Tesla CEO Elon Musk On Model X Delays, Model S Production, China Expansion And The ‘BS’ In The Battery Industry

Tesla’s CEO Elon Musk would like you to know that the battery industry is full of speculative BS. This was just one of several comments the billionaire founder of Tesla Motors Inc. shared during the company’s conference call with analysts following the release of its third quarter earnings report on Wednesday.

Aside from lauding Tesla’s use of Panasonic’s near AA-sized high-energy battery cells, Musk offered up a smorgasbord of details about the company’s current trajectory. He explained why Tesla is once again delaying the released of its highly anticipated Model X crossover, the justification for reducing the number of options available in the Tesla Model S sedan and addressed “upset” customers in China who have yet to receive the cars they ordered.

One of the more important details of Wednesday’s earnings report is the Model X delay, and Musk said in the call that people ordering the car today won’t see delivery until early 2016. “The Model X is sold out for 2015,” he told analysts.

Tesla reported a net loss of $74.7 million in the three months ended Sept. 30. But it met sales expectations with nearly 8,000 Model S cars, which seemed enough to pull the company’s stock price up nearly 7 percent on after-hours trading in New York on Wednesday, to $247. Investors rejoiced despite the company missing big on the number of cars it said it would produce in the quarter -- 7,200 units instead of 9,000 -- and announcing a third delay in the release of the Model X.

Musk said he stands by his 50,000-car sales numbers for next year, which would be a jump from the 33,000 cars the company says it will sell in 2014. If Tesla could make the cars, he thinks he could sell 20,000 more of them.

The company’s financials are strong, he added, pouring every dollar back into increasing capacity as its revenue nearly doubled from the same quarter last year. “We don’t see any near-term need to raise money,” Musk said. “Maybe not at all until the [Model] 3,” he added, referring to the sub-$40,000 electric car the company would like to be producing by 2017.

Here are the main takeaways from Wednesday’s call:

MODEL X DELAY

Originally slated for release in 2013, the Model X crossover is now scheduled for release in the fall of 2015. So what's the hold up? To hear Musk tell it, there’s nothing major to report. The company simply wants to get the car right at the mass production phase.

“It would be quite easy to make a handful of production units [of the Model X] but that doesn’t really move the needle,” Musk said. “The question is at what point can we scale production to make a good quality car . . . It’s hard to engineer and hard to produce.”

The Model X is designed so that adults can stand up fully erect from inside when the doors are open, allowing parents to more easily put their children in baby seats, or load groceries. And it’s this engineering feat -- namely how to mass produce it without flaws -- that's one of the hurdles.

The bottom end of the car is sorted out, Musk said. What’s holding things up is “the falcon wing doors and second row seats and a few other things we’re adding, some new stuff that’s not out there.”

REDUCING MODEL S OPTIONS

In an effort to improve production capacity, Tesla is reducing the number of Model S options. The high performance P85 will only come with the dual motor all-wheel drive option, known as the P85D, and the car will no longer be available in green or brown.

“We had to make some tough decisions to have fewer versions of the Model S to ramp production better,” Musk said. The average sale price Tesla is making on its cars will remain unchanged, he added.

Transaction prices will improve as sales of the P85D grows, says Chief Financial Officer Deepak Ahuja.

THAT 'GIGAFACTORY'

The so-called "Gigafactory" Tesla is building in Nevada will not only produce batteries for the Tesla’s cars, but also stationary solar-power storage units that Musk believes is a vital part of a shift toward renewable energy sources. So how much of Tesla’s Gigafactory will eventually be devoted to this segment of the company’s business?

“It’s pretty significant in the long term,” Musk said. “Thirty percent of the Gigafactory output would be for stationary storage.”

One of the concerns express by skeptics of Tesla’s $5 billion Gigafactory is whether battery cell technology will overtake the cells the company wants to produce there by 2016. Musk says his plans include incorporating any innovations that take place. It can take about six years for a new innovation to make it from the laboratory to a mass production line, he says, so his company can anticipate and adapt along with any innovations that emerge.

But, he said, he’s not aware of any current innovations that’s better than the Panasonic high-energy cells the company currently uses. What’s out ther is mostly speculation in the form of PowerPoint presentations rather than actual battery cell samples.

“The battery industry has more BS in it than any other industry,” Musk said.

JB Straubel, chief technical officer, took the opportunity to lash out at media reports criticizing the $1.2 billion incentive package the state of Nevada gave his company to build the factory at a site east of Reno, Nevada.

“There’s a lot of press about the 1.2 billion dollar tax incentive package, that it was a bad idea for Nevada,” he said. “It’s a super good idea for Nevada ... We’re talking about the output of this factory being several billion dollars per year. The Nevada tax incentive is maybe a few percent of that.”

“It pales in comparison to what Boeing got,” he added, referring to the aerospace giant’s $8.7 billion incentive in 2103 from the state of Washington.

CHINA

Tesla’s challenges in China are not just related to fulfilling demand but also in building out infrastructure, such as service support and charging stations. Musk says some Chinese buyers are “upset” for delays in deliveries of their cars. The company is holding back until it has the proper support infrastructure before it releases the vehicles to them.

“The delivery experience has not been the way we like it [in China],” Musk said. “The Tesla infrastructure needs to be there to support it. Our China team is building it out faster than any region. But you can only do it at a certain rate and do it right.”

Musk says the company has had conversations with the Chinese government about how it can be included in the country’s push to promote electric vehicle use in its smog-choked cities to lower emissions and reduce gasoline consumption. But will Tesla eventually make cars in China?

“Essentially it’s not going to make sense in the long term to be transporting thousands of cars -- especially Model 3s -- across the Pacific,” he said. “It’s going to make more sense to do production there.”

AUTO DRIVING AND CAR SHARING

Musk says self-driving cars are seven to 10 years away, which is in line with many industry predictions. “I think it’s’ quite likely that Tesla will be the leader in making cars like that,” he said. He envisions a car in which something “that looks more like a Nintendo controller or PlayStation controller” would pop out of where a steering wheel currently resides in the event that a passenger needs to wrest control of a self-driving car.

Is he worried that car sharing will adversely impact the automotive industry?

“I think there’s a limit to the whole car-sharing thing,” he said. “Most things don’t get shared. People could easily share their house, their clothes, their bicycles, but most people don’t.”