Introduction and Structure:

Todd Marin, Tesla’s Deputy General Counsel, opened the 2014 Annual Shareholder Meeting. He introduced the board, CFO Deepak Ahuja, VP of Investor Relations Jeff Evanson, and representatives from PricewaterhouseCoopers, Tesla’s independent auditor. The meeting consisted of two parts: a formal voting process and an overview by CEO Elon Musk, followed by a Q&A session.

Voting Agenda:

Marin outlined the five items on the voting agenda. These were: electing Class 1 directors Elon Musk and Steve Jurvetson, approving the 2013 Executive Compensation Program, amending Tesla’s 2010 Equity Incentive Plan, ratifying the appointment of PricewaterhouseCoopers as independent auditors, and considering a stockholder proposal on supermajority voting provisions. Tesla’s board recommended voting “for” the first four items and “against” the stockholder proposal.

Supermajority Voting Proposal:

A stockholder, James McRitchie, presented his proposal against Tesla’s supermajority voting requirements, arguing that eliminating these requirements would attract more institutional share owners and align Tesla’s governance more closely with its engineering standards. Tesla’s board had prepared a statement in opposition to this, as mentioned in the company’s proxy statement.

Voting Mechanism:

Stockholders could change or submit their votes during the meeting. Lisa Brenton was designated as the Inspector of Elections, responsible for collecting and tallying the votes. After the votes were collected, the polls were declared closed.

Vote Results:

The unofficial tally would be announced at the end of the meeting, and official results would be filed on an 8K form with the SEC within four business days.

This meeting served as a platform for discussing Tesla’s leadership, governance structures, and key proposals affecting the company and its shareholders.

Introduction and Agenda:

The speaker introduces Elon Musk for a presentation following a formal company meeting. Questions from the audience are encouraged, but they should focus on the company’s business. The presentation may include forward-looking statements based on current expectations.

Business Milestones:

Elon Musk highlights Tesla’s major accomplishments. The company has produced and sold many cars and has reached 344 million miles driven. A point of pride is that no one has ever received a permanent serious injury in a Tesla, despite various types of accidents.

Global Expansion:

Tesla now has 126 locations worldwide, including service centers and superchargers. The company plans to double the number of superchargers by the end of the year. Tesla aims to offer a comprehensive solution for consumers, from purchasing to servicing and charging.

Customer Experience:

Musk emphasizes the importance of the entire driving experience. He wants Tesla owners to love their cars, possibly more than their houses. He mentions upcoming software updates that will allow for more personalization and functionality, including the ability for owners to name their cars.

Traffic Optimized Directions:

Musk unveils plans for a new navigation system, emphasizing real-time, traffic-optimized directions. The system will use crowdsourced data from Tesla vehicles and 20 million other sources to provide better traffic information. The quality of the traffic data is expected to improve as the number of Teslas increases.

Conclusion:

Overall, the focus is on achieving a complete and enjoyable consumer experience, from purchasing to driving. Musk expresses excitement over upcoming software updates and expansion plans that aim to improve this experience further.

Hardware Improvements:

Elon Musk discusses subtle but important hardware improvements Tesla has made over the past year. This includes power folding mirrors, parking sensors, and underbody shields. These features enhance both safety and user convenience.

Production and Supply Constraints:

Musk mentions that Tesla has been production-limited primarily due to the supply constraints related to battery cells. He expects this bottleneck to be gradually alleviated, enabling increased production in steps.

Gross Margin and Options:

The company started with poor gross margins but has improved significantly. Elon notes that the value of options people choose when buying Tesla cars has started to reduce, impacting the gross margin slightly. This reduction in optional features is attributed to affordability considerations.

Global Expansion:

Tesla is entering more markets, including significant investments in China where the demand is high. They face challenges with local electricity grids and building codes that require individualized solutions.

Local Infrastructure:

The biggest constraint in new markets is the rate at which Tesla can open service centers and install superchargers. The company aims to solve idiosyncratic issues around charging that differ by country before fully launching in new markets.

Right-Hand Drive Markets:

Musk also highlights the impending launch of right-hand drive cars in markets like London, Japan, Australia, and Hong Kong, emphasizing the company’s global reach and adaptability.

Gigafactory Progress:

Elon Musk revealed advanced planning stages for the Gigafactory, focusing on reducing energy cost per unit. He mentioned a targeted cost reduction of a minimum of 30% and expressed optimism in exceeding this figure.

Panasonic Partnership:

Musk emphasized a strong working relationship with Panasonic. After initial skepticism, Panasonic is now convinced that the Gigafactory’s cost reduction goals are attainable.

Model X Development:

Musk highlighted that the production version of the Tesla Model X would surpass expectations. Challenges like the Falcon Wing door and second-row seats are being addressed to produce a car that feels like “a work of art.”

Generation 3 Car:

The ultimate goal of Tesla’s three-step strategy includes a high-volume, low-cost car, targeting a price of $35,000 with a range exceeding 200 miles. Musk argues that when accounting for fuel cost savings, the car will be effectively more affordable.

Supercharger Network:

Tesla completed a coast-to-coast supercharger network in the U.S., albeit via a circuitous route initially planned for Musk’s family trip. He noted plans to fill out additional direct routes and to expand the supercharger network globally.

Timelines and Challenges:

Musk acknowledged certain delays and challenges but reiterated Tesla’s commitment to product excellence. Volume production of Model X is expected in the next year’s second quarter, and the Gigafactory is a precursor to the Generation 3 car slated for late 2016.

Global Expansion:

Tesla has been focusing on entering and stabilizing new markets. Challenges in places like China and Norway often revolve around localized issues such as building codes and electrical grids.

Record-Setting and Customer Experience:

A Tesla team set a Guinness World Record for the fastest LA-to-NY trip in an electric car. However, customer experience remains central; Musk emphasized delaying market entries until they can guarantee good servicing and charging capabilities.

These were the key points and insights from Elon Musk’s extensive presentation on Tesla’s current projects, challenges, and future plans.

Clarification on Toyota Deal:

Elon Musk clarified that the talks with Toyota did not fall through but are on hold. The reason for the pause is Tesla’s current inability to supply high-volume battery packs and powertrains due to cell supply constraints. The two companies plan to revisit their deal once Tesla can address this issue, primarily through the completion of their Gigafactories.

Opinion on Hydrogen Fuel Cells:

When asked about hydrogen fuel cells, Musk expressed skepticism, referring to them as “fool cells.” He questioned their applicability by pointing out that high-value situations like cell phones and expensive satellites, where long-lasting energy storage is crucial, do not use fuel cells.

Focus on Gigafactories:

Musk reiterated the importance of their Gigafactories in resolving the cell supply constraint. He emphasized that the Gigafactories are crucial for Tesla’s growth and for their ability to supply other companies like Toyota.

Women-Friendly Design in Model X:

In response to a question about making Tesla cars more women-friendly, Musk acknowledged that the upcoming Model X is designed with the needs of women in mind. This includes considerations related to ease of access to pedals and seating height.

The overall discussion touched on the significance of Gigafactories, skepticism about hydrogen fuel cells, and the adaptability of car designs to suit different demographics including women.

Gender-Inclusive Design:

Elon Musk acknowledged that Tesla’s previous Model S was too guy-centric and conveyed the intention to correct this imbalance with the forthcoming Model X.

Merchandising and Brand Alignment:

In response to a question about the merchandise sold at Tesla stores, Musk confirmed that plans are underway to update the merchandise. The aim is to make it more aligned with the Tesla brand, implicitly acknowledging its current inadequacy in this regard.

Production and Battery Supply:

Regarding Model X production, Musk stated that Tesla aims to match vehicle production with the availability of battery cells. While there are external factors affecting battery cell supply, Tesla plans to ramp up vehicle production as fast as possible. Musk mentioned that eventually, they might hit a customer demand limit but did not specify what that limit could be.

Seat Upgrades:

Musk admitted that Tesla seats have historically not been the best and revealed plans for offering upgraded seats that will be sportier and more comfortable. These will also be available as retrofits for older models. He shared that Tesla has already made several improvements, such as in the type of foam used and the seat springs, to enhance seat comfort.

The discussion covers plans to make Tesla’s offerings more gender-inclusive, intentions to align merchandise with the brand, strategies to match vehicle production with battery supply, and improvements to the comfort and quality of vehicle seats.

Trademark Issues with Model E:

Elon Musk discussed Tesla’s initial plan to name their third-generation car Model E, completing an S, E, X series. However, Ford threatened legal action over the Model E name, forcing Tesla to reconsider. Tesla had also trademarked Model Y, and Musk hinted that alternative names were in the trademarking process but remained undisclosed.

Production Ramp-Up:

Musk elaborated on Tesla’s plan to scale production of the Model X, noting that production would be adjusted according to the availability of battery cells. While some external dependencies could impact this, the aim was to meet demand as efficiently as possible. Musk mentioned that they would eventually find a demand limit but did not know what that limit would be.

Seat Upgrades:

Musk admitted that Tesla’s seats had not been up to par and mentioned ongoing improvements. A new upgraded seat is planned to be available later, and existing car owners can retrofit their vehicles. Subtle changes in foam and spring adjustments have already been made to improve comfort.

CEO Tenure:

Regarding his role as CEO, Musk explained that he committed to remain in this position until Tesla achieves volume production of the third-generation car. The timeframe for this is approximately four to five years. He stated that the decision to continue as CEO beyond that point would depend on various factors, including his personal well-being.

Unusual Job Applications:

Musk fielded a request from a shareholder who wished to be considered for a high-level position at Tesla, specifically as vice chairman or a future CEO. Musk declined the offer politely, citing the absence of a vice chairman role and the need to move on to other questions.

The chapter reveals Tesla’s adaptive strategies in branding, its focus on improving product quality, and Musk’s own considerations for his role as CEO. It also highlights the unique challenges and opportunities that come with public interactions.

Openness to Collaboration:

Elon Musk clarified that Tesla’s Supercharger network is not intended to be exclusive. He is open to other manufacturers using the supercharging infrastructure, provided their vehicles can handle the high power levels. Specifically, Tesla’s superchargers deliver energy at 135 kilowatts, a specification not met by other electric cars currently in the market.

Usage-Based Contribution:

Musk elaborated that if other manufacturers want to utilize the network, they could contribute to the capital costs. This contribution would be calculated based on the percentage of the time their vehicles use the supercharger network, making it a fair-use system.

Upgrading Power Levels:

Musk also mentioned that Tesla plans to increase the power levels of their superchargers beyond the current 135 kilowatts. This could either widen the gap between Tesla’s capabilities and those of competitors or set a higher benchmark for others to aim for.

Suggestion for Streamlining Construction:

A suggestion was raised about simplifying the installation process for superchargers. The idea is to place them on a flat metal platform and drop them in the desired location to cut costs and speed up delivery. While Musk didn’t commit to the idea, he acknowledged the suggestion.

Merchandising and Accessories:

In a less technical point, a request for Tesla-themed rally jackets was raised, showing public interest in Tesla-branded merchandise. Although this was a minor part of the discussion, it indicates the brand’s cultural impact.

Overall Strategy:

The primary focus of Tesla’s long-term strategy, as shared by Musk, is to accelerate the electric vehicle market globally. The Supercharger network plays a vital role in this mission, not just for Tesla owners but potentially for the broader EV market.

Mission vs. Competition:

Elon Musk emphasized that his primary goal is to accelerate the advent of electric vehicles (EVs), even if it means facing strong competition. He stated that he’d be content if other companies produced great EVs that pushed Tesla out of the market, as long as the ultimate goal of transitioning to electric transport is achieved.

Regulatory Minimums:

Musk expressed disappointment that most automakers produce only the minimum number of electric cars required by regulations. He pointed out that when regulations are relaxed, these companies often reduce or even eliminate their electric vehicle programs. This lack of initiative from other manufacturers has surprised him, and he’s considering ways to encourage more serious involvement in EV development.

Market Size and Share:

Highlighting the vastness of the car market, Musk mentioned that about 100 million new cars are produced every year, with an existing fleet of roughly 2 billion. Even if all new cars were electric, it would take two decades to replace the existing fleet. Tesla’s current production is a minuscule fraction of the global car market, which Musk believes leaves room for multiple successful companies.

Fiduciary Responsibility:

When asked about balancing his mission-oriented goals with his responsibility to shareholders, Musk suggested that the two are not necessarily in conflict. He pointed out that Tesla’s tiny market share means there is considerable room for growth, which benefits both the mission and shareholders.

Teaser on Patents:

Musk teased a potentially controversial decision regarding Tesla’s patents. While he did not elaborate, the implication is that he might take an unconventional approach to intellectual property in the service of accelerating EV adoption. He stated that he would write something to articulate this decision properly in the future.

Public Engagement:

The segment opened with a shareholder expressing appreciation for Musk’s public engagements, stating it benefits current and future engineers, innovators, and entrepreneurs. While not a focus of the conversation, this suggests that Musk’s outreach has broader educational and inspirational impacts.

Battery Chemistry Assessment:

Elon Musk outlines the metrics to consider when evaluating new battery technologies. Energy density, both by mass and volume, is the most important criterion. Power density, which impacts charge rate and acceleration, is secondary. He illustrates these points by discussing dual carbon batteries, noting their low energy density makes them less viable for Tesla’s goals.

Gigafactory Flexibility:

Regarding the potential for retooling the Gigafactory for new battery chemistries, Musk states that changes in anode or cathode composition would be “fairly straightforward.” He anticipates such changes, suggesting the factory’s built-in adaptability.

Importance of Range and Cost:

Musk emphasizes that for an electric vehicle to succeed in the market, it must offer long range at an affordable cost. These criteria heavily influence Tesla’s development strategy, including the role of the Gigafactory, which aims to produce batteries at scale to lower costs.

Model X vs. Mass Market Cars:

When asked about Tesla’s product roadmap, Musk expresses that the priority is to create a “compelling mass-market car.” He acknowledges the need for large-scale battery production to make such a car viable and points to the Gigafactory as essential for this goal.

Roadster Upgrades and New Models:

Musk confirms plans for an “exciting upgrade” to the Tesla Roadster within the year. However, he indicates that a next-generation Roadster would likely be about five years away.

Competition and Market Entry:

Musk critiques the BMW i3’s range and contends that Tesla could build a better vehicle but is focused on creating a mass-market car. He notes that technological advancements and economies of scale are crucial to producing an affordable, long-range electric car.