Good afternoon, everyone, and welcome to Tesla second quarter
2023 Q&A webcast. My name is Martin Vieca, BP of
Investor Relations, and I'm joined today by Elon Musk,
Zachary Kirkhorn and a number of other executives.
Our Q2 results were announced at about 3:00 PM Central Time in
the update deck we published at the same link as this webcast.
During this call, we will discuss our business outlook and
make forwardlooking statements. These comments are based on our
predictions and expectations as of today.
Actual events or results could differ materially due to a
number of recent uncertainties including those mentioned in our
most recent filings with the SEC.
During the question and answer portion of today's call, please
limit yourself to one question and one follow up.
Please use the raise hand button to join the question queue.
But before we jump into the Q&A, Elon has some opening remarks.
Elon. Thank you, Juan.
So just the Q2 recap. In Q2, we achieved record
vehicle production and deliveries and record revenue of
about $25 billion in a single quarter and Model Y became the
best selling vehicle of any kind globally in Q1 support
surpassing the likes of likes of Corolla and Gold.
So it was the number one vehicle of any kind including vehicles
that are at a seller farming price, which is I think an
incredible achievement by the Tesla team and just a huge thank
you to our customers of for their support.
So and this came in spite of high interest rates and a lot of
macro uncertainty and nonetheless we managed to
achieve operating margin of about 10%.
We continue to target 1.8 million vehicle deliveries this
year, although we expect that Q3 production will be a little bit
down because we've got some of shutdowns to for.
A lot of factory upgrades, so just just probably a slight
decrease in production in Q3 for sort of global factory upgrades
in the long term. Autonomy we think is going to
just drive volume through the ceiling next level and and our
so future Robitaxi products, dedicated ROBITAXI products.
We think have like quasi infinite demand so and it we're
the way we're going to manufacture the robot taxi is is
also itself a revolution. So it's revolutionary design
made in a revolutionary way. It'll be by by far the highest
units per hour of of any vehicle production ever so.
Very excited about that. With respect to Autopilot and
Dojo, in order to build autonomy, we also need to train
our neural net with the data from millions of vehicles.
With the more, I mean this has been proven over and over again.
The more training data you have, the better the results.
And I mean there's times where we see basically the inner
neural net, basically it's sort of at a million training
examples. It barely works at 2,000,000.
It's it slightly works at 3,000,000 it's like wow, OK
we're seeing something for they get like 10 million training
examples. It's it's like it becomes
incredible. So you just there's just there's
just no substitute for massive amount of data and obviously
Tesla has more vehicles on the road that are collecting this
data than all the companies combined by I think maybe even
an order of magnitude. So I think we might we might
have 90% of all or a very big number.
So you know the success in a I endeavors is function of talent
sort of unique data and computer resources and and we have
outstanding capabilities or all three arenas.
And I really just don't know how anyone anyone could do what
we're doing even if they had our software and had our computer if
they did not have the the the training data.
So Speaking of which our do training computer is designed to
significantly reduce the cost of neural net training.
It is designed to it's it's so optimized for the kind of
training that we need which is a video training.
So you know would. We just see that that the
needful neural net training again to give fear quasi and the
things is is just enormous. So I think having having we we
we we expect to use both NVIDIA and Dojo to be clear but there's
there's we just see a demand for really vast main resources.
And we we think we may reach in house the old net, the old net
training capability of 100 exoplos by the end of next year.
So to to date over 300,000,000 miles have been driven using FSD
beta. That 300,000,000 mile number is
going to seem very small very quickly, right it'll it'll soon
be billions of miles then 10s of billions of miles and.
FSC will go from being better for being as good as a human to
them being vastly better than a human.
We see a clear path to full self driving being 10 times safer
than the average human driver. So and between autopilot delta
computer our inferred hardware in the car which we calls.
Sort of hardware 3-4, you know but it's really dedicated, it's
a, it's a, it's a high efficiency in first computer
that's in the car and our optimist robot translates fairly
at the cutting edge of a had moment to with regard to our
side which we continue to build our release candidates of the
cyber truck on our final production line in Austin.
I'm actually here in Austin at the Eager Factory.
This is the first truck that we're aware of that will have 4
door was over a six foot bed and 1 foot into a 20 foot garage.
So it's it's a it's for the biggest on the outside but it's
even bigger on the inside. So it's a I think that's a one
of the one of the elements of good design is it should feel
bigger on the inside than it looks on the outside.
And and this is this is no small car but we we've we really cared
about the exterior dimensions of the side truck down to the last
millimeter. So they said just before you try
to get rid of the goalie block zone, not too big, not too small
and and then really maximize the the utility of the volume and we
can't wait to start delivering it later this year.
Some some other highlights, our global supercharging network now
stands at over 50,000, roughly 50,000 connectors and over 5000
locations as I think a lot of people are aware.
The Tesla starting the the Tesla charging standard which we made
open source is now called the North American charging
standard. We're we're deeply honored that
Ford, GM, Mercedes and many other Williams have signed up to
use our connector and gain access to our charging network
and we we we strongly believe in helping.
Other other car companies to accelerate the EV revolution and
just trying to do the right thing in general.
So that's up goal there Then it's something I think I want to
emphasize like very, very strongly.
This is a very important point is that Tesla just as with the.
The North American charging standard, although we're not
licensed and that case is not licensing, we're just making it
available. But but we are very open to
licensing apples of driving software and hardware to other
car companies. And we are already in
discussions with early, just early discussions with a major
OEM about using the Tesla FSD. So we're not trying to keep this
to ourselves. We're more than happy to to
license it to others. And lastly, our new lithium
refinery and catheter facility are progressing well that in
conclusion, we continue to focus on making as many cause as we
can while maintaining healthy financials.
Our artificial intelligence development is obviously
entering a new era and we're incredibly excited about what's
to come. Our other businesses such as
Megapac supercharging service. And whatnot all started to
become a miracle contributor to overall profitability this
quarter. And then lastly, I'd just like
to profusely thank all of our employees for making it a lot of
extra effort during uncertain times.
Thank you very much for your hard work and the impact you're
making. Thank you very much, Elon.
And I think Zach did some opening remarks as well.
Yeah. Thanks, Martin.
As Elon mentioned, Q2 was another record quarter of
production and deliveries, as well as records and profit for
energy and services and other businesses.
Congratulations again to the Tesla team on the continued
progress as we navigate through a period of economic
uncertainty, rising interest rates, volatility and consumer
confidence and regulatory change.
I want to comment on our financial approach.
First, the single most important priority is to ensure we are
continuing to invest heavily in the core technologies that will
drive the longterm value of the business.
This include increasing spending on AI related technologies such
as full self driving Optimus and Dojo as well as new products
such as Cybertruck, our next generation platform and the semi
as evidenced by the continued growth in our R&D spend.
This also includes continuing our investments in capacity
expansion. Not only in our vehicle
factories, but also our supercharging network, service
internal applications and battery processes as we continue
with meaningful capital expenditures to lay this
foundation for the future. 2nd, we continue to work towards our
goals of maximizing volumes on both our vehicle and energy
business, but most importantly doing so in a way that generates
the capital to continue our pace of R&D and capital investments.
This requires a strong focus on per unit COGS reductions in each
of our key businesses. As well as working capital
improvements on raw materials, working process inventory and
customer AR, all of which progressed appropriately in Q2.
If we look specifically at our automotive business, our gross
margin showed a modest reduction and remain healthy despite
action taken to further improve vehicle affordability.
Early in the quarter, we recognize we realize per unit
cost improvements in nearly every category including
material costs and commodities, manufacturing costs and
logistics. While also continuing to rapidly
increase the build rate in our Austin and Berlin factories.
For our energy business, we improved margins and gross
profit driven by cost reductions in deal economics, particularly
with Megapac. As a reminder, storage volumes
are typically volatile sequentially based on the types
of projects and their specific revenue recognition milestones.
As we look forward to the rest of the year, I want to reiterate
Elon's comments on Q3 volumes driven by plan down times for
factory upgrades. These upgrades will also carry
some amount of factor at all cost how.
However, we are working to minimize as much as possible.
It's also important to keep in mind the uncertainty in the
macro environment, which can impact our execution positively
or negatively in the near term. Regardless, we continue to
remain dynamic with a focus on fundamental efficiency and a
longterm outlook. Congratulations again to
everybody on a great quarter. Thank you very much, Zack.
And let's go to invest your questions.
The the first question on licensing FSD we've already
answered. So let's go to the second one.
The second question is what is the status of 4680 cells and how
far are you from the specs you laid out on battery day?
When do you expect to achieve what you laid out on battery
day? Yeah.
First, I'll just start with a little bit of a production
update. So in Texas 4680, cell
production increased 80% Q2 over Q1.
And the team surpassed 10 million production cells
produced here in Texas, so Congrats to the team for that.
Their focus on yield produced our scrap bill by 40% quarter
over quarter and that resulted in a 25% reduction in cell COGS
here in Texas. We're preparing to launch our
cyber truck cell, which is 10% higher energy density than
current production. That was accomplished through
process and mechanical design optimization as we scale cyber
cell production through the end of.
The year and early next we should be in a comfortable place
on cost per cell against our battery energy density targets.
The cyber cell is at our expectations on a like for like
electrochemistry basis. We're yet to integrate silicon
or in house capital production both reviewed on battery day
which do break significant further energy density and cost
improvements, but that is a topic for another day.
Lastly, it is important to remember that most of what we
focused on a battery day with the Tesla engineered. 4680
production system and the improvements we strove to
achieve on equipment factory density, capital cost and
utility cost reduction, all of which we are realizing in our
Texas scale up to date. Thank you very much.
The next question is, can you talk more to the upcoming Tesla
Energy products and how you your thinking has evolved on the
revenue model given Tesla's A I capabilities, how do you see the
longterm mix between hardware margin and recurring softer
margins from auto bidder? As the segment accelerates.
We can't comment on future product road map, but I can
provide a cool energy Q2 update. Megapac continues to show strong
demand globally with Lathrop ramping successfully to meet our
contracted projects in 2023. As stated last quarter, Megapac
margins are in a reasonable place in line with our target
market vehicle target margins. The second final assembly line
at Lathrop is progressing on schedule, eventually doubling
Lathrop capacity ahead of our full factory ramp in 2024.
We have several exciting large projects and construction or
nearing completion, including the KES project in Hawaii, the
River Rena project in Australia, several projects in California
and one here at Gigafactory, Texas that I toured today.
Actually, we want to thank our customers, utilities and grid
operators for trusting us with these projects on the Automator
question. We continue to grow auto bidder
contracts in wholesale markets like Australia, Texas, UK and
California with over 6 GW hours under Tesla's dispatch next year
In the UK, our project performed best in the industry.
In Q2. Auto bidder does have software
margins and is an enabler for hardware sales, but it's a
relatively small contributor to revenues given how much
deployment growth on the magnet back hardware side is occurring.
It's important to remember that these large projects, these
large capital projects have lifetimes, 20 years of occurring
revenues on an analyzed basis. Relative to upfront, CapEx are
small. On the residential side, we have
some fun things happening. We recently surpassed a half
million power walls installed. Just this week we were launching
charge on solar, which allows festival power wall and vehicle
customers to charge their vehicles using their excess
solar and drive only on the sunshine that hits their roof.
Yesterday we began paying customers in Texas for
participating in our virtual power plant to provide grid
support to IRCOT. We expect these credits to lower
our median customers annual bill by 1/3.
And to increase these credits over time as ERCOT expands
market access and today we are expanding Tesla electric
enrollment to new Model 3 honors in Texas, followed by all Texas
vehicle customers over the rest of the quarter.
Unfortunately and somewhat similar to Tesla Insurance,
bringing Tesla electric and BPP capabilities to our customers
requires working through a fractured regulatory environment
on a jurisdiction by jurisdiction basis.
In the long run, the value of residential energy software and
hardware will be driven by the level of market access that
utilities. Market operators and regulators
permit for power walls eligible to provide the full stack of
energy services like peaker, peaker capacity and system
buffering such as in Australia. We can more than double the
value of ownership relative to a typical system today.
Thank you very much. The next question is, could you
quantify the benefits to COGS per unit from the IRA battery
manufacturing incentives? And secondly, battery raw
material declines year to date? Right.
I can take that. On the first part of the
question for IRA manufacturing incentives, we provided previous
guidance that we expect these to be for the course of this year
in the range of 150 million to 250 million per quarter.
We are staying within that boundary as we got it
previously. So that was the case in Q2 as
well. I will note, I think we've
mentioned this before that. This includes a 5050 sharing of
credits for qualified cells from our longterm battery partner
Panasonic. On the commodity side are we are
continuing to see improvements there.
As we've discussed previously, lithium is the most notable
improvement so far. I think I commented on this on
the last call because typically we see this coming about 1/4
before it actually is realized in our financials.
And also just as a reminder, we're not fully exposed to the
price of lithium. Our supply chain team has done a
terrific job in partnership with another bunch of other companies
to put in place some longterm agreements here.
But we do have some exposure that moves up and down.
We're also seeing benefits in aluminum and steel, which I
think is great, not as large as the lithium impacts, but they
contribute nonetheless. So if we add up the total impact
of this in Q2 relative to prior quarter, it's about the same
size and magnitude as the IRA benefits that we also received.
You know just to put this in context, you know as you look at
COGS per unit sequentially from Q1 to Q2, I think there's
there's two things to keep in mind there.
The 1st is that our SX mix and IT for deliveries increased
quite a bit from Q1 to Q2. So as you think about
fundamental cost reductions. It's important to adjust for
that. And then secondly, you know as
we continue to work on reducing our Austin and Berlin costs
which we did quite a bit of that from Q1 to Q2, You know these
factories are still a slightly above model wide production
costs elsewhere and in the quarter our mix of Austin and
Berlin related builds increased And so that's something to
consider as you model out the impact on from Q1 to Q2 in terms
of COGS per unit. And I do want to ask Claren if
there's anything else on the commodity side or just more
generally you want to add here. Yeah.
As you mentioned Zach, we we've naturally been a little bit
hedged from the losing position because they the longterm
contracts we have in place. But we have seen reduction in
pricing across the board for all commodities that and
specifically going to batteries such as nickel, cobalt and and
and graphite. And the reductions and pricing
translate into thousands of dollars when you look at it from
a PURV vehicle and plant. We're taking advantage of the
historically low commodity pricing and in certain areas to
kind of expand some of those fit price contracts through the end
of the decade since a playbook that will continue to kind of go
back to as you look to the future.
Thank you. And the next question on FSD.
Have you considered allowing FSD transferability as a lever to
allow existing customers to upgrade to a new Tesla instead
of being locked into an existing car due to the price of FSD?
Yeah, this is a question we get asked a lot.
So we're excited to announce that before Q3 we will be
allowing transfer of FSD. This is a one time amnesty.
So it needs to be take, you need to take advantage of it in Q3,
but or at least place the order in Q3 with within with within
reasonable delivery time frames, so.
Yeah, yeah, yeah. I hope this makes people happy
this one time thing. Right.
The next question, when will, when will we give more
information about the cyber truck orders, estimated delivery
schedules, pricing and specifications?
The demand is so is so far off the hook you can't even see the
hook, so that's really not an issue.
I do want to emphasize that the cyber truck has a lot of new
technology in it like a lie, it doesn't look like, it doesn't
look like you know any other vehicle because it is not like
any other vehicle. So at the and the production
ramp will move as fast as the slowest at least like the
element of the of the entire supply chain and an internal so.
You know, I I wouldn't expect you know it, I I hope it's
smooth. We're, you know, we're certainly
better production ramps than you know we've got a lot of
experience with production ramps.
But you know first order approximation is there's like
10,000 unique pots and processes in in a you know in the cyber
truck and if any one of it'll go as fast as the least lucky, you
know least well executed elements of the 10,000 so.
Always pretty difficult to predict the the ramp initially,
but I think we'll be making them in high volume next year and we
will be delivering the car this year.
Thank you. The next question is critics of
Giga casting contended that process makes vehicles harder
and more costly to repair, essentially pushing costs onto
the customer. You share some details about the
initial repair experience with Giga Cast vehicles.
That must be why everyone's copying us.
Yeah. Thank you.
On this is Larris and Martin, that that's like simply not
true. There's a misconception that
traditional bodies are easy to repair, but they're made of
multiple materials and multiple joining methods.
Spot wells and rivets have to be drilled out.
Panels and structural adhesive have to be chiseled out, tried
adhesive has to be removed, stamp things cut, blah blah,
blah. It's a crazy patch of quilt.
Yeah, And so putting that back together means time and money,
using an example of replacing a rear cast rail on the Model Y.
To do that versus like what we replaced it with from the Model
3, it's 1010 times cheaper and three times faster to do it with
the cast rail. My design team works with our
collision repair team Since we're closed loop on this with
insurance and we designed specific parts that are make it
easier and faster to repair, we have an incentive to do that
because we have our own insurance and our own body
shops. We expect that we'll continue to
do this and collision repair will continue to become cheaper
and faster over time. And we already need this
available to all body shops or a tester include Body Shop
training, yeah? Closing loop on collision repair
and factoring that into design is is a big deal.
It's crucial. I don't think anyone else can do
it with that ecosystem that we have, so yeah.
And and we are actually able to change the details of the
casting with inserts, and we actually do do that all the
time. So because the answer is
actually we're out and it should be replaced anyway.
So we can actually make design changes to the inserts and tweak
the castings. But the the, the cast that you
know, basically cast the rear, rear body or front body is
lighter, cheaper, better for noise, vibration, harshness,
much easier to manufacture and it's better in every way.
And that's why so many other car companies are copying us because
probably they don't really stick well.
They certainly put out a lot of fresh releases about it.
I think it's basically got to be how old old cars are made in the
future. Thank you.
Next question, how many optimist bots have been made and when
will they be able to start performing useful tasks?
10 million, yeah. I think, I think we're around
5:00 or 6 bots like, you know, there's a look 10, I guess.
Yeah, which, which is how many are working and what phase.
It's a it's sort of yeah like this there's more more every
month the they're saying it's large things, large interesting
things about the Octopus spot. We found that there are actually
no suppliers that can produce the actuators.
There's no there are no off the shelf actuators that work well
for a Humor Aid robot at any price.
Certainly not compelling. Yes, not a not a human robot
that can do something that you know the things that human can
do. So we've actually had to design
our own actuators that integrate the motor of the power
electronics, the controller sensors and really every one of
them is custom site so. And then of course we'll be
using the the same infrared hardware as the car.
So you know and but we are in designing these actuators,
designing them for volume production.
So they're not just lighter, tighter, more and more capable
any any other actuators that that we're aware of that exists
in the world. There's also actually
manufacturable. So we should be able to make
them in volume. The the first optimist that is
that will have all of the test that designed actuators sort of
production candidate actuators on it integrated and walking
should be on to November ish. So and then we'll we'll we'll
start wrapping up after that you know in terms of when we'll be
able to do some useful things. Like, we'll first be trying this
out in our own factories and just proving out its utility.
But I I think I think we'll be able to have it do something
useful in our factories sometime next year.
I I would be, yeah, I'm pretty, pretty confident of that.
So yeah. And that's going well.
I should say another cool thing about Optimist is that you know
there's. Just in the US alone there are
two million amputees and I was just talking to the neural link
team and by combining A neural link implant and a robotic
armour leg that for someone that has has had their arms and leg,
all arms and leg amputated, we believe we can get basically a
sideball body that is incredibly capable. $6 million man.
In real life before no word cost $6,000,000.
Sixty $1000 man since I was impressive but it's it'll
actually yeah so that that that actually could be a really I
think would be incredible to you know potentially help most
people around the world and and give them you know a robot or
like that is. As good make a long time better
than a biological 1. Thank you.
The next question is how has the order intake trended relatively
to production levels during Q2 and how is it trended in the
quarter to date period? Conceptually, how does this law
decide when is it appropriate to reduce prices or at other sales
incentives to increase demand? I guess demand is roughly track
production, so. Which is what we aim for is, is
that we look at you know something that we have that
really I think no other car maker has is that we have real
time demand and real time production like so seven days a
week, you know, I get an e-mail order generated e-mail that
shows output from both factories and orders globally.
So it's like a real time thing on the pulse of earth.
Basically and and we would you know we just we're just course
according to what the word of the of the public is.
You know buying a new car is a is a big decision for vast
majority of people. So you know at anytime there's
economic uncertainty people generally pause on your car
buying at least to see to see what happens and you know and
then obviously another challenge is the.
In the interest rate environment, as the interest
rates rise, the affordability of anything bought with that
decreases, so effectively increasing the price of the car.
So when interest rates rise dramatically, we actually have
to reduce the price of the car because the the interest
payments increase the price of the car.
So and and this is at least at least up until recently it was
the, I believe the sharpest. Interest rate rise in history,
Do we have to do something about that?
And if somebody's going to crystal ball for the global
economy, I really appreciate it if I got borrow that crystal
ball. DMS.
Yeah, exactly. Damn.
Yeah, it should be known on Twitter.
So I mean one, one day it seems like the world economy is
pulling apart and the next day everything's fine.
I don't know what that was going on.
I'd be totally frank, I wish I did.
So I mean that's why that's why I say like yeah, I always, you
know you know on Twitter I posted like you know, just
really advising because I care a lot about the the, the, the sort
of the small shareholders especially ones that have stuck,
stuck with us through through thick and thin.
I love you guys and so the. We we can't control these macro
shocks you know or the the manic depressive nature of the stock
market. So that's why I I recommend
against margin loans in times that are turbulent.
You know if I if times are are not that turbulent actually a
margin loan can be a smart move within reason but we're in I
would call it turbulent times. I like I have very high
confidence, confidence in the longterm value of Tesla.
Like I, I see it. I really, you know, see a path
to a 10X. Well, we're not telling these
days about you. The 5X increase in the value of
the company, maybe a 10X and the the where things go along the
way that the trials and tribulations and the mood of the
mood of the markets, well, I cannot predict.
And so you know, I mean. The the old adage of buy and
hold, this is right, you know, for investment advice I say like
identify companies products you love see if they you know, does
it seem like they'll continue to make good products or great
products. Buy that stock and holds it,
That's it. But you all went and the reason
companies exist is to make goods and services.
Ideally, great goods and services, they don't exist for
any other reason they shouldn't. So that's why you should buy
stock of a company that makes me like some has a great future
pipeline. It's common sense actually.
And and then and then generally if you see if if you provided
you're confident about what that company's products or services
are when the market panics by. And when the market is, you
know, overly exuberant, yeah, you can sell.
I'm not recommending yourself to as a bitch, but but yeah, buy
low, sell high. You know, Warren Buffett
actually I think has saying I'm paraphrasing him.
But you know, a publicly traded company is like, it's like
imagine you're living in your house and some.
A crazy manic depressive guy comes to, stands at the outside
your house and yells property prices at you, you know, so it's
and it's a different price every day.
The house is still the same house, so who's talking about?
Yeah, that's warm. Thank you.
Let's go to the next question. With the emphasis of price cuts
to drive volume growth eating into automotive gross margin,
can investors expect to see automotive gross margin
stabilize or even rise to the efficiencies outpacing the cuts?
And if so, when? Where's that cross the ball?
Again, if I may, It's like look the short term variances in in.
The most margin profitability really are minor relative to the
long term picture. Autonomy will make all of these
numbers look silly. I'd recommend looking at Arc
Invest. I think their analysis is very
good, the best that they you know I mean and generally fin,
Twit or like the finance, smart finance people on Twitter.
Follow their accounts. They're great.
So that that's what that's that's an idea where you'll get
the best, best info. So you know, I strongly believe
Tesla is an epic long term investment and don't swear when
you know things go up and down. In fact, the market panics by if
your market's a little too exuberant sell time.
But. But just generally like like I
feel I confident you know we will deliver a long term but
can't control short term. So and these the autonomy is
really where it's at exactly. I fully agree with you.
I mean, I think the only thing in the short term that matters
is, is what I said in my opening remarks, which is, you know, are
we generating enough money to continue to invest?
In, you know, the portfolio of products and technologies that
the technical teams are investing in right now.
And this is intense. It's intense in terms of
investment. It's intense in terms of
potential. Frankly, I think it's ridiculous
that we have positive free cash flow in a capital intensive
business while investing massive amounts of money in new
technology. That is super hard.
And critical integration, it's not even just like new products,
but also. Yeah, we actually make our shit.
We don't. Yeah.
And and. So others.
And. Very cool.
And so at least from my perspective, what matters is
continuing to generate the cash to invest and you know that
means continuing to be hyper focused on your term cost
reduction. Does everything we do in your
term cost reduction provides capital to reinvest hyper
focused on working Capital Management which we've made
quite a bit of progress there on the raw materials and whip as a
side of that and very focused on accounts receivables as well to
ensure that we can continue to reinvest, reinvest the cash.
You know that this is what we're focused and you know so there's
you know a set of this that. We control, you know we have a
pipeline of cost reductions, but we are getting tailwinds in the
commodity space right now as Carn mentioned, that's helpful
variability around average selling prices.
You know goes back to Elon's point and we don't control
interest rates, we don't control macro consumer sentiment, but we
have an obligation to be responsive to that to ensure
that we're matching supply and demand and keeping things
balanced. And so this is how we're
managing the next handful of quarters and soon enough these
quarters will be behind us. They won't be part of the
present value of future cash flows of the business.
And so we wanna make sure we keep that view and make sure
that the long term of the business is exactly the way that
we want it to be it. Will suit, yeah.
All right. Thank you very much.
And now let's go to analyst questions.
The first question comes from Dan Levi from Barclays.
And then feel free to unmute. Yourself.
Great. Good evening.
Thank you. Bob, wanted to start first with
the with a question about here at Person AI and Dojo.
It's pretty clear it sounds like you're accelerating your focus.
Can you maybe provide us with a sense of what the process is of
refining a product, Is it more machines and and maybe you could
give us a sense of you know when the the payout starts to when
you start to see the payout and what the resource outlay is.
You know what should we expect on the OpEx front as a result of
this? Sorry, are you saying how much
are we gonna spend on Dojo or yeah?
Warranty of Dojo. Yes.
Well, we're not going to be open loop on our Dojo expenditures.
So but I mean I think we, we will be spending you know for
the north of a billion for the next year on on you know flip
through the end of next year, it's whatever billion dollars in
Dojo. And yeah, so we've got a truly
staggering amount of of video data to do training on.
And this is another thing I like.
In order to copy us. You also need to spend billions
of dollars on training compute. I mean it's like and it's also
hard to you know you need the data, you need the training
computer. It's like they think well things
needed to actually achieve it at scale toward generalized
solution for autonomy is it's this is this is one of the
hardest problems ever. You know, you see a lot of AI
companies doing, you know, Llms and and and whatnot and I'll say
if they're so great, why can't they make yourself a great
driving car? Because it's harder, that's why.
So but I do think those, let's say, I think there's, you know,
great, great AI companies out there, but but just
fundamentally the the. About the the staggering amount
of data we've got to process is going to process somehow and
custom silicon is the best way to do that.
So that that's what Dojo is is designed to do is is you know
optimize for for video training it's it's not optimized for all
of them it's optimized for video training with with with video
training you have a a. A much higher ratio of compute
to memory bandwidth. So this you know whereas LMS
tend to be memory bandwidth choked.
So that's that's it. I mean like so we're also we
have some, we're using a lot of the video hardware continued to
you. We'll actually take the video
hardware as fast as NVIDIA was delivered to us.
Tremendous respect for Jensen. Kind of video on they've done an
incredible job and and frankly I don't know if they could deliver
us enough Gpu's we we might not be Dojo but they can't.
So because they got so many customers they've been kind
enough to you know but nonetheless prioritize something
about our GPU orders but. Yeah, the, the, the sheer
magnitude of video training because like I said, we're not
trying to just get as good as human.
We want to get to, you know, 10 times better than human, maybe
100 times better than human. Right now I believe there's
something on the order of 1,000,000 automotive deaths per
year. And and if you say permanent
serious injuries, I think it's probably closer to 10 million
per year. And you know, so it matters if
you're, if you're, you know. Twice as good as as humanity 10
times you know like 10 times better than here would would
still mean 100,000 deaths on and and a million severe permitted
injuries. So it's like OK well we'd
probably be 100 times better So there's there's really you know
it's a March of 9th and and we want to achieve as perfect
safety as possible and to ask truly mind boggling amounts of
video and and and computer needed for that.
So and then I just, yeah, I do think there's this other
applications for for Dojo, but we just definitely needed for
video training. Right.
Just to just to add to what Elon mentioned, so you know the
numbers that he mentioned are you know between R&D spend and
capital spend and you know this is moving quickly you know and
so we provide a three-year outlook on our capital expense
we are considering. These paid expenses in that
outlook and as that moves up and down, we'll continue to update
our guidance in the queue. Yeah, I wanna say the big, the
fundamental rate limiter on the progress of both self driving is
trading. But that's if if we had more
training compute we would get it done faster.
So that's that's it. And it's just difficult to
predict how quickly we can execute on it.
Create. Thank you.
Just as as a follow up, I recognize you know there's
there's incredible macro uncertainty right now, but
you're sticking with your near term your volume target 50%
kegger. As we just think about sort of
in the in the year ahead, you know cyber truck is going to be
some contribution. You know there's going to be
some help for further EV penetration growth, but to to
what extent are you willing to? Sacrifice on pricing to keep
that 50% volume kegger intact. Or, you know, are you?
Thinking differently about margins versus your prior
commentary of willing to sacrifice on margins to get more
share. It's not like getting what
share, it's just that you can think of every car that we that
we sell or produce that that that has a full autonomy
capability as. Actually, something that in the
future may be worth as much as five times what it is today
because, you know, average passion is big.
Pastor Bickle is doing like maybe 10 hours of driving a
week. You know, one if if it's sort of
1 if let's say it's 1 1/2 hours there, on average that's 10
hours a week. Ish if you've got an autonomous.
If that that vehicle is able to operate autonomously and and and
and use be used in some so we either either dedicated
autonomous or partially autonomous like like Airbnb like
maybe sometimes you allow your card to be used by others
sometimes you want to use it exclusively just like you know
Airbnb you know drink Airbnb with a room in your hands you
know that the the value is just tremendous so.
I think it's sort of it would be.
I think it makes it does make sense to sacrifice margins in
favor of making more vehicles because we think in the not too
busy future they will have have a dramatic valuation increase.
I think the test of fleet value increase at the point of which
we can upload full self, you know full self driving and it's
approved by regulators will be the single biggest step change
in asset value maybe in history. Thank you.
Let's go to the next analyst. The question comes from Emmanuel
Rosner from Deutsche Bank. Thank you very much.
Two questions for me as well. First, following up on on the
autonomy, So you know before you start launching these dedicated
Robo Taxi vehicles on unexisting vehicles, you're improving FSD.
You know incrementally what is your latest targeted timing to?
Essentially release a non beta version or an ISOF version that
would trigger much higher take rates and would Tesla benefit
from lowering the price of FSD? Well, obviously as.
People have sort of made fun of me, and perhaps the quite fairly
have made fun of me, my predictions about.
Achieving full sub driving have been optimistic in the past.
The the reason they've been optimistic is what it tends to
look like is the we'll make rapid progress with the new
version of of FSD but but then it will curve over
logarithmically so. So first logarithmic curve looks
like you know just fairly straight upward line diagonal
up. And so if you extract like that
it then you you have a great thing.
But then it's actually logarithmic.
It curves over. And then there's been a series
of log that stacked logarithmic curves.
Now I don't. I don't.
I'm the the, the, the boy who cried FSB.
But I I I think I think we'll be better than human by the end of
this year. That's not to say we're treated
by regulators and and I'm saying that then that would be in the
US because we got to focus on one market 1st.
But I think we'll be better than here and by the end of this
year. I've been wrong in the past, I
may be wrong this time and that the from the price of FSD.
So the way thing is the price of FSD is actually very low.
It's not high. When you go back to what I say
earlier, the value of the car increases dramatically if it is
actually autonomous. You know $58,000 is is actually
a low price, not a high price. And that we will offer and you
know and we do sort of offer FSD as a sort of monthly
subscription, although like most people don't know that.
So I recommend like maybe trying it out as a monthly subscription
so you don't have to go with the $15,000 thing.
But I think yeah, yeah, the the obviously if the car is built
several times it's original price, $15,000 is actually a low
price for it. Thank you.
And the next question comes from William Stein from Trust.
William, go ahead and unmute. Great.
Thank you very much for taking my question.
I'd like to ask about the stick on this A I topic.
We've read you know with great interest the developments in
Dojo today and you've spoken about FSD but you've also Elon
you started this X dot a I company and you know for
investors that think that. There might be quite a bit of
value in the AI features and products of Tesla.
It might be concerning to see you, you know, pursuing another
endeavor where AI is the focus. So can you talk about how X dot
AI might overlap, might perhaps compete with Tesla or in other
ways perhaps it it enhances the value of of what Tesla does?
Thanks very much. Yeah, I I think we'll actually
enhance the value of Tesla there.
There were just some some of the world's best AI engineers and
scientists that were willing to join a startup, but they were
not willing to join a large, relatively established company
like like Tesla. So I was like that that's
actually how it got started. I was interviewing a few people
and they're like, no, we we want to do a startup.
I was like and that's all I I I couldn't convince them to join.
Tesla so, so it's like OK well you know better to start up that
that I run that's then then they go work somewhere else that's
kind of the the genesis of of XAI&XAI is is focused on a sort
of a GI. Yeah so it's but I'd like so I
think there will be some. Value that XAI brings to Tesla.
You know also for some of the best for the very best people in
the world, they really just want to look at interesting problems.
If you take say you know amateur science group you know really
what convinced the Charlie Coleman to leave Apple where it
was very happy and well compensated and both at the.
Where we think it's the best material science group in the
world was that he got to work at both Tesla and SpaceX.
He he wasn't willing to leave Apple if it was just how slow,
but he was like to know it was Tesla and SpaceX.
So sometimes you get the best out in the world.
That's the kind of thing you know you need to do.
And that actually has been very beneficial to Tesla so.
If you know if I can squeeze one more mundane question in, I
wonder if you think you can hit. The 1.8 million unit number with
current pricing or you anticipate needing to continue
to lower prices because it seems like they've are stabilized, the
trends are stabilized in the last maybe month and a half.
Should we expect a sort of continued decreases or or more
stabilization for the rest of the year?
You know, we have. We have a really.
We started the referral program, which I think will be quite
effective. You know, as as Zach was saying
earlier, we don't control the macroeconomic conditions.
So if interest rates continue to rise that reduces the
affordability of cars, you know, and and for a lot of people
they're really trying to balance that's, you know, barely
breaking even every month. In fact, if you look at the rise
in credit card debt, they are in fact not breaking even every
month. Credit card debt is this looking
scary? So yeah, we're like, which is
don't control the micro conditions.
If micro conditions stable, I think prices will be stable.
If they're not stable then we would have to lower prices,
yeah. Thank you.
Let's go to Colin Rush from Oppenheimer.
That's so much, guys. You know is you're building out
Dojo and implementing what truly is going to be a highly complex
set of software. Can you speak to the maturity of
the operating system and how much software you're expecting
to use in that? System This is a custom software
stack so but it is design such that you can run at the high at
a high level high torch. And JAX, so, but then yeah we
have to customize it to actually run on a custom silicon.
So this the software stack is a combination of open source
software and then and that tells the software all the way to the
bear silicon, which is the case for the first computer in the
car. OK.
Thanks so much. That's super awful.
And then can you speak to how you're managing some of the
geopolitical risks? Relative to your capacity
expansion, you know, obviously as you guys continue to grow at
this rate, you're going to be putting some folks out of
business and you know there's going to be some impacts around
regional economies. So just want to understand how
you're thinking about that in terms of some of your CapEx
plans and and how you're managing some of those
relationships with with different countries and regions?
Well, we, yeah, this is a period of unusual geopolitical risk.
So I think we're the best we can do is you know have factories
and many parts of the world such that if things get difficult one
part of the world we you know, we can still keep keep things
going in the rest of the world. Thank you.
The next question comes from Mark Delaney from Goldman Sachs.
Thank you very much for taking that question.
Tesla has been making progress reducing costs and did so again
last quarter. Can you give an update on when
you think automotive clouds per vehicle could be under the
historical $36,000 per vehicle level and what are the key puts
and takes together? This is I think it was asked
since in the past this is very difficult to forecast.
You know there's a series of costs that we manage in series
of costs in which we don't control.
And so you know, particularly on the commodity side where labor,
Costco, etc, it's just hard to say.
Yeah, We saw very inflationary, like strong inflationary
pressures for a while last year and and now which obviously
makes it very difficult to reduce COGS.
You know, now we're seeing what seemed to be deflationary
pressures. Certainly deflationary deflation
is a pressure. But we're seeing, you know,
commodity prices dropped, dropping as as was mentioned
there, you know, as car mentioned a moment ago.
And I think what do you think basically the trend should be
deflationary commodity low definitely.
Is that and then? There's also the the unit
economics improves as volumes grow.
That's the other thing we're seeing as we're becoming a
bigger and bigger part of a lot of suppliers, economies of scale
come into play. There's equipment depreciation
that comes into play, equipment Douglas Commission five to seven
years ago that used to be a part of the peace price that's
completely amortized. So we'll see situations or peace
price come down because that equipment contribution has gone
away. And then just we continue to
have this mentality of continuous improvement in terms
of Labor, reducing labor, improving automation and and
just continue to get better at what we do.
So we have seen I think every quarter we have seen an
approved. Of course, the commodities
spiked up and down. Just in general, the trend is
towards being more efficient. Yeah, when and totally agreeing
there. Unless the prices weren't
absolutely insane there for a while.
Yeah, and they're recovering now.
But also don't know what used to.
Be, Yeah. And you know we're still early
in the ramps. Well, not early in the ramp, but
early in the cost down curve. I lost an umbrella, yeah.
So it takes time to work the cost out at first.
It's a focused on ramp. Ramp.
It brings cost. And well be and then your and
quality cost. Yeah.
And then once that stabilizes, we can divert bandwidth to cost
reduction. And so Austin Berlin saw quite a
decent amount of cross reduction and a fundamental basis from Q1
to Q2. We'll continue to do that work.
That will be helpful as though we're just gonna keep shipping
away at it. Yeah, packaging is a big, big
element to it just takes 2. Logistics is normalizing, which
is great. That Cuba legalization,
something that team has been very focused on, So every bit of
it. Yeah.
It's hard. Logistics is under appreciated.
Yeah. So saying goes like that was one
of tactics was one of logistics, yeah.
And we've made tremendous improvements in cost and all
fronts you know express costs. We are down or down pre
pandemic. Expect cost levels now and our
goal is to go further down. Yeah.
So when we look at our progress from Q1 to Q2 on cost, know the
way that we look at internally and normalize for the impacts of
mix shift with Austin and Berlin being a higher percentage of our
mix, normalize for S&X being a higher percentage of our mix in
Q2 versus Q1, the sequential cross reduction, it might be the
largest we've had in a while. Anything.
It's great work on behalf of the test, the team, and we just
gotta keep it up. Yeah, it's a good game of
pennies, but Game of Thrones is good pennies.
Mark, do you have a follow up question?
I think you're muted. Yep.
Yeah. Thank you very much for all the.
Details on that. Maybe you could put a finer
point on the downtime impact that you spoke about in your
prepared comments in terms of production impact.
And then also to what extent there's a margin impact from
those that you're playing in the square?
Thank you. Yeah, the, the downtime, you
know, we don't know exactly the number of cars impacted because
you know, kind of the way that we go into downtime windows for
upgrades. Is you know, we set aside a
period of time but then the team is challenged it as quickly as
possible so that we can get the factories up and running again
and minimize that. So it's not, it's not profound
reduction, quite small. Too much if the weeds here.
I mean like we're asking for level of precision that is not
possible to answer, so let's move on.
Yep. I think this is unfortunately
all the time we have for today, so we'll speak to you all in the
next three months. Thank you very much.
Thank you.