Q4 2020 Tesla Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to Tesla as Q4, 2020 financial results and Q&A webcast. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be.
You're advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker, Mr. Martin vehicles Senior director of Investor Relations. Please go ahead Sir.
Thank you Sherry and good afternoon, everyone and welcome to Tesla <unk> fourth quarter 2020 Q&A webcast.
I'm joined today by Elon, Musk, Zachary Curt Horn, and a number of other executives.
Our Q4 results were announced at about one P. M Pacific 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 forward looking 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 risks and.
Certain fees, 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 press star one now if you'd like to join the question queue, but before we jump into Q&A Elon has some opening remarks Elon.
Thank you.
So just to recap the year.
2020 was a defining year for us on many levels.
Quite a challenging environment, we reached an important milestone producing and delivering half a million cars.
The.
Once again, thank the people at Tesla for an incredible effort.
We delivered.
Almost twice as many cars last year as we produced in our entire history. So clearly.
<unk> growth rate.
Despite a very challenging 2020, so my hat is off to such a hard to work with such great people at <unk>.
At Tesla.
So.
And whatever.
So we achieved free cash flow of nearly $2 $8 billion after spending more than $3 billion on building new factories and other expenditures.
We reached an industry, leading GAAP operating margin ambition positive net income and record cash flow.
Regarding tip capacity expansion.
While we focus on execution, we continue to book a lot of new capacity.
Got it producing the model Y out of three months and almost reached full production speed.
We ran the model three in Shanghai, it's more than 5000 cars a week sustainably.
Shanghai continues to grow rapidly.
We introduced the heat pump to all of our vehicles.
We ramped the single piece.
We started our rails ramped to volume production.
Production at the <unk>.
Pete castings for model y.
Where for the first time in history, the entire rear third skeleton other cars being cast the single piece and the largest and most advanced casting machine ever made.
We built the model Y factory in China from start to finish in one year.
We're also building Giga Berlin aggregate, Texas, which we expect to start production later this year.
And lastly, we are both a.
So the battery cell.
Factory in the Bay area.
Even though it is a pilot plant it is obvious.
Jeff that it would be in the probably the top 10.
Yeah.
Battery cell factory.
Being a pilot plant.
Regarding the new model X.
Yes.
We are launching the.
Super excited to announce that new model S and model X Plaid.
Are in production now and will be delivered in February.
So we've been able to bring forward.
Plaid.
Model S and X.
And sort of model S will be delivered in February on model X a little later, but the model is plaid.
In production now and we'll be we'll be delivering.
Next month.
So this is a tri motor.
Model S with a completely new interior.
There are actually a lot of great things about this I'll do another call about the model S later, but.
It's really.
It's a tremendous improvement.
Over the prior version.
And the model S will be the smallest part will be the first production car ever that is able to go zero to 60 miles an hour and under two seconds.
So no production car ever has been able to get below two <unk> to 68.
A.
Luxury sedan that is able to build jurisdiction Pete.
And.
Less than two seconds.
And we'll have the ability to seat up to seven people with the third growth.
Seats so.
Those are pretty nuts, this asset to be clearer than any car.
With a different type of car like a Tudor sportscar that was able to do bedfast and this is the fastest accelerating car ever made that has allowed to go on our roads and history.
And like I said, we will start delivering it.
In a matter of weeks.
Yes.
The next day, obviously it gets into the details of all the model S changes.
Maybe later this week or index.
But it's really better in many ways.
We will be absolutely raising the price of model S.
For this new models of Peter.
The old model to the new model will be $10000 more so hopefully people aren't too upset a day or the old model last month.
Just wanted to take anymore.
Sure.
So.
Yeah, we think it's probably the best car of any kind.
At any price available in the world today.
So.
Then with regard to full self driving.
We've made massive progress on full self driving.
I recommend watching the videos of our.
Public data. So we've got I think almost 1000 people in the debate at this point.
<unk>.
Okay.
With each successful release of the beta uplift efficacy software is really.
Improving.
Rapidly.
It is now it's not very common for.
I drive the latest growth, it's very common for me too.
We have no intervention.
On the drivers that I drew including drives took place that I've never been to so these are not preplanned routes there right.
Cause the car has never been there before.
<unk>.
It's actually more.
It will come to not for the car to have no interventions even on a complex drive.
So.
And does it.
I'm highly confident that <unk> drive itself with other liability excess of human this year.
This is a very big deal.
And I'm thinking about like.
How does one justify.
The value of the company being where it is.
I think there is a way just with back of the envelope math to potentially justify it.
Where.
At Tesla ships lets say hypothetically.
50, or $60 billion worth of vehicles.
And those vehicles become.
Wholesale driving and can be used and robo taxis.
Service taxes that utility.
The increase was from an average of 12 hours a week to potentially an average of 60 hours a week.
If there.
They are capable of serving as robo taxi.
So is that like roughly of buybacks increasing utility.
Yeah.
But even.
Even if you say like okay, let's just assume that the car becomes twice as useful as.
It's not <unk>, but mainly twice as useful that would be a doubling again of the revenue of the company.
As.
Almost entirely.
Gross margin so it would mean it would be like I think you.
Made $13 $70 billion, what caused that we liked having a $15 billion of incremental profit basically.
Because it's soft because of software.
No.
And it's like no. Other place then you have some good <unk> on that second trillion.
And other companies still in high growth mode.
I think it was away from sort of like.
Thus far the direction of the company, where it is just the cars level.
Lars of FSP.
And.
I suspect at least to a number of investors are.
Taking that approach.
So in conclusion.
While 2020 was a turning point for Tesla.
In terms of.
Profitability.
This is just the beginning.
We think 2021 is going to be.
Even more exciting.
I don't know what to expect in any given year, obviously last.
Last year, we did not.
So anything that we do not expect.
But 'twenty one is a relatively normal year from an external standpoint.
Thank you.
It's going to be a great day from Tesla.
We've got a ton of it.
Any great new products coming out.
We've got factories that are.
Advanced factories that setup.
Production.
And also make it easier having having a factory in Britain and rolling one in Texas I can just from a logistics standpoint.
So it can help supply the eastern half of the U S.
Berlin can help supply Europe.
And then just pure cars on boats.
Much less capital tied up.
The cars that are.
Non boats or.
Being transported to customers.
And I think the fundamental efficiency of the company will be much better with.
With the factories or at least having factories on ship on each continent, and having two factories in the U S.
So I'm Super excited about the future.
And.
We look forward to making it happen thank.
Thank you.
Thank you very much and I think.
Our CFO Zachary corn has some opening remarks as well.
Thanks Martin.
And as Elon mentioned 2020 has been an extremely successful year, while managing too many unforeseen and unexpected challenges.
On cash we continue to generate strong free cash flows reaching a record $1 9 billion in Q4 them alongside growth and investment for future programs. Additionally, we've been able to reduce our use of debt and various working capital lines, including settling $2 billion of convertible debt in Q4, which will continue into Q1.
For net income we achieved our first calendar year and sixth sequential quarters of profitability.
In addition, auto gross margin excluding credit improved from 2019 to 2020, despite reductions in ASP and inefficiencies from new product launches and transitions.
On Q4, specifically this was a noisy quarter, so lets unpack a few things.
Stock based comp increased part of which is driven by the rise of the stock price over the course of 2020 employee performance grant process and a portion of which is unique to Q4 only the.
The impact of SBC increases has seen.
Across both Cogs as well as operating expenses.
Automotive gross margin in Q4, it was primarily impacted by two things first we invested in improving our products built in fremont, including converting over to the new model S and model X launching a single piece castings on model y and introducing heat pump on model III.
Second logistics and labor costs were impacted due to supply chain instability and pandemic inefficiencies.
Adjusting for items such as these as we do in our internal management fee is we saw an improvement in auto gross margin.
Our services and other P&L was impacted by many of the same factors just mentioned, including Onboarding costs associated with new service capacity.
However, what's most important here is that we've accelerated the growth in service capacity and will continue to drive capacity expansion as fast as possible.
On energy gross margin, we saw an impact from solar roof related ramp costs and typical seasonality in the lease PPA business.
Opex as a percentage of revenue continues to reduce despite impacts from items mentioned as well as increased investment in development of future products.
Finally, the early settlement of our convertible notes resulted in an additional $100 million of interest expense for the quarter.
All that being said nothing has changed about our view that operating margin will continue to grow and remains industry leading.
As we look forward 2021, it may be our most meaningful step forward yet as we see the benefits of long standing investments in capacity and technology.
The range of possible outcomes this year as wide given the magnitude of launches.
A few things we should keep in mind.
We continue to expect a long term volume CAGR of 50% of which we named materially exceed this in 2021.
As we increase production rates volumes will skew towards the second half of the year and ramp inefficiencies will be a part of this story and are necessary to achieve our long term goals.
Specifically for Q1, our volumes will have the benefit of early model y ramp in Shanghai.
S and X production will be low due to the transition to the newly Architected products. Additionally.
Additionally, we're working extremely hard to manage through the global semiconductor shortage as well as port capacity, which may have a temporary impact.
We will continue to invest heavily in Supercharging and service capacity, while driving reductions on cost, including Opex as a percentage of revenue.
Global demand continues to outpace production and we're moving as quickly as we can with a focus on the long term.
I look forward to providing updates on progress throughout the year.
Thank you very much and now we can jump straight into questions from safe technologies.
The first question from institutional investors.
What is currently holding Tesla back from being the market share leader in solar.
Yes.
We're actually seeing tremendous growth in solar quarter.
Quarter over quarter last year and.
Had the best quarter since I think 2018 in Q4.
So we actually expect to become the market leader in solar.
And then go far beyond it.
Unfortunately, there were a few years there were reported.
Drew devote the whole company too.
Model three production.
And.
They are building it.
Is it basically.
Basically take the whole company and creative people that were on solar.
We have worked on cars, but now.
The other revenue pull bandwidth, we're putting letter.
Pension on solar and it is growing rapidly.
I think it will not be long before because there is by far the market leader in solar.
Another really important part of the solar strategy is achieving an industry leading cost structure, which then allows us to have industry, leading pricing and so that's something that.
We've accomplished over the last year in terms of getting the cost structure in the place that it needs to be.
And as you know.
Paul mentioned this is a really important part with industry, leading pricing to become the leader in this day.
Yes, and actually important part is.
Achieving better integration between the Tesla power wall, and the Tesla retrofit solar and Tesla route.
And we're confident we will have excellent integration.
Excellent excellent integration with the.
Colorado.
Tesla solar where the strict referred or.
The solar glass roof.
Before the end of the year. So it's really I think we've got a good strategy.
Sure.
We're focused on reducing the amount of time and the complexity of the install and we're making great progress in that regard.
And I think we'll have really dialed in.
This year.
Thank you and the second question is could current owners got ability to transfer their FSB to their next vehicle. This would be a huge for loyalty and overall increased sales of vehicles, we are offering more FSC sales on used vehicles.
Unfortunately, we are not considering that at this time.
We do actually offer an increased higher price than four.
The car with the FSB then one regard MFC.
I do think that.
The Martin currently undervalued.
The consumer market.
And arguably the stock market is probably undervalued.
Just how good efficacy is going to be.
But we are.
We are currently planning on offering Laurie.
If you get transferred.
Thanks, Tom.
We will be operating subscription pretty soon in the next month or two so that should address luxurious concerns broke being able to get it.
Thank you very much and the third question is can.
Can you give us a progress update on dry coating of the battery electrodes at the battery day, Elon said I would not say this is completely in the bag.
Yet as the yields were low.
Hi drew.
Yes.
Sure.
It is true the in house cell manufacturing system, we revealed a battery day contains new processes and equipment. So we did expect some unknown unknowns and technical challenges to rise through the production ramp.
The caito team, however has been able to solve each manufacturing problem presented to date and continues to improve yield and rate week over week and month over month as we move up the production curve.
At the same time the cell engineering teams refined designs and deepened understanding has reinforced our confidence in the dry process and 46 million design meeting our performance and cost targets.
And from a capacity perspective.
We have 10 gigawatt hours worth of equipment landed at Caito. The production staff is nearly all hired our material supply chain is established and the team is on track for flow.
Oil production ramp this year.
Meanwhile, we've developed enough engineering confidence with our 46, 80 design and the production process and equipment to kick off manufacturing equipment and facility construction to support our 100 gigawatt hour 2022 goal.
Yeah.
Okay. Thank you very much.
Next question is.
Why are you confident in Tesla will achieve level five autonomy in 2021, and wise dojo not necessary to get there.
I guess I'm confident based on.
My understanding of the tech roadmap.
And the <unk>.
Progress that we're making between each beta iteration.
Yes.
As I say, it's now not remarkable at all for the car to completely drive you from one location to another through a series of complex intersections.
It's not about.
But just improving the corner cases reliability.
And getting it.
To.
$99 99.
99% reliable that with respect to an accident basically better, but we need to get it to better them.
The hearing biotech group at.
At least 100% or 200%.
And.
This is happening rapidly because we've got so much training data.
Other causes field.
And.
The software is improving dramatically.
We also write the software for.
We'll labeling.
And I'll say it is quite challenging.
We're moving every day towards towards video Labor, Inc.
Over there laboring over here at Burns.
And.
So there are still a few of the neural net.
Weighted too.
Video.
Training and inference.
And.
Really as we've as we've transitioned to each net to.
To video.
Performances.
The kind of exceptional.
So this is a hard thing for video.
The labeling software that we work for pretty amazing.
Making that better and has a huge effect on.
Efficiency of labeling.
And then of course, the Holy Grail is order labeling.
So we are.
Moving now to work into.
I'm, having a labeling tool to be more.
Efficient when your stock price.
As well as.
Enabling order labeling where we can.
At the other.
Is that sort of training supercomputer.
We believe it will be.
We think it may be the best.
Sure.
Neural net trading computer in the world by possibly an order of magnitude.
So it is it is the whole thing in and of itself.
And this is something we can offer a potentially as a service.
So Peter.
Some of the others need.
Zero net training.
We're not trying to keep it to ourselves.
So this I think.
So there could be.
It's a whole line of business in and of itself.
And then of course for trading vast amounts of video data.
And getting the.
The reliability from day, 100% to 200% better than the average human.
<unk>.
2000% better than average human further will be very helpful in that regard.
Thank you.
The next question is what is special <unk> gigawatt hour run rate of the $46 80 cell production. How do you see this run rate evolving by mid 2021 or end of 'twenty to 'twenty one.
I think we kind of talked about that drew.
Essentially what we're saying is that.
The number to think about folks on is like we've got a 100 gigawatt hour total.
Tesla sales produced in 2022.
It's not that important to look at the run up to the <unk> because.
These things tend to improve exponentially.
But we are installing capacity for it.
In 2022% for 200 gigawatt hours, a year and we think probably.
Which we should be able to achieve 30%.
Our targeted design capacity.
In 2022.
Yes, yes.
As <unk> said before with the S curve of production.
You can be off a little bit on the initial part of the S curve and that makes a difference.
Fleet capacity by quite a bit one month to the next.
Yes, I mean, we are progressing up that S curve as fast as we possibly can.
Yes, we don't see any showstoppers.
Yep.
Thank you very much and one more question from retail investors.
What is that still going to improve service experience Tesla had a reputation for outstanding customer service now it's impossible to even call a service center and appointments are scheduled weeks out drew.
AUM.
Yes.
Forest Best service non service. So we spent a lot of effort trying to improve the quality and the reliability of our cars in the last two years.
Frequency.
These visits are reduced by one third so people have two customers have to come less frequently and the service, which is really the Gulf No service.
And if service has to take place where I'm trying to make it as painless as possible.
One big effort there is to increase mobile service, which is now more than 40% of all visits in North America, and we're trying to push that to 50% this year.
In 50% of service visits.
Less than two hours. So we're trying to service the cars very quickly so people can get their vehicles back on the road.
And in terms of service appointment.
It continues to improve we have about we have actually 140 service centers right now in North America for a 100 out of those 140, you can get appointments in less than 10 days and we're going to make sure. It's all service centers are.
Shaun wait time.
We're accelerating as Zach mentioned earlier the pace of opening in North America, We opened 11.
Centers in December and we have plans to open 46 in the first half of this year.
So that's what we're doing to improve service.
In terms of phones.
Our emphasis is on the App really we want all communications to go through the App the Tesla App.
And we're trying to move away from the phone the app is much better than the phone.
It can spot directly either directly from the car and schedule a service appointment and there is a written record of all communication between the customer and the service team you cannot picture isn't there you can take care of their payment without entering the credit card and doing all that stuff.
You get updates on the service and there is even more features in our income might come in the coming months in the App and I think everybody will be happy, including the ability to spot where Youre service technicians, and all parties to coming from your car and what's going on there. So we are investing everything on.
I think just like most other companies as well and that's the way of the future.
Thank you very much and I'll, let Scott these additional investor questions. The question number one what are the key milestones we need to achieve in order to evolve.
These were commercial level four level five ridesharing solution.
Yes so.
Hi.
It really goes back to what I'm, saying I'm going to go which is related to transition over the neural nets in the car to.
Video.
And in order to do that the whole stack has to be.
So how should we.
Cash to video so that means that the gathering video clips.
Ben using.
Actually surround video so you've got eight cameras operating simultaneously.
What we are synchronized frame rates. So you got.
Basically eight frames surround video.
Camera surround video.
And then <unk>.
<unk> got a label.
Basically everything in that in that video.
Stupid and then train against that and have those neural net operate the car.
No.
Sure.
This is coming from the past, where we would label.
That would be.
Single camera single frame.
No no video and not combining the cameras.
And then we went from a single frameworks.
Single frame or period of time, one camera at a time.
And that's to surround camera.
That's what I would look at all.
Alright cameras, but only one frame at a time.
And now to where we include the time dimension.
And that's about it so.
It really just see this as a question of getting work done we're getting it done and you can see the results in the rapidly improving FSP betas that are at least.
We're also going to be expanding the FSB XD beta itself to include more and more people.
So from my standpoint, it looks.
Very clear and obvious path towards.
Vehicle that will drive.
No.
Harvest is safer than a person.
Yes, I really don't see any obstacles here.
Yeah.
Yes. Thank you.
Thank you and the second question from institutional as does Tesla plan or expect to license any of its software applications FSD and auto bidder in particular to third party Oems.
I think we're very open to licensing our software to.
To third parties.
And we've had some.
Preliminary discussions about licensing or other pilots to other Oems so.
This is something where we're more than happy to do.
And.
But I think obviously, we would like we need to probably be a little bit more work to prove that.
Autopilot is capable of full self driving which.
Cause I think will become obviously there this year.
And then we're more than happy to.
Absent that to other car companies, we're definitely not trying to keep it.
To be a tesla exclusive situations.
And.
I think it's probably the same goes for order butter, where I'm Stuart as much of that order Peter but.
The Tesla philosophy is definitely not to create walled gardens.
We're going to allow other companies to use our supercharger networks.
And okay.
Our.
Autonomy software in order to better than perhaps other things.
Would be fine too.
Thank you.
The next question is key differences in product customer preferences, FSC strategy between China, and the rest of the world do.
Do we need to do things differently to win the Chinese EV market.
Where we currently are winning where currently the leader in the Chinese EV market. So.
Yes.
Yes.
You must be doing something right, it's where the vessel Inc.
Electric car in China.
That said a very few of them.
Customers in China, Inc.
It may be as low as one or 2% actually it helps the FSD option. This is much lower than rest of world.
So.
Yes.
Definitely it to make it work well in China, I think so that works well in China as Ben we will have.
Great for FSP.
Okay.
The customers in China until those in China are among the most discerning in the world.
Okay.
The attention to detail is incredible so.
Yeah.
Yes.
Im confident that they will buy.
<unk> that is worth a long time.
And hopefully that is weighted this year.
Thank you and our next question is is it fair to argue that the best way to think about the company's long term earnings power.
Is tied to profit per unit of battery capacity.
Three terawatt hours targets from battery day implies half of long term battery capacity goes to storage depending on what you assume for pack size on Elon is 20 million vehicle unit coal.
Yes.
It is.
The.
Some of the limit on electric vehicles right now in general is available to you.
Upsells.
What's the output of factory sales.
Gigawatt hours.
And you can't grow faster than that.
Now a tesla.
The efficiency of our programmatically such that you can actually get pretty good range, even with the standard rate that Deepak.
Yes.
And the high projected for model three is pushing those sort of client two hundreds.
And.
So it seems like it's continued improvements.
Get to.
300 mile range with better packaging.
In order to 500 kilometers.
So.
The efficiency improvements in the cloud, but fundamentally.
Growth is dependent on.
So the production.
<unk>.
There's obviously a lot of other other companies that want that have the need for sales. So that the reason Tesla is doing.
Its own cell production and in order to accelerate the growth.
It is not it is not.
To make less use of our cell suppliers in fact, I want to be really clear Tesla wants it.
The increase price.
Those from sales suppliers, and we've been very clear with our sell suppliers.
What would be CACI or pass on a core.
LG that we will take as many factories as they can produce.
So and we urge them to increase their production.
And we will buy as much as they can send to us.
I also think that there are some cash.
And from that because of the cars will need to be affordable.
I'm, just trying to be as clear as possible that our goal with may.
Making our own sales is not to just.
Intermediate our suppliers it is to supplement our suppliers.
One of our suppliers of sales to increase their production and.
And in addition to have our production that is simply taking up the announced beyond which they are.
Either unable or unwilling to increase their production.
So.
It's an acceleration over and above work.
The most that our suppliers say they can produce for us.
And so.
Probably.
Since the <unk>.
Output.
As vehicle output.
The and then.
Okay.
Probably the broad brush stroke value of Tesla.
It's just what's the sell off but that's the price vehicle output and then at least double that for.
Autonomy autonomy revenue.
While at one level.
And that's how you figure out the value of the company I think Walter.
Thank you very much. The next question was about 46, 80 sales, which we already covered in the retail section of this call.
So let's go straight to the last question from institutional investors, which is where are you in cyber truck development. What are your expectations for cyber truck deliveries in 2021.
So we're finished.
Almost all of these other truck.
Engineering, So we're no longer iterating at the design center level.
Or design level, we've got the bias fixed.
We are.
<unk>.
Getting to.
Well to in order to be a corporate necessary to make the cyber truck work, we're actually going to be using even a bigger casting machines for the rear body of cytosorb because your growth.
It's a bigger vehicle and go it alone.
This growth for lot of load so it will be using an 8000 tonne capital request.
Or that everybody Kathy posted six non core model y.
So that was the biggest path to first of all 8000 ton.
Yeah.
At a bit bigger than that.
And.
I think standard incredible vehicle.
If we get Lucky, we'll we'll be able to do a pure deliveries towards the end of this year.
I expect volume production to be in 2022.
Thank you very much and now we can start with questions in the.
In the Q.
Thank you our first question will come from Colin Rusch with Oppenheimer. Please go ahead.
Thanks, So much guys can you talk a little bit about the regulatory environment for FSD and how youre seeing that play out obviously.
As it is a moving target right now and you guys are really in a way here, but would love to understand how those conversations are going to and how you see that impacting the rollout of SSD.
Balance of this year and into next year.
Okay.
To that Jordan.
Sandra.
Okay.
But what we're seeing right now in the U S. For example is.
Pretty dynamic space, but it's overall non particularly limiting on a rule basis, but what we're going to expect us to have to work with regulators to demonstrate really really high reliability as Elon said before.
The rest of the world is fairly dynamic in Europe, we see a general slowdown generally not reaching past.
Level three right now with some impetus to start working on your working groups to reach past that in China has shown an interest in working on level four or even level. Five later this year. So we expect a pretty dynamic 2021 in the regulatory space with leadership in the U S. Looking for manufacturers to demonstrate really good.
<unk> and really high reliability before releasing two wider and wider groups.
Yeah.
Thanks, guys and then just a quick follow up around inflation on some of the materials markets. Obviously, there's a lot going on as low interest rates flow through or the best materials space can you talk a little bit of that.
Apply chain and how youre mitigating some of your exposure around some of your raw material costs.
And this is Jerome for.
Our supply chain. The first priority now is to deal with the disruptions from Covid and shipping in particular.
In boats and between Asia, and North America.
But we're also looking forward to pricing in Washington was very close to you for all the components.
We are entering a series of long term agreements.
With preferred suppliers to ensure that non youre going to have enough quantity to support the growth 50% CAGR.
Zach mentioned earlier, but also a good pricing with appropriate sharing other risks.
Thank you. Our next question will come from Dan Levy with Credit Suisse. Please go ahead.
Hi.
Good evening. Thank you.
Two questions.
One on 'twenty, one and just.
One on capital.
First on 'twenty, one any expectations for what we should see on regulatory credit sales and then the second question is on capital obviously, you've raised a lot of capital in 2020, what should we think about the use of those funds beyond just covering some of their charities and can you just give us a sense of what the elevated liquidity doesn't doesn't buy meaning.
To what extent does elevated capital enable you to accelerate plans on building capacity are expanding growth vertical integration accelerating tiny on full stop drive features.
Thank.
Thank you.
Yeah.
Yes.
Sure on the regulatory and credit sales side.
This is an always an area that's extremely difficult for us to forecast.
2020, regulatory credit sales ended up being higher than expectations.
And.
It's difficult to give guidance on that I mean, what I.
I've said before is that.
In the long term regulatory credit sales.
It will not be a material part of the business and we don't plan the business around that it's.
Possible that for a handful of additional quarters it remains strong it.
It's also possible that it is not.
Most of our regulatory credit revenue from Q4.
Well, it's not lined up prior to the beginning of the quarter and these were discrete deals that were struck over the course of the quarter.
So I wish I could give you more on the standard anticipates, that's extraordinarily difficult for us to forecast.
On the second side with respect to capital.
A couple of things that we're thinking through there.
So as I mentioned in my opening remarks that reduction is an important thing that we're focused on now.
Early conversions. These are things, we don't have a choice.
We did around $2 billion of that in Q4. We currently have $1 4 billion that we expect to go out in Q1 as a result of early conversions our conversion time.
The convertible debt.
That number may increase and so debt reduction is important that's helpful in interest expense as well.
We are also using the money with respect to our investments in future capacity and so what we're able to do now that we haven't had the opportunity to do in the past.
As we are building capacity, particularly in Austin in Berlin, we can build that capacity with the expectation of what the end state of capacity will be pulling forward some of those investments rather than incrementally adding capacity as we go along.
And so this is an important part in terms of capital efficiency that we havent had the luxury to do in the past and it's great to be able to have the liquidity to focus on that.
And then more broadly as Jerome was touching on.
Service expansion, it's really important to the future strategy of the company.
As you saw in our Q4 numbers the expansion of service centers and mobile service from Q3 to Q4 increased quite a bit and was also quite a bit higher than the first part of the year.
Now to make investments there and also in the Supercharging network to get ahead of future demand, which will cost us more in the near term, but is what the right long term thing is for our customers and the company.
Thank you. Our next question will come from Alex Potter with Piper Sandler. Please go ahead.
Great. Thanks.
I was wondering you mentioned, how you'd like to increase your purchases.
From suppliers does this require them to also have the capability to build structural 46 80 sales of the sort that you are putting in.
Yes.
Newer iterations of vehicles.
No it does not.
Although we are talking with them about making them to 46 eight form factor.
It is not required.
For example, b.
The U S.
S. Currently uses the 18 650 <unk> Becker.
So that's just a more advanced so.
And we think we will continue to use that form factor for at least.
A few years.
But we will over time be retiring the form factors and frankly observed consistent form factor so.
But it is not a requirement.
Based upon our suppliers because it would.
Resulting in fewer sales so it's better for us to deal with the complexity of different cell phone factors, then insist on a sustainable factor for us as players today. It makes it over time it will make sense to have a consistent bolt Becker.
Okay makes sense and then one additional maybe qualitative question on capacity expansion you've mentioned in the past.
Access to dollars is one thing, but access to human beings that are sufficiently qualified is another.
Have you run up against any issues on that front that would potentially limit your growth in any way.
But that is one other things that want us to focus.
Yes.
The growth rate it doesn't limit the ultimate size of that limit the growth rate, which is what's the rate at which we can onboard.
Great people and get them trained and.
In the right areas.
You saw at.
Instantaneously, if you've got a factory that has 20.
You can't you can't just hire 20 people instantly.
They're really doing something else so they've got a transition point, where they were doing or move from some other part of the country.
And so there is certain amount of time required for that.
Okay.
We do think.
That.
We can maintain a.
Our growth rate in excess of 50%.
Sure.
For many years to come.
And.
Victor.
Yes.
Could you say you for many years to come.
Okay.
I think this year, we may attract a fair bit above 50%, but we don't commit to that.
That's what it would appear in the same again next year.
It appears to be meaningfully above 50%.
Okay.
Thank you for your question will come from Joseph Spak with RBC capital markets. Please go ahead.
Yes.
Thanks.
Back in 2018, you tweeted about electric vans and how it can be interesting to work with with Daimler on the Springer and we haven't really heard any of anything sense, but in the meantime, we've seen a lot of activity and other electric van and last mile space from a number of established players are startups.
So I know you seem to give a lot of projects on the table, but can you provide us an update of your thoughts on this market and is that something you're interested in.
I think Teva is definitely gonna make an electric Ben at some point. So thank you bear in mind is that there is fundamentally a constraint on battery cell output.
Sure.
Yeah.
It's Scott.
If you reported a moderate growth in manufacturing, it's really hard to appreciate just how hard the scale productions the hardest thing.
Prototypes are easy scaling production is very hard.
So.
Yeah.
A big part of the reason for the.
The main reason we have not accelerated.
New products.
Is it like for example, Tesla semi is that we simply don't have enough sales growth.
We can.
If we were to make the semi.
Right now.
Which we could eat where could easily too.
Flexible to semi.
We don't have enough sales growth right now.
We will have sales group and ourselves with semi when we were producing.
The total of 46 ATM volume.
But for example, semi would use typically five times to sell a number of sales that Howard Hughes.
But it would not sell four five times, what a car would sell force so.
It kind of doesn't make.
That makes sense for us to do to semi right now, but it will absolutely makes sense what Stuart as soon as we can.
Address the salt production constraints, let's say would go for that.
Okay. Thank you and then maybe if I could dig into your pass on one more item about two years ago at the autonomy day, you stated that youre working on the Nextgen Tesla chip, which was about two years away. So is there any update on that day.
Yes to be clear we are still not.
The software sales is not fully.
Use the capabilities of <unk>.
FSC.
Whereas in one computer.
It is really just incredibly powerful computer.
And I have.
Im personally certain that you can accrete wholesale pricing.
With the safety of our products also reported.
Just using private players want to come here.
The version two we expect to be about.
Three times is powerful.
Sure.
And Bruce.
Moving to be paired with.
High resolution cameras.
And so it's quite a it could require a bunch of day to change simultaneously.
But we have not been rushing with version two of the chip, it's coming along well.
But.
So as we can achieve the Cobra driving with the current system.
It would actually be a distraction right now if we were to introduce the full self driving.
What type of MLP Chuck here.
Because.
It would put us back quite a bit on software.
Software as the critical path.
<unk>.
Total product.
So it's I wouldn't worry too much about that.
That's not a.
But that's nothing.
That's an improvement, but not a game changer, whereas before.
Okay.
Getting the software to work and get it.
And all the neural nets.
<unk> video.
That's the good day here.
Thank you. Our next question will come from Emmanuel Rosner with Deutsche Bank. Please go ahead.
Thank you very much.
First question is about your Inc.
So manufacturing efforts day in addition to building up capacity.
The goals you highlighted with true cuts the pricing or the cost by about 50% what was the range by about 50% over a number of years. So wanted to know if your initial efforts are.
Trending in that direction, what is sort of like the timeline to achieve these goals and may be related to this.
Are you thinking about the timeline for the cheaper that's allowed the entry model eventually.
I think we feel very confident about achieving those targets, let's say over.
A three year timeframe.
Drew.
It's not like year one.
So maybe for you guys to give ourselves a little room.
For three or four years I would say yes.
We put together the trajectory in the battery day.
We're on that trajectory still I think that that's probably the best reference for the cost trajectory that we are on them.
Yeah.
We're aspiring to do better than what was that.
And then a battery day.
Sure.
We are confident of at least for doing what we presented at battery day.
Thank you. Our next question will come from Ben <unk> with Baird. Please go ahead.
Hey, guys.
Congrats to the whole team.
So we're.
<unk> worked hard to put together all the bread crumbs, if I remember correctly going back.
10 years.
You talked about what you have mass market cost growth that you had stepped down.
Seo.
Cheap architect.
And then we have.
You go into Hawaii.
Larry.
Yes.
X dot com.
I'm trying to put it altogether.
There's a lot of questions there.
Thank you.
Sure.
Well.
I expect two Bcf Tesla for Jeff.
Several years so.
Yeah.
I think there's still a lot of time Super excited about doing and.
And I think it would be hard to.
Leave all of these.
Great project half weighted who will highlight partway down.
So.
Do you expect to be around company.
For years into the future.
Obviously.
Nobody is or should be CEO forever.
So.
Unexpectedly.
The sheer amount of work required to be CEO of Tesla is insane.
And.
No.
I think it'd probably more I definitely do more technical work than is typical force so.
It would be nice to have a bit more free time on my hands.
As opposed to just working day and night.
From when I wake up to go to when I go to sleep seven days a week screening tests.
So.
But I think the mission isn't over yet.
And we still got a long way to go before we.
Can really make a dent in the world.
Accelerating the advent of sustainable energy.
The goal of Tesla from beginning has been to accelerate.
Alright.
Accelerated sustainable energy and.
But if you say like what percentage of cars on the road or electric today. So.
Very very tiny like an order of 1% or less.
Less than one percentage of total fleet worldwide.
So that's a hell of a long way to go for.
On the order of 1% of the fleet is electric.
So also a tremendous way to go on solar power, although it's exciting to Cvs.
The advent of <unk>.
Very cost competitive wind and solar and geothermal.
And then of course, we need a large volume of stationary battery packs I mean basically in the third.
I mean, the three legs of a sustainable energy future our.
Sustainable energy generation wildfire.
Solar wind geothermal and hydro and a few others.
And I'm actually not against.
Nuclear fission I actually think nuclear business.
With a well designed reactor in a situation that is not subject to.
Bad weather or seriously bad weather is actually it is a good thing to do so.
And then but then the second thing you need is in stationary storage batteries because.
Sure.
Renewable energy is intermittent it doesn't the wind doesn't blow all the time the Sun doesn't shine all the time, so you need a lot of batteries.
No you need electric transport Hey, Jeff.
Those three things, we've got a very bright future with respect to <unk>.
Energy and the environment.
No.
So long way to go on that and so.
So.
You know very much fired up to work on that.
Fantastic and let's take the last question. Please. Thank you. Our last question will come from gene Munster with Loup Ventures. Please go ahead.
I was happy to see the update on the timing of semi net a couple of related questions first.
Semi trucks typically travel predictable highway miles with Tesla that may be the first to achieve full autonomy.
I think that's quite likely yes.
Fan-tan, yes, I can't imagine I'm, not sure who would be number two but yeah.
Highly likelihood.
Okay, and then Mike.
The next time park numbers on the Assembly.
The Tesla cars.
<unk>.
Yes.
That's true.
Yes.
As it is we need to modify the.
Private has suffered calamitous change for <unk>.
Other pilot.
Also driving.
Because it means slower.
Model three model Y model extra one less.
And so this is we just to inform and formed a vehicle and format.
Full self driving brain that it is now in a semi truck.
Uh huh.
Would it need to be retrained, then as part of that.
No.
I think there will be that you'll have a different control functions. Because there are tons that you could do in a regular car that you cannot do in a semi like you don't want it.
You don't try to parallel park this thing and its Dan.
On the street in Sydney.
[laughter].
Hello, its limitations.
Very much on track.
Makes sense.
My question was related to if you could just help explain why battery electric will win.
Wind versus hydrogen sales fuel tech.
Yes, I mean honestly I had this question a million times four just for regular vehicles, even back in the early roadster days, even before we had the Roche route people were saying.
But somehow hydrogen is going to be.
A better means of energy storage.
In a car then.
Batteries and I was like.
This is just really not the case.
Hydrogen is a very it's I'm one of the periodic periodic table, it's got very low density.
It's.
Good low density is a liquid like styrofoam level density liquid and then Tony illiquid very close to absolute zero. So you have to have a.
It's really not realistic.
But as liquid you want to have it as a high pressure gas that has even Florida. So you need a gigantic fuel tank.
Volumetric way and that's got to be very high pressure.
It was a big fan, yes basically.
If somebody was going to say using the ultimate.
Chemical and energy storage mechanism to hydrogen I'd say issues propane or something like that or methane, but those will be way better than hydrogen.
And then having it be a fuel so I'll just add.
The other complications with situations, it's just crazy basically.
And it will.
Extremely confident that we could do a long range trucking with.
With batteries.
The amount of it.
Looks out.
If you could just like take.
So what else per kilogram of.
Currently available sales and say okay.
Hi, Mike.
What rate would you need to go with say 500 miles.
And.
To what degree does that affect your payload on psych, Okay to do this if you do it right you basically have no effect on your payload or almost nothing.
And you can have a long way truck drove Joanna.
No I agree.
And.
Where she also an increase on the regeneration of trucks.
And I think it will be perfect.
And that's non semi would be perfect for it yet.
And I'm very I'm looking forward to having some additional ones on the road very soon.
But basically we did not see any.
Issues with creating a compelling long range truck with batteries.
But apart from that farm yourselves, so Patrick also going to be the only thing.
So why is that.
Yeah.
And going to be awesome.
Yeah.
Alright, Thank you very much and unfortunately, that's all the time, we have today. So thanks for all of your great questions and we will speak to you again in about three months.
Thanks, a lot.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].