00:00Going straight to the numbers perspective before perhaps a pay package, was there anything to shout about?
00:07So the quarter overall, thank you again for having me, was fairly in line with our preview thoughts that the setup was fairly balanced for the stock going in.
00:16As you know, the stock had kind of rallied into the quarter. Estimates had gone up a little bit since the record kind of deliveries and the upside there.
00:23And so we did think that the setup was fairly balanced going in. The numbers themselves were fairly mixed.
00:30But overall, in line, on an operating basis, the numbers were about 7 percent above street expectations when you exclude the restructuring item that came out as a bit of a surprise.
00:41There were some below the line items such as a higher tax rate that caused EPS to miss. Free cash flow was actually very strong.
00:47So overall, some puts and takes on the numbers, but fairly in line, maybe even a bit better operationally versus consensus, including on a better gross margin overall.
00:55OK, so that gross margin and actually the cash that's still coming into the business, is that enough to really drive forward on basically the now focus of Elon Musk and Tesla more broadly, which is AI, which is robotics, which is autonomous?
01:08Yes. Yes. To your point, the gross margin actually beat nicely in the quarter, 18 percent versus consensus at 17.3 percent.
01:16OpEx was actually higher, including for SG&A. So you're seeing the company making still substantial investments in future growth, including, of course, AI.
01:24But the free cash flow, very strong. CapEx came in a bit below expectations. And the balance sheet is very strong with over $40 billion of cash and low 30s of net cash after debt.
01:37So the balance sheet's in great shape. You are seeing the company continue to make an investment. Good to see the gross margin beat as well.
01:42We're trying to tie Musk's comments about the compensation package to the earnings that were posted. And the way that I look at it is that the board has set him over 10 years both operational and financial goals.
01:5620 million vehicles over 10 years. That means he needs to average 500,000 a quarter. They've set him EBITDA goals. And in the earnings statement and on the call, they tried to explain with a broader portfolio of models and more affordable models how they will achieve that.
02:15Did they answer those questions? Yes. I think when we looked at the CEO compensation proposal when it came out, we were actually very encouraged.
02:24A lot of analysts have views over what Tesla should do, where they should be investing and what the future will hold. We've been very bullish on autonomy, not only for the robo-taxi vertical, but also for what we call the consumer AV vertical, the FSD vertical.
02:38And we thought the product goals, the four of them kind of laid out in the compensation proposal, were very aligned with our kind of long-term thesis of where Tesla should be investing in what they should do, particularly around the FSD part of it, given how disruptive that could be.
02:52And we thought the company's comments last night on the call were supportive of that, including kind of making the point that as they launch these incremental FSD features, that could accrue very nicely to EV demand.
03:03They kind of addressed that issue as well. So those goals seem very aligned with our thesis. It actually turned us more bullish on the stock kind of long-term when we read those proposals.
03:13It's hi. This morning, the New York State Comptroller joined us on Bloomberg Surveillance. Listen to his take on why they voted no on the comp package.
03:22When you see the excessive compensation package, I mean, you know, credit to Mr. Musk, he's already one of the richest men in the world. How much more rich does one person have to be?
03:34But for Elon Musk, it wasn't about money or how rich. It was about voting control. The argument that he needs a certain level of control for Tesla to realize the vision of humanoid robotics and more broadly AI. Where do you stand on that?
03:51Sure. Yeah, absolutely. Elon kind of made that point very clear. You know, ultimately, the proposals, you know, are tied to market cap targets as well.
04:02They are, to your point, ambitious. They will require very, very strong execution. But once they're delivered, if they're delivered, there's a substantial amount of upside to EBITDA longer term
04:12as we see it and, you know, would give Tesla a very significant competitive positioning as well. So given the amount of execution it needs to take there,
04:21I totally kind of understand management and the point around this. And again, those goals very well aligned with what we think Tesla should focus on
04:29over the next five plus years. And so, you know, we felt pretty good about, you know, the overall game plan for where to invest, where to focus on.
04:38And we felt those goals for us were positive in the scheme of where we see the company going.
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