explains that advertising doesn’t make sense for Tesla at the moment due to production constraints. He says the money spent on advertising would be better invested in increasing production capacity. Musk is not against advertising in principle but says it would only be effective when production constraints ease.

Public Image:

Musk acknowledges that his status as a mainstream culture celebrity is a double-edged sword. While it could bring attention to his ventures, it also has personal drawbacks, such as making it harder for him to engage in simple activities like going to a bar.

Overall, the conversation touches on themes of media credibility, talent retention, stock market dynamics, and the personal and professional implications of publicity.

Public Recognition:

Elon Musk comments on how public recognition has altered his ability to socialize casually. He recalls how he faced criticism and was labeled as an “idiot” and a “charlatan” in 2008. He mentions that bloggers had been keeping a “Tesla death watch,” indicating skepticism about the viability of Tesla at the time.

Mass Optimization in Design:

When asked about the application of lessons from the space industry to automotive design, Musk emphasizes the critical role of mass optimization. According to Musk, the importance of mass optimization increases by an order of magnitude when transitioning from cars to planes, and again from planes to rockets. This focus led him to choose aluminum for Tesla Model S’s body and chassis, despite internal resistance.

Material Innovation:

Musk hints at future exploration of advanced alloys for automotive applications, drawing on the materials used in rocket industry. He considers material choice, advanced joining technologies, and design geometry as key factors in creating mass-optimized vehicles.

Spacefaring Civilization:

Regarding SpaceX, Musk doesn’t express personal ambition to travel to Mars but emphasizes enabling large-scale human and cargo transportation to Mars. He argues for the importance of humanity becoming a multi-planet species, describing it as a path toward an “exciting and inspiring” future.

Family & Design Choices:

Musk reveals that his children are somewhat indifferent to cars. He shares a humorous anecdote about one of his sons criticizing the absence of rear reading lights in the Tesla Model S, which led to the addition of the lights in later models.

Interactions with Warren Buffett and Charlie Munger:

Elon Musk briefly discusses his conversations with Warren Buffett and Charlie Munger, two iconic figures in the investment world. While he praises Buffett, he notes a past lunch meeting with Munger, during which Munger was skeptical of Tesla’s success. Musk says that Munger’s attitude has changed and he now thinks highly of Tesla.

Message to Traditional Auto Industry:

Musk emphasizes that traditional automakers should make significant investments in electric vehicles (EVs). He suggests that such a move would be beneficial even with low gasoline prices and would align with environmental goals.

Economic Forcing Function:

When questioned about the impact of $2 per gallon gasoline prices on the transition to EVs, Musk acknowledges it reduces the “economic forcing function,” referring to the financial pressure high gas prices usually exert to adopt greener technologies. However, he anticipates increasing societal and governmental pressure to switch to EVs due to environmental concerns.

Efficiency of Electric Cars:

Musk argues that electric cars are fundamentally more efficient than gasoline-powered vehicles. He cites the potential for over 90% efficiency in electric motors compared to around 20% for internal combustion engines. He further notes that even if the electricity for EVs were generated by hydrocarbons, it would still result in lower CO2 emissions per mile.

Open-Source Philosophy:

Musk outlines Tesla’s open-source approach, stating that the goal is to accelerate the transition to sustainable transport. He admits Tesla’s journey has been financially risky, coming close to failure, but maintains that the mission is not profit-driven. Musk warns of future regret if society fails to address the carbon emissions affecting the planet’s atmosphere and oceans.