Good afternoon, everyone, and welcome to Tesla second quarter
2023 Q&A webcast. My name is Martin Vieca, VP 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, Martin.
So just a 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, surpassing the lights of likes of Corolla and
Golf. So it was the number one vehicle
of any kind, including vehicles that are at a seller far lower
price. This is I think an incredible
achievement by the Tesla team and just a huge thank you to our
customers 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 summer
shutdowns to for. A lot of factory upgrades, so
just probably a slight decrease in production Q3 for sort of
global factory upgrades in the long term autonomy, we think
it's gonna just drive volume through the ceiling next level
and our future Robotaxi products, dedicated Robotaxi
products. We think have like quasi
infinite demand so and we're the way we're gonna manufacture the
robot taxi is is also itself a revolution and 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, 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 in a 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 but then you 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 of 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 AI and dev is is a function of
talent sort of unique data and computer resources and and we
have outstanding capabilities in all three arenas.
And I really just don't know how 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 training computer is designed to
significantly reduce the cost of neural net training.
It it is designed to it's 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 need for neural net
training being a quasi 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
demand for really fast training resources.
And we, we think we may reach in house your net, your net
training capability of 100 exaflops by the end of next
year. So to today over 300,000,000
miles have been driven using FSD beta.
That 300,000,000 mile number is gonna seem very small very
quickly. It'll soon be billions of miles,
then 10s of billions of miles. And that FSD will will go from
being better, from 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 Georgia computer, our inference hardware
in the car which we calls. Sort of hardware 3-4, you know,
but it's really dedicated, it's it's, it's a high efficiency in
front of computer that's in the car.
And our optimist robot translates clearly at the
cutting edge of a ad development to with we continue to build
release candidates of the cyber truck on our final production
line in Austin. I'm actually here in Austin at
the Giga factory, this is the first truck that we're aware of
that will have 4 door. Was over 6 foot bed and 1 foot
into a 20 foot garage. So it's it's a it's a biggest on
the outside but it's even bigger on the inside.
So it's a I think that's 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 we really cared about the exterior dimensions of
the side truck down to the last millimeter.
So it's just we try to get right in the middle of the Goldilocks
zone, not too big, not too small and and then really maximize 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 and it's now called
the North American charging standard.
We're we're deeply honored that Ford, GM, Mercedes and many
other O M's have signed up to use our connector and gain
access to our charging network. Yeah we we we strongly believe
in helping. Other car companies to
accelerate the EV revolution and just trying to do the right
thing in general. So that's a goal there.
Then it's only I think I want to emphasize like very, very
strongly. This is a very important point
is that tells that just as with the.
North American charging standard, although we're not
licensed in that case not licensing, we're just making it
available, but but we are very open to licensing our full self
driving software and hardware to other car companies and we are
already in discussions with 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.
Then in conclusion, we continue to focus on making as many
causes 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
Megapack supercharging service. And what not all started to
become a meaningful contributor to overall profitability this
quarter. And then lastly, I'd just like
to profusely thank all of our employees who are making a lot
of extra effort during uncertain times.
Thank you very much for your hard work and impact you're
making. Thank you very much, Elon.
And I think Zach gets 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 long term value of the business.
This include increasing spending on a I related technologies such
as full self driving Optimus and Dojo as well as new products
such as Cybertruck, our next generation platform in 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 Megapack. 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 factory 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
long term outlook. Congratulations again to
everybody on a great quarter. Thank you very much, Zach, and
let's go to investor questions. The first, 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? 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 reduced 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 cathode production, both reviewed on battery day,
which do bring 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 was 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're
thinking has evolved on the revenue model?
Given Tesla's AI capabilities, how do you see the long term mix
between hardware margin and recurring softer margin from
auto bidder as the segment accelerates?
We can't comment on future product road map, but I can
provide a quick energy Q2 update.
Megapack continues to show strong demand globally with
Lathrop ramping successfully to meet our contracted projects in
2023. As stated last quarter, Megapack
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 in 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 toward today actually.
We want to thank our customers, utilities and grid operators for
trusting us with these projects. On the auto bidder question, we
continue to grow auto bidder contracts in wholesale markets
like Australia, Texas, UK and California with over 6 kwatt
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
Megapack hardware side is occurring.
It's important to remember that these large projects, these
large capital projects have lifetimes of 20 years of
recurring 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 test the 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 ERCOT. We expect these credits to lower
our median customers annual bill by a third and to increase these
credits over time as ERCOT expands market access.
And today we are expanding Tesla electric enrollment to new Model
3 owners in Texas, fall by all Texas vehicle customers over the
rest of the quarter unfortunately and somewhat
similar to Tesla insurance. Bringing Tesla Electric and VPP
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?
All 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 sales from
our long term battery partner Panasonic on the commodity side.
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 long term 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 but 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.
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 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.
These factories are still a slightly above Model Y
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.
I do want to ask Karen 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 lithium position because the the long
term contracts we have in place. But we have seen reduction in
pricing across the board for all commodities that specifically go
into batteries such as nickel, cobalt and graphite.
And the reductions and pricing translate into thousands of
dollars. When you look at it from a
purvedaical impact. We're taking advantage of the
look historically low commodity pricing in certain areas to kind
of extend some of those fixed price contracts.
Through the end of the decade. So it's a playbook that will
continue to kind of go back to as we 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 for Q3 we will be allowing
transfer of FSD. This is a one time amnesty.
So it needs to be 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 and the production ramp will
move as fast as the slowest and least like the elements of the
of the entire supply chain and an internal production.
So you know, I wouldn't expect you know it.
I I hope it's smooth. You know we're certainly better
at production ramps than than you know we've got a lot of
experience with production ramps.
But you know first order to 1st order approximation is there's
like 10,000 unique parts and processes in in a you know in
the Cybertruck and if any one of it'll go as fast as the least
lucky, you know least well executed element of the 10,000
so. Always very difficult to predict
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, thanks you. On.
This is Lars 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 welds and rivets have to be drilled out.
Panels and structural adhesive have to be chiseled out, dry
adhesive has to be removed, stampings cut, blah, blah, blah.
It's a crazy patchwork quilt. Yeah.
And so putting that back together means time and money.
Using an example of replacing a rear cast rail on a 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 cash rail. My design team works with our
collision repair team since we're closed loop on this with
insurance and we design 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 made this available to all body shops or
our tests are approved 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 the answer is actually wear out and.
Need to be replaced anyway, so we can actually make design
changes to the inserts and tweak the castings, but the the cast
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 know.
They certainly put out a lot of fresh releases about it.
I think it's basically going to be how 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 an
we're. Like 10 I guess yeah it depends
on what how many are working and what phase.
But it's it's sort of yeah, like there's there's more more every
month the there's a lot of interesting things a lot of
interesting things about the option spot.
We found that there are actually no suppliers that can produce
the actuators. There are no off the shelf
actuators that work well for Human 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
could do. So we've actually had to design
our own actuators that integrate the motor of the power
electronics, the controller. The sensors and really everyone
of them is custom design. So and then of course we'll be
using the same inference hardware as the car.
So you know and 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 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 integrated and and walking
should be. Around 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 it's going well, I
should say. Another cool thing about
optimists 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 armor leg. For someone that has has had
their arms, armor leg or all arms and legs amputated, we
believe we can give you basically a cyber body that is
incredibly capable $6 million man in real life before.
Don't worry it cost $6,000,000 sixty $1000 man.
Since I was impressive but it's it'll actually you know so that
that that actually could be a really I think would be
incredible to you know potentially help police people
around the world and and give them you know Obama like that is
as good maybe a long term 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 decide when is it appropriate to
reduce prices or add other sales incentives to increase demand?
Yeah. I guess demand is roughly track
production. So which is what we aim for is
is. But we look at you know
something that 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 all 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're just we're just course according to what the mood 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 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 the interest rate environment as interest rates
rise. The affordability of anything
bought with debt 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, 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. So we had to do something about
that. And if somebody's got a crystal
ball for the global economy, I really appreciate it.
If I got borrow that crystal ball.
Yeah, exactly. Damn.
Yeah, it should be. Not on Twitter.
So, I mean, one day it seems like the world economy is
falling apart and the next day everything's fine.
I I don't know what the hell is going on.
It'd be totally frank. I wish I did.
So I I mean that that's why that's why I say like I always
you know you know I on Twitter I posted like you know just really
advising because I, you know 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 times are not that turbulent actually a margin loan
can be a smart move within reason but but we're in I would
call it turbulent times. I like I have very high
confidence, confidence in the long term value of Tesla.
Like I I see it really, you know, see a path to a 10X these
days, like 5X increase in the value of the company, maybe a
10X and where things go along the way that the trials and
tribulations and the mood of the mood of the markets 1 cannot
predict. And so you know.
The the, the old adage of buy and hold is 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 hold it, that's it.
But you will win. 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 I should buy a software company that makes me
likeson 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.
Buy and when the market is, you know, overly exuberant, you can
sell. I'm not recommending yourself as
a bit, but yeah, I love sell high.
You know, Warren Buffett actually I think has saying I'm
paraphrasing him. But, you know, publicly traded
companies like it's like imagine you're living in your house and
some. A crazy manic depressive guy
comes and stands at the outside your house and yells property
prices at you. You know, and it's a different
price every day. The house is still the same
house, so this is the stock market, you know, Credit that
door about it. 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 due to efficiencies outpacing the cuts?
And if so, when? Where's that crystal ball again
if if, I mean it's like look the, the, the short term
variances in in. Gross margin and 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.
It's the best you know I mean and generally fin Twit or like
if the finance. There's the smart fans, people
on Twitter follow their accounts.
They're great. So that that's what that that's
that's in my view where you'll get the best, best info.
So you know, I strongly believe Tesla is epic long term
investment and don't swear when you know things go up and down.
In fact, if the market panics, buy.
If the market's a little too exuberant sell at the time but
but just generally like like I feel I I confident you know we
we will deliver a long term but can't control short term so and
and these the the autonomy is 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
regenerating enough money to continue to invest and you know,
the portfolio of products and technologies that the technical
teams are investing in right now.
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 vertical integration, it's not even just like new products,
but also. Yeah, we actually make our shit,
yeah. And so.
Others but. And so, at least from my
perspective, what matters is continuing to generate the cash
to invest. You know that means continuing
to be hyper focused on near term cost reduction because
everything we do in near term cost reduction provides capital
to reinvest, hyper focused on working Capital Management of
which we've made quite a bit of progress there.
On the raw materials and whip side of that, we've been 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 on.
Yeah. And you know, so there's you
know a set of this that we control.
You know, we have a pipeline of cost reductions.
We are getting tailwinds in the commodity space right now.
As Karen mentioned, that's helpful variability around
average selling prices. You know, goes back to Elon's
point, 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. You know 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 want to 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. Alright, thank you very much.
And now let's go to analyst questions.
The first question comes from Dan Levi from Barclays.
Then feel free to unmute yourself.
Great. Good evening.
Thank you. Wanted to start first with the
with a question about your efforts in 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 Georgia
or? Yeah, it.
Warranty of Georgia. 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 the
north of a billion over the next year on on through the end of
next year, it's well over a billion dollars in Dojo.
And yeah, so I mean we've got a truly staggering amount of of
video data. To do training on and this is
another thing I don't like into in order to copy us you you also
need to spend billions of dollars on on training compute.
I mean it's like and it's it's also hard to you know you need
the data you need the training computer it's like think think
all things needed to actually achieve this at scale toward a
generalized solution for autonomy is it's this is this is
one of the hottest problems ever.
You know you see a lot of AI companies doing you know Llms
and and and and whatnot and I'm saying if they're 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 that's that's
I think there's some you know great great AI companies out
there but but but just fundamentally the the the
staggering amount of data we've got to process recovery 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 yeah optimized for for video training
it's it's not optimized for LMS it's optimized for video
training. With the with with video
training you have 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 but
like so we're also we have some we're using a lot of NVIDIA
hardware and continue to you know we'll actually take NVIDIA
hardware as fast as NVIDIA will deliver it to us.
Tremendous respect for Jensen and NVIDIA they've done an
incredible job. And and frankly, I don't know if
they could deliver us enough GPUs, we we we might not need
your Dojo, but they can't. So they got so many customers,
they've been kind enough to you know nonetheless prioritize some
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 then 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 if you're, you know. Twice as good as as human 10
times. You know like 10 times better
than human would still mean 100,000 deaths and a million
severe permanent injuries. So it's like OK, well we'd
probably be 100 times better. So there's this really you know
it's a March of 9th and and we want to achieve as perfect
safety as possible and it's fast truly mind boggling amounts of
video and and and computer needed for that.
So and then I just, you know, I do think there's there's other
applications for for Dojo but we just desperately needed for
video training. Right.
Just to just to add to what Ilan 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 these 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 that the the
the fundamental rate limiter on the progress of full self
driving is training. But that's if if we had more
training compute we would get it done faster.
So that's it, that's it. And and it's just difficult to
predict how quickly, yeah, we can execute on it.
Great, thank you. Just as as a follow up, I
recognize you know there 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 from further EV penetration growth but.
But to to what extent are you willing to sacrifice on pricing
to keep that 50% volume cager 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 more fair,
it's just that you can think of every car that we that we sell
or produce that that that has. 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
passenger 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 a day, on average that's 10
hours a week. Ish if you've got.
An autonomous if that that vehicle's able to operate
autonomously and and and use be used in some either either
dedicated autonomous or partially autonomous like like
Airbnb. Like some maybe sometimes you
allow your your card to be used by others sometimes you want to
use it exclusively. Just like you know Airbnb, you
know doing Airbnb with a room in your house.
You know that the the, the value is just tremendous.
So I think it's sort of it would be I I think it makes it does
make sense to sacrifice margins in favor of making more vehicles
because we think in the not too distant future they will have
have a dramatic valuation increase.
I think the Tesla fleet value increase at the point 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, on
existing 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 I you know.
As people have sort of made fun of me and perhaps the, you know,
quite fairly have made fun of me, my predictions about
achieving full self driving have been optimistic in the past.
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 at first logarithmic curve
looks like you know just sort of fairly straight upward line
diagonal and up. And so if you extrapolate that
it then you you have a great thing but then because it's
actually logarithmic, it curves over and then there's been a
series of stacked logarithmic curves now.
I know, I don't know the the, the, the boy who cried FSD, but
I I man, I I think I think we'll be better than human by the end
of this year. That's not to say we're approved
by regulators and and I'm saying that that would be in the US
because we got to focus on one market 1st.
But I I think we'll be better than human by the end of this
year. I've been wrong in the past.
I may be wrong this time and that the the price of FSD.
So the 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 the the value of the car increases
dramatically if it is actually autonomous.
You know $15,000 is is actually a low price not a high price
and. Now we will offer you know and
we have, I think I think we do sort of offer FSD as a sort of
monthly subscription although like most people don't know
that. So I'd 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 if the car is worth several times it's original
price. $13,000 is actually a low price for FSD.
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 to stick
on this AI 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've started this X dot AI
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 what Tesla does? Thanks very much.
Yeah, I think we'll actually enhance the 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 sort of 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 couldn't, I couldn't convince
them to join Tesla. So, So I was 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 and Xai is is focused
on a sort of AGI. Yeah so it's but I I'd like so I
think there will be some value that Xai brings to Tesla you
know also some of the best. For the very best people in the
world they they really just want to work on interesting problems.
If you take say you know our material science group you know
really what convinced the Charlie Coleman to leave Apple
we was very happy and well compensated and both at and both
you know the the the where we think is 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 Tesla, but he was willing to do
it, it was Tesla and SpaceX. So sometimes you get the best
talent 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 I wonder if you think you can hit
the 1.8 million unit number with current pricing or do you
anticipate? Needing to continue to lower
prices because it seems like they've stabilized, the trends
have stabilized in the last maybe a month and a half.
Should we expect a sort of continued decreases or or more
stabilization for the rest of the year?
Sure. You know we have, we have a
really sort of we started the referral program which I think
will be quite effective. So you know, as as Zach was
saying earlier, we 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 just 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 like credit card debt is,
is looking scary so. You know, we just don't control
the micro conditions. If American conditions are
stable, I think prices will be stable.
And 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 your.
Building out Dojo, implementing what really is gonna 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 designed such that you can run at the high at a
high level pie torch. And jacks, so but then you know
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 inference computer in the car so.
Okay, thanks so much. That's super powerful.
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 gonna 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?
You know, 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 in
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 cost and did so again last quarter.
Can you give an update on when you think automotive COGS per
vehicle could be under the historical $36,000 per vehicle
level? And what are?
The key puts and takes to get there.
This is, I think it was asked this in the past.
This is very difficult to forecast.
You know there's a series of costs that we manage.
This here is a cost in which we don't control and so you know
particularly on the commodity side where labor, Costco
etcetera, it's just hard to say. Yeah, we saw very inflationary
like strong inflationary pressures for a while last year
and and now we're 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 you
know as car mentioned a moment ago and.
I think, I mean what do you think it basically the trends
should be deflationary at the commodity level?
Definitely there's that. And then there's also the the
unit economics improve 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 appreciation
that comes into play, equipment that was commissioned five to
seven years ago that used to be a part of the peace price that's
completely amortized. So we'll see situations where
peace price comes down. Because that equipment
contribution has gone away and then just we continued 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 improvement, of
course, the commodity spiked up and down.
Yeah, just in. General the trend is towards
being more efficient. Yeah, and and totally agree.
Yeah, but lithium prices weren't absolutely insane there for a
while. Yeah, yeah.
And they're recovering now. About like 1/3 of what it 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 of Austin and Berlin.
Yeah. So it takes time to work the
cost out at first it's a focused on ramp, ramp it brings cost.
Down quality and then yeah. 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 cost reduction
on a fundamental basis from Q1 to Q2.
We'll continue to do that work. That will be helpful.
And so we're just gonna keep shipping away at it, yeah.
Package is a big, big element to logistics too.
Logistics is normalizing, which is great.
QQ Bot utilization. Something that your team has
been very focused on, so every bit of it.
Yeah. It's hard.
Logistics is under appreciated. Yeah, the whole thing is like
that was one with tactics, wasn't one with logistics.
Yeah. And we've made tremendous
improvements in cost and on fronts on you know express
costs. We have down down Pre, Pandemic
Express cost levels now. And our goal is to go further
down. So, yeah, so when we look at our
progress from Q1 to Q2 on cost, 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 cost reduction, it might be the
largest we've had in a while. So anything is it's great work
on behalf of the Tesla team. And we just gotta keep it up.
To get game of pennies, it's like Game of Thrones with
pennies. Mark, do you have a follow up
question? I think you're muted.
Yep. Yeah.
Thank you very much for all the the details on that.
Maybe you could put a finer point on the downtime impact
that you 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 if? You have a phrase that you're
planning this quarter. 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 to go 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, you know, hopefully it's quite small I think.
We're getting too much into Louise here.
I mean, like we're asking for a level of precision that is not
possible to answer. So let's move on.
Yeah. I think this is unfortunately
all the time we have for today. OK.
So we'll speak to you all in the next three months.
Thank. You very much thank you.