Thursday, June 13, 2019

Tesla's Annual Shareholder Meeting (2019)

I won't spend too much time on Tesla's 2019 annual shareholder meeting, because it was a well-oiled (pun intended) marketing job, and as a great writer once said, "All marketers are liars." 
Having attended Apple shareholder meetings when Steve Jobs was at the helm, I'm familiar with the cult of personality, which often arises when an individual, against all odds, goes his own way. Like Elon Musk against Big Oil--one of America's linchpins in its military-industrial complex--Jobs was alone in making iOS more of a closed-loop system than a less secure, open-ended, Android one. Unlike Jobs, however, Musk has no charisma (perhaps due to Asperger's) and does not seem to view the supply chain as vital to innovation. Ironically, according to Dan'l Lewin, CEO of the Computer History Museum--where the meeting was held--Jobs' "focus on supply chain and inventory and those things was phenomenal." Unfortunately, no one would say the same about Musk, a deficiency that will surely allow competitors to catch up

Musk's lack of organization--a common trait in highly-performing individuals without disciplined support teams--was such that he missed his own entrance at the meeting, forcing the emcee to walk through a door to get him. Musk's obvious idealism and intelligence have earned him the benefit of the doubt; indeed, it is because of Musk that traditional combustion engine companies have been forced to play catch-up, no longer able to argue EV consumer demand fails to justify major investment. And yet, despite all of Tesla's positive points, Musk's work in SpaceX and with satellites are the most innovative--so of course no one asked him how the 1967 Outer Space Treaty should be updated, or what obstacles private companies faced in space exploration when most satellites are still government-owned. (I didn't get a chance to ask a question because too many shareholders representing third parties (VC funds? Marketing firms?) decided to ask softball questions.) 

I'll summarize Musk's most interesting comments below: 

1. The Model 3 is the best-selling car by revenue, with second place belonging to the Toyota Camry. 10 years ago, no one would have believed it. [Note: I wasn't impressed. "Best-seller by revenue" is a made-up metric. It was originally designed to convince corporations to invest in lithium battery technology for cars, a much higher return on capital than just laptops.] 

2. The Model S will be able to go up to 370 miles on a full battery charge, while the Model X can achieve 325 miles. The sturdier-looking Model Y, scheduled for Fall 2020, can go 300 miles. [Note: research any other major car company's EV claims, and all of them claim similar mileage, indicating Tesla no longer enjoys a clear competitive advantage.] 

3. The most energy-efficient cars are all Teslas. [Again, the definition of the metric is key. How does one define "most energy-efficient"?] 

4. Operating costs of electric vehicles are much less than gas cars due to the ongoing maintenance required for a "regular engine" car. (e.g., no oil changes, fewer moving parts needing replacement, etc.)
5. On self-driving capable cars: Tesla has a goal of "one million robotaxis by 2020," but still needs regulatory approval. 

6. Tesla claims to have the world's largest battery factory and discussed opening new production facilities in Shanghai, China and Europe. [From 10K, pp. 4: "We have also pioneered advanced manufacturing techniques to manufacture large volumes of battery packs with high quality at low cost.] 

7. Tesla Energy, which makes products primarily for home/consumer use, is working on integrated, renewable energy ecosystems that last thirty years. 

8. On news reports of Tesla's safety record, Musk blamed a "crazy disinformation campaign," saying every year, about 200,000 gas fires are reported in combustion engine cars [but no one seems to focus on those instances]." 

9. Tesla has discovered "two critical selling points" in a consumer's decision to buy an EV: 1) charging stations within a reasonable distance of the consumer's home; and 2) the presence of charging stations on routes drivers want to take (so they're not accidentally stranded).
10. "When you buy a car, you're buying freedom," and any unexpected repairs interfere with more widespread acceptance of Teslas (and EVs). To that end, Tesla seeks to provide insurance directly to help achieve customer satisfaction, including a mobile repair service. (Bonus: from 10K, pp. 58, "Cost of services and other revenue increased $651.3 million, or 53%, in the year ended December 31, 2018 as compared to the year ended December 31, 2017. The increase was primarily due to the increase in the cost of our new service centers, additional service personnel in existing and new service centers.") Musk cited one instance where a repair was completed in less than one hour, later disclosing Tesla needed to complete a "small acquisition" but was "close" to selling insurance. 

11. In response to a complaint that production has been battery-constrained for some time, Musk said, "I'm sometimes [overly] optimistic. I wouldn't be doing this if I wasn't optimistic." 

12. SpaceX's satellite antenna won't be linked to Tesla's cars due to the large size of the receiver required but could be used generally for under-served and poorly served reception areas. 

One last point: Tesla continues to be a beneficiary of large tax credits, some of which don't expire until 2033(!). Check out these two pages from its 2018 annual report. 
Like Musk, I hope in time, all car companies will "go electric," but I wonder if it's possible without government subsidies and pressure on local and state governments to continue to invest in public infrastructure. While Musk has prospered in California, the state government has failed to complete a high-speed rail project, leaving it behind Tokyo and other Asian cities. Low-cost insurance, if delivered effectively, will help reduce some of the burden on the poor and middle-class, but at the end of the day, if state governments are relegated to subsidizing the private sector for public needs, the future remains as it was before Tesla: uncertain, cloudy, and stratified. 

© Matthew Rafat (2019) 

Disclosure: as of the date of publication, I own one share of Tesla (TSLA) stock. 

Bonus: if you think Tesla Inc. has always been associated with Elon Musk, look up Martin Eberhard (who claims by 2020 or 2022, EVs will be cheaper than legacy vehicles) and Marc Tarpenning. Elon Musk receives credit for Tesla because his "passion" and marketing teams are able to raise money from venture capitalists more fluidly than the original founders. 

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