2019 Annual Tesla Shareholder Meeting thoughts

On June 11, 2019, Tesla held their annual shareholder meeting for 2019 where CEO Elon Musk and his team outlined their progress and what they think of the future. If you missed the meeting you can watch it on YouTube, I will embed the video here:

I will not discuss every point brought up, instead, I will talk about the most important long term issues and plans Tesla talked about. Those include insurance, self-driving, future battery raw material sourcing, and my personal thoughts about future battery improvements.

Insurance and vertical integration on all levels

During the shareholder meeting, Elon Musk mentioned being serious about Tesla starting their own insurance product for Tesla drivers. The benefit to consumers, as stated by Elon Musk, is a lower premium since Tesla has strong confidence in their Autopilot program, which leads to lower crashes and in turn makes the car safer and less costly to insure. Tesla believes they could undercut other insurance companies by offering Tesla drivers a lower premium while still making a profit off lower claim frequency.

On top of this Elon Musk mentioned in the meeting that Tesla is looking into doing bodywork repairs in-house which if true is another great reason to get into the insurance business; by owning the service centers, mobile service vehicles, charging stations (Superchargers), and bodywork on top of insurance means Tesla will have little leakage of money since revenue will come in from customers in the form of vehicle purchases, Supercharger use fees, and insurance premiums, and leave almost never as repairs could be done in-house meaning money will simply move from one Tesla operation to another Tesla operation. Paying for damage to other insurance companies and medical expenses in a crash is the exception of course.

There are issues however with Tesla joining the insurance business, the two biggest would be additional risk and liabilities, and the other being fighting an uphill battle. When it comes to the risk Tesla will need to realize that insurance is not a tech industry, it is simply having cash. Insurance companies are required, out of necessity and because of regulations, to maintain a certain level of cash reserves to cover the possible claims that could show up. This in practice means the cash strapped company will have even less cash as some must be set aside and not touched for other means. I do not believe Tesla is in the financial position to start an insurance company at the moment, they have too many other investments to put money into. Factory on every continent? Supercharger Megacharger expansion/buildout? More Gigafactories?

The other issue, fighting an uphill battle, is because Tesla the insurance company (assuming they will only cover Tesla drivers), is greatly limiting their pool of customers. An insurance company works by spreading out risk among many people: one crash and one hundred customers will be financially unsustainable, however, one crash and one thousand customers means its more manageable and now we could make a profit. And that is where Tesla will struggle. Traditional insurance companies have every possible driver to bid their product to, Tesla and non-Tesla drivers could get be the customers of traditional insurance companies. Tesla, on the other hand, can only offer their service to Tesla drivers (not all of whom will choose Tesla as their insurance company). Simply put, Tesla will have a smaller pool of customers to spread risk among.

Despite the risks and difficulties, I believe that if Tesla could get this done they will have a really strong revenue stream and lower costs by vertically integrating three types of business: car manufacturing, insurance, and maintenance and repairs.

Self Driving future

During 2019 Tesla Autonomy Day (video below) Tesla showed off how their cars could drive without human input on highways and streets. The short clip included the car driving without human input on residential streets, main streets, and the highway. It handled lane changes, stop signs, traffic signal lights, and merging and exiting the highway. On top of all that, it slowed down and sped up based on traffic in front of it. The self-driving features of Tesla cars are one of the big moats that the company has against other electric cars and all car manufacturers in general. I will talk about the other moats in a later blog post.

In the next decade or two not having a car that can drive for you is like having a car today without Bluetooth or AUX connectivity or a backup camera, it will feel old and obsolete. And unlike Bluetooth, AUX, and a backup camera, which can be added for under $100, a car without self-driving capabilities will always not have self-driving capabilities because adding them would be too expensive. Would make more sense to simply buy another car.

Mining?

Elon Musk left a small comment saying that Tesla might get into some small scale mining in the future if the supply of rare-earth materials to make batteries could get threatened. This to me makes sense knowing that Tesla built the Gigafactory to handle the poor supply of batteries. During the Shareholder meeting, Elon Musk said that the reason for making the Gigafactory was to meet their own battery demands; no supplier of batteries could meet the ambitious demands of Tesla. We can see that now with the Gigafactory producing more than half of the world’s EV batteries. This is great but as Tesla continues to ramp up production of batteries and cars they might face another issue, supply shortage of minerals needed to make the batteries. Knowing this potential threat to the business in the future it makes sense for Tesla to begin looking into acquiring or partnering with mining companies to make sure the supply never ends.

Batteries?

Without good and always improving batteries Tesla would have never succeeded. The quality of the battery makes or breaks an electric car: the batteries need to be energy dense, have a long life span, be able to charge quickly and produce consistent high amounts of power on demand to the motor. Tesla custom made batteries check every box and then some but being the best now is not good enough, you have to be the best tomorrow, next year, and in ten years. Tesla did not bring up batteries this meeting, unless I missed it, and would in an upcoming Battery and Drivetrain Day in Q3 2019 where I Tesla might speak about their plans for Maxwell Technologies after its acquisition of Maxwell Technologies. The current partnership with Panasonic at the Gigafactory is great but it still means Tesla is reliant on other companies to do what it could do by itself, purchasing a battery manufacturer should help Tesla more closely vertically integrate its business.

I also expect news of better batteries, currently, the Model S and X have an eight-year infinite mile warranty on the batteries and drivetrain. And I suspect that the biggest reason this warranty cannot be bumped up more is that the batteries deteriorate faster than the motor: Elon Musk says Tesla is working on a 1,000,000 mile motor. If Tesla could make their batteries last one million miles it will be a game changer for the resale value of Tesla cars. Currently, internal combustion cars after 100,000 miles are considered really bad because that is when all the mechanical problems start to kick in: needing to change belts, spark plugs, putting in long-lasting fluids, checking your engine and transmission for wear and tear, etc. A car with very little moving parts does not need to worry about any of this; a Tesla with a rated million-mile battery and motor can be sold second hand at 200K, 300K, even 500K miles, and the buying really must worry about the visuals and tires: are the seats torn up, are the tires worn out, is the pain scratched, etc. This shift in mindset is what will propel people to buy electric cars and keep them long term.