Q1 2021 Tesla Inc Earnings Call
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And pardon me and they said the operator our conference will begin momentarily. Thank you for your patience. Please continue to standby.
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Good day, ladies and gentlemen, and thank you for standing by and welcome to the Tesla first quarter 2021 results and Q&A website. At this time all participants are in a listen only mode. After the presentation. There will be a question and answer session.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I will now hand, the conference over to your Speaker today, Martin, India got senior director of Investor Relations.
And thank you Carmen and good afternoon, everyone and welcome to Tesla first quarter 2021, and Q&A webcast.
And today by Elon Musk, Zachary Curt corn, and a number of other executives and our Q1 results were announced at about one P. M Pacific time, and the updated 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 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 press star one now if you would like to join the question queue.
But before we jump into Q&A Elon has some opening remarks Elon.
Great. Thank you.
So.
Q1, 2021 was a record quarter on many levels at Tesla achieved.
Record production and deliveries and surpassed $1 billion and not.
Non-GAAP net income for the first time.
And we've seen a real shift and customer perception of electric vehicles.
And our demand is the best we've ever seen so this is.
Youre talking like we're used to seeing a reduction in demand and the first quarter.
And we saw an increase in demand.
And that's about it that exceeded the normal seasonal reduction in demand and Q1.
So.
Model three became the best selling midsized Premiss Dan.
And the woman that I should be the best selling <unk>.
A luxury sedan of any kind and the world.
So BMW three series was trivalent and sign the best selling premium sedan, it's been exceeded by the Tesla model three.
And this is only three and half years into production and with just two factories.
For model.
Model III and.
And selling its combustion engine competitors I think that's quite remarkable.
And the past couple of quarters, we delivered roughly.
Roughly a quarter million model III so.
Which translates to an annualized rates of $5 million per year.
When it comes to model Y, we think model Y will be the best selling car will vehicle of anytime and the world.
Okay.
And probably next year so.
Yes.
I'm not 100% certain net sure, but I think it's quite.
Quite likely I'd say more likely than not that in 2022 model why is the best selling a car or truck or anytime and from a world.
Dan.
And with regard to full self driving full self driving and continues to make great progress.
This is definitely one of the I think one of the.
The hardest technical problems.
And that exists that's maybe ever existed.
And.
Really.
Order to solve it.
We basically need to sold a significant.
Part of.
And of artificial intelligence.
Politically and real world artificial intelligence.
And that's that.
Yes.
And sort of AI.
And the compressed and too.
Fairly small computer very fresh and computer that were designed but nonetheless.
Welcome to you that's using on the order of 70 to 80 watts.
So this is.
And much hotter, Paul and Ben if you what do you say.
10000, and computer science, and a server and or something like that.
Got it.
<unk>.
A smaller spring.
Yes.
And this.
I think with the elimination of radar.
And finally getting rid of one of the last.
Sure.
Clutches and radar was really.
It was making up for some of the shortfalls division, but this is not good you actually just need provisions work.
And works it works.
And it works better than the best team.
It's like having eight cameras.
It's like having eyes and the back of your head Besides you had and.
And three is a different focal business was looking forward.
This is.
Yes.
And processing it at a speed that is super helpful.
Does it.
There's no question from I bet.
With the provision solution, we can make a car that is dramatically safer than.
And the average question.
So.
But it is a hard problem because we are actually solving.
So and quite fundamental about artificial intelligence.
And with base.
We have to solve real world vision.
Hi.
And we are so.
And key to solve and this is also having just a massive dataset. So.
And just having.
Well over 1 million cars on the road.
And we're collecting data from.
Barry.
Sort of a corner case rare situations.
Yes, it's sort of like data.
So many where things and world acted with the bucket.
Truck and carrying a truck.
Or.
And.
And.
A car with a clinic.
One example is the card and the actual example, a car with a kayak on the roof, where the kayak has a little.
A little weight dangling from the funds and the kayak and front of the car.
And.
And the Karma ignore this.
And.
Just look at the load.
So.
It's really quite quite tricky.
But.
And I'm highly confident that we will get this done.
So.
Yes.
This quarter and I think we'll continue to see that a little bit and Q2 in Q3.
Yeah.
So Q1 was.
Hudson and the most difficult supply chain challenges that we've ever experienced and glad to Tesla.
And same physical.
<unk>, which was.
Quite changed.
And what parts of over the whole range of parts.
And obviously people have heard about the with the chip shortage.
This is a huge problem.
But then in addition to that for example.
And quite a bit of difficulty scaling.
<unk>.
And your production and China.
Because we are unable to get clinical engineers, there because of COVID-19 quarantine restrictions so.
Which meant that Tesla worldwide was dependent on driving ex.
Made at our factory and Nevada, Nevada.
So that was a very challenging situation I think we are.
Mostly out of that particular.
Okay.
And I was just two of many challenges so it seems really good.
Don and incredible job scaling.
Dealing with.
And really severe supply chain shortages.
So with respect to the model S and X.
The most.
A more challenging than expected.
And.
Dropping b.
Plaid model and what's called the Palladium program.
But can you version of model S and X, which has revised and tier.
And a new battery pack and May drive units.
And new internal electronics.
And as for example.
Playstation five level.
Infotainment system.
So just to.
A lot of lot of issues from counted.
And showing that the new factory with what sort.
The percentage was quite hard and more.
And a smaller case.
And.
It took quite a bit of.
Scott.
Development to ensure that the battery and U S.
Thanks.
Okay.
And then we're trying to go with it.
And the cars slowly.
For the past few months.
We're just backing them up in the yard and.
And just making refinements to the cars that we felt.
And we do expect.
Two ramps model S production, and I'll talk delivering and probably.
And next month.
So.
Sure.
And then to be and.
Sort of.
Fairly high volume production.
And Q3.
And such and delivering model X and Q3 as well.
So.
I think.
And we ramp up I think probably been and that for the new Sx will be quite high.
And so should.
And so really just from your question ramping supply chain and internal production processes.
Probably.
We like what we're going to aim to produce over 2000 and.
<unk> per week.
Perhaps.
And if we get lucky upwards of 2400 2500.
This again is contingent on global supply chain issues, which a lot of factors outside of our control here.
And I do think these things will get sold so it's just a matter of time and then we will be doing well into 2000 and extra week.
It's a great car.
And can actually cost us less to produce a little bit less to produce.
But it is a superior product.
So in conclusion, yes.
A lot to be excited about in 2020 one from 'twenty two.
And.
And we're building factories as quickly as quickly as we can.
Both Texas, and Illinois are progressing well and we.
To have.
Initial limited production.
From those factories this year and.
And volume production from Texas, and Glenn next year.
And we are continuing to ramp production of model y and pretty much and <unk>.
Shanghai.
And in the background, we're continuing work development work on the.
Semi cyber truck.
<unk> and other products.
Uh huh.
Thanks to everyone at Tesla, who made us here.
And your success.
Now onto questions.
Thank you very much we have some remarks from Zachary Curt garner as well okay.
Yes, thanks, Brian Thanks, Elon, so congratulations to the Tesla team and breaking multiple records in the first quarter of 'twenty. One as Elon has mentioned, which is typically the most difficult a year from any reasons.
And as the quarter I think it is best understood by three key items.
First we successfully launched and began the ramp of model Y and Shanghai, achieving positive gross margin and the first quarter production and receiving great reception from the market.
Second as Elon mentioned, although we began the production process from the model S. During the quarter.
Not yet begun customer deliveries.
The reduction and model S and X deliveries from Q4 to Q1, where a meaningful headwind to free cash flows and profit generation for.
For example, we incurred an estimated $200 million of direct P&L impact relating to this program and Q1 and the majority of which is reflected in Cogs and thats before even considering the impact of lost revenue and profits as a result of the transition.
And as he mentioned as Elon mentioned, we expect the first deliveries to begin shortly.
Third as we continue to work through the instability of the global supply chain, particularly around selling of doctors and port capacities.
And one of the Tesla team and partnership with our suppliers did tremendous work keeping our factories running we did experience high expedite costs in the quarter and they were also higher than they were in Q4 with some minor interruptions to production over the course of the quarter.
We believe that this landscape is improving but it does remain difficult and it's an evolving situation.
And if we double click with.
Net income.
Auto gross margin excluding credits improved sequentially and year over year. This is in spite of the costs mentioned for S and X and Expedites and a reduction and global Asps.
As our cost structure as a company is reducing and even faster pace.
So as we look out over the course of the year and we feel optimistic about our gross margin strength.
Particularly as some of these headwinds were experiencing start to be resolved.
On services and other margin. These have recovered and are trending towards profitability aided by strength and the used car business.
Operational improvements and service and additional service revenue opportunities that help absorb fixed overhead.
On energy gross margins. These remains negative for our second quarter and this is driven by solar roof related ramp costs and winter seasonality and the lease PPA business.
We continue to manage through a multi quarter backlog on parallel.
We're working as fast as we can to increase production and this will aid and profitability of this business as those volumes increase.
On operating expenses. These increased for Q1, which is driven by our investments and technology and growth in particular for R&D and this concludes the structural battery pack and 46 80 cells.
Investments and the new Afton ex.
And our neural net and silicon investments.
On the SG&A side, we're setting up infrastructure and support for both China, and EMEA and in anticipation of volume to come there and.
And as I said before our plan show that we remain on track for sustained industry, leading operating margin.
Double clicking on on cash flows we continue to generate positive free cash flows and this was despite the significant working capital headwinds from FX.
Additionally, we are making progress reducing and various forms of debt.
We also invested $1 5 billion and bitcoin during the quarter, then trimmed our position by 10%, which contributed to a small gain and our Q1 financials taking.
Taking a step back we've generated 8 billion and operating cash flow and $4 billion and free cash flow over the past four quarters.
As we look forward.
Our plans remain unchanged for long term growth of 50% annually and we believe we're on track to exceed that this year as we guided to last quarter.
Global demand remains meaningfully higher than production levels, and so we're driving and as fast as we can to increase our production rates.
And as we think about Q2 and Q3 this quarter should largely be driven by execution on S and X as we've discussed continued ramp up model y and Shanghai and the associated cost reductions of these programs.
And we expect the profitability and cash generation until fall off over the course of the year in line with those improvements.
And then as we get towards the end of the year, our story will pivot towards the launch and ramp of our newest factories and Austin and Berlin.
So there's certainly no shortage of exciting things for us to work on and look forward to thank you and we'll open it up for questions.
Thank you very much and we will first day retail questions from say website.
Our first question is how is dojo coming along could dojo unlock and AWS like business line for Tesla over the next few years.
Yeah I'll jump in here, So you know what.
With respect to Jonathan.
Great.
Ladies and I was wondering.
Oh go ahead Elon.
So.
Yes, so basically you're saying that.
B.
Like right now people think of Tesla has.
We will make Tesla car company, or perhaps and energy company.
Long term people will think of Tesla.
As much as.
And AI Robotics company as we are a car company or an energy company.
I think we are developing.
One of the strongest hardware and software AI teams and the world.
So I mean, we are prepared to be able to choose.
Things with full self driving that others cannot.
Sure.
And if you look at the evolution of.
And what technologies Redeveloped redevelop.
And we develop them and in order to solve the problem of self driving so.
We.
If we can find powerful enough neural net and furniture.
Computer so we designed and.
And both are on.
The.
The software out there was.
And with.
And really quite primitive towards this task and so we.
Both the team from scratch.
And.
And have been developing what we think is probably the most advanced real world AI and the world.
And then it sort of makes sense. If this is kind of what needs to happen because the road system is designed.
Four.
And neural net computer outbreak, our brands and neural net computer.
And it's the auto.
And as high road system designed for vision with neuro and within neuro and that computer which is.
Because it is and the brain.
And so if you have a system, which has very good eyes.
And you can see and all directions at once and see three focal points.
<unk>.
But it never gets tired.
So texting.
It has redundancy.
And its reaction time is superhuman Ben.
It seems pretty obvious that that such a system.
Achieve and extremely high level of safety bar and access.
The average question.
So.
And that's what we're doing.
And then do Joe is kind of the training part of that so.
Because we have.
Over a million and cars and.
And perhaps.
And next year, we'll have 2 million cars and active use.
Providing.
The vast amounts of video training data.
And needs to be digested.
And a very powerful training system.
<unk>.
We use.
And as Tesla training software a lot of we dropped a lot of training software.
A lot of labeling software too.
Channel to do.
Surround video labeling.
And quite tricky.
This means all eight cameras simultaneously and 36 frames a second per camera.
Alright.
And labeling video over time.
There wasn't any tool that existed.
Developed our own labeling tool Ben.
Taking a step further obviously.
And the Holy Grail is auto lately.
So now we're getting quite good at auto lately.
Where we do we do.
Where.
But the trainers train the training system and.
And then the system auto labels.
Data and.
And.
The global human Labor, it's just need to look at the labeling to confirm that it is correct and perhaps make edits and then every time and editors made that further trains the system. So it's kind of like a flywheel spinning up.
And really the only way to do this with vast amounts of video data.
So and then we need to train this.
<unk>.
And so Georgia is really a.
And as a supercomputer optimized for neuro and that training.
Yeah.
We think so Joe will be.
Probably an order of magnitude.
More efficient.
On a same question.
Exact metric, but say framework video.
We think it'll be and order of magnitude more cost efficient and hardware.
And again.
Energy usage.
Frame and video compared to a GPU based solution compared to the next best solution that we're aware of.
So.
And then possibly that could be used by others.
It does seem as though over time.
And observation I think the fact that.
And.
Neural net based computing or.
No.
AI based computing.
As more and more of the compute stack.
Conventional computing and apps.
Perhaps heuristics.
And.
Thanks.
Computing.
And is.
I'm not going to be important selling them at very important.
But it will become.
And that will become a bigger and bigger portion of it.
Of compute.
Alright.
That's a long story, but.
I think probably others will want to use it too and.
And we'll make it available.
Thank you very much and let's go through the second question from retail investors and the recent price changes on solar roof has been discouraging for customers and investors could you just share more about solar roof challenges and is.
And the outlook.
It has changed at all.
Roofs per week.
Right.
Yes first of all I should say.
The demand from the solar roof remains strong so despite.
Raising the price and Amanda so.
Significantly in excess of our ability to.
And to meet the demand to install be soldiers. So production is going fine.
We are charged at the inflation point.
We did find that we basically made some significant.
Mistakes and.
And assessing the difficulty of certain routes, but the complexity of Bruce varies dramatically some roofs or it can be literally two or three times and easier than others.
And so you just can't have a one size fits all situations.
And the roof has letter protuberances.
Or throughput or if the roof.
Sort of.
Core structure of the roofs.
Is.
And it's brought it out or is it not strong enough to hold the solar roof.
Ben.
The cost can be it can be double sometimes three times, what we bought.
Our initial quotes for them.
So and.
And those cases Mercury, obviously opt to do is to <unk>.
Refund customers their deposits.
Okay.
And.
Hi.
Cannot do is go in and.
And just lose a massive amount of money.
We just got to provide a refund of the deposits.
Hi.
But perhaps from what is.
I think most important about the solar and situational prescribe accreted about.
This past week.
Is that.
Shifting.
The whole.
The whole sort of solar.
Situations, where the solar power will basically solar plus battery situations to there's only one product basically.
There's only one gigawatt one configuration.
Every house.
We will not sell a house solar without parallel.
That's all it could either be solar retrofit with conventional panels put on a route or.
It can be the Tesla solar glass roof.
But in all cases and have the Powell two great businesses.
It's actually a powerful two plus if you will.
The deposits refers to a higher peak power capability.
So.
Basically it will parallel made since roughly and a member of last year.
<unk>.
A lot more Pete how capable are you Ben.
And then Ben.
And the specification on the website.
Deborah about twice.
Yes.
And the pocket body, roughly expenses and how you count power, but.
And about twice the price at the peak power and.
Goodbye.
Arguably twice a day.
The steady state power of the specification of the website.
And the energy at the same but the powers.
And the double.
Sure.
And.
Old installations and so on.
And installations will have Powell.
And Pete.
And the difficult with the installation.
<unk>, Inc. The difficulty.
The inflation.
And if you will be much less it'll be much easier.
<unk>.
And the.
Power from this from the solar roof solar glass roof or the soul.
Solar panels will only ever go.
Directly and to the power wall.
And the power wall.
We ever go between the utility means between the utility.
And the main power panel of house.
Which means you'll never need to touch the main circuit breakers of the house you Didnt have any day touched the house circuit breakers effectively almost every house therefore, it looks the same electrically.
Instead of being a unique work of art.
And requiring.
And exceptional.
Ability to rewire the main panel.
So.
This is extremely important for scalability as the only way to do it really.
And this also means that every day.
Solar power wall installation.
And that the house or apartment, what are the case might be.
We'll be we'll be at all and you Tony and.
So even if all light Scott and the neighborhood, you will still and power.
So that gives people energy security.
And we can also and working with the utilities.
Use the power walls.
Two.
Stabilize the overall grid.
And let's say it does.
A bucket there was and Texas there was there was.
A peak power and that and that peak power demand because the grid.
Lack the ability to buffer the power.
That's a shutdown and power.
There is no power and those.
And storage.
No good point housewares, however, with how much power walls and houses.
We can actually buffer that.
The power so.
So if.
And if the grid needs more power, we can actually Ben.
With the consent, obviously of the homeowner and the spin.
And in partnership with a utility.
We can then actually.
Released power onto the grid.
To take care of.
Pete power demands.
So effectively the power <unk> can operate as a giant distributor utility.
This is profound and I'm not sure how and you will actually understand this.
Extremely profound and and necessary because we are headed towards a world where.
You guys were just talking about earlier, where people are moving towards electric vehicles.
This will mean that the power needs.
And.
At homes and businesses will increase significantly.
They will need to be a bunch of electricity coming somewhere.
And in fact, if you go to a fully renewed renewable electricity.
About three times as much electricity as we currently have.
And so.
These are rough numbers, but roughly twice a day.
Roughly twice as much electricity.
And the Cripple transport goes electric and they need three times as much electricity or heating gross electric.
So basically this is a prosperous future.
And both for for Tesla and for the utilities.
Because.
And in fact, I guess this will be volume.
And this is knockdown utilities will fail to serve their customers they won't be able to do it.
It won't be able to react faster.
And we're going to see more and more.
We see so and California and Texas.
Okay.
C and brownouts, and blackouts and not being able to respond because.
And there's a massive change going on with the transition to electric transport and we're seeing more extreme weather events. This is a recipe for disaster.
So it was very important to <unk>.
Solar and batteries at the auto.
At the local level at the house and.
In addition, it is important to have.
Large battery storage at the utility level.
So that.
Solar and wind, which are the main forms of renewable electricity.
It can be that electricity can be storage, because sometimes the windows and flow.
What.
Sometimes Boston and Washington Times, and then why not.
But if you have a battery you can store the energy and provide energy to the grid at.
And the same goes for solar because obviously, it's not just China and.
Sometimes it is very cloudy and so.
By having a.
Battery storage paired with solar and wind.
The long term solution to a sustainable energy future.
And as I said, especially weak and you start for both at the local level.
And at the utility level.
But if it doesn't that correctly at the local level, what will actually be required a massive increase and power lines.
And.
Power plants and sort of I have.
But as long as long distance and local power lines all other place they.
And that will have to increase the size of the substations.
It's a nightmare.
This must occur.
It must be solar plus battery so anyway.
So.
Yeah.
Thank you very much and the next retail question as Master of coin can you tell us anything about Tesla future plans and digital currency space.
And when any such major developments might be revealed.
Sure. Thanks Martin.
And so and as I noted in our opening remarks, and we've announced previously so Tesla.
Dan.
Invest $1 5 billion and to Bitcoin and Q1 and then we subsequently sold 10% stake and that we also allow customers to make them.
And people deposits and final vehicle purchases using bitcoin and.
So where I'm a bitcoin story began and maybe just to share a little of the context here.
And Elon and I were looking for a place to store cash that wasn't being immediately used and.
Trying to get some level of return on this but also preserve liquidity.
And I only as we look forward to the launch of Austin, and Berlin, and uncertainty that's happening with semiconductors and port capacity being able to access our cash very quickly and super important to us right now.
And there arent many traditional opportunities to do this or at least that we found and and talking to others that we could get good feedback on particularly with yields being so low and with.
Without taking on additional risk or sacrificing liquidity and and bitcoin seemed at the time and and so far has proven to be.
A good decision.
A good place to play some of our cash that's not immediately being used for daily operations or maybe not meet until the end of the year.
And being able to get some return on that.
And I think one of the key points that I want to make about our experiences and the digital currency space is that there's a lot of reason to be optimistic here and we're certainly watching it very closely at Tesla.
Watching how the market develops listening to what our customers are saying, but thinking about it from a corporate treasury perspective, we've been quite pleased with how much liquidity there is in and the bitcoin market. So our ability to build our first position happened very quickly.
When we did the sale later in March we also were able to execute on that very quickly and so as we think about kind of global liquidity for the business and risk management and being able to get cash in and out of the markets is something that I think is exceptionally important for us. So.
So we do believe long term and the value decline. So it is our intent to hold what we have long term and continue to accumulate that coin from transactions from our customers as they purchase vehicles.
Specifically with respect to things we may do that.
There are things that we're constantly discussing we're not planning to make any announcements here and we're watching this space closely so when we're ready to make an announcement on this front if there's one to come and we'll certainly let you all know.
Thank you.
And the fourth question from retail investors is.
Thus this will have any practice plans to tackle mainstream etfs eminent and massive and deceptive.
<unk> headline campaigns on safety of auto pilot FSD.
Specialty PR job of some sort.
Yeah.
Oh well.
I'll take this one guys from from the safety side and continue to say.
And Sam do you want it.
Jonathan.
Go ahead Elon.
I think.
Go ahead.
I think it's Joshua worth just going through effects of the.
And what.
Okay.
There were.
And there was article regarding.
And where there.
And those high speed accident and Tesla.
And it was.
Really just.
Im extremely disruptive.
Medium price practices, where it was claimed to be autopilot with us is completely false and those.
<unk> should be ashamed themselves.
Go ahead.
Yes.
Yes, Thanks Elon.
And we're committed to safety and all other designs and Thats number one and what we do here regarding the crash and Houston, specifically, we work directly with.
And the local authorities NTSB and and so wherever applicable and whenever they reach out to us for health and.
Directly on the engineering level and whatever else we can support.
And that vein and we did.
Study with him over the past week to understand what happened and that.
And <unk> crash and what we've learned from that effort was it auto steer did not and could not engage on the road condition that as it was designed.
And our adaptive cruise control only engage when the driver was buckled and about five miles per hour.
And it only accelerated to 30 miles per hour with the distance.
Before the car crashed.
And as well.
Intrusions controlled disengage the cars slowly to complete to stop when the driver's seat belt wasn't buckled drew further investigations and vehicle and the accident remains.
And we inspected the car with NTSB and knits and the local police and we were able to find that the steering or wasn't need to form so they're musk leading to a likelihood that someone was in and trying to drive received at the time of the crash and seatbelts Postcrash were found to be Unbuckled.
We were unable to recover the data from the.
And do the SD card at the time of impact with the local authorities are working on doing that and we await their report.
As I said, we continue to hold safety and a higher garden and and.
And look to improve our products and the future.
Through this kind of data and other information from the field.
Okay.
Thank you very much let's go to the next question from institutional investors and the first question nice proponents of alternative grid storage technologies claimed and lithium ion is unsuited for long term storage at scale due to vampire drain could 46 80 sales.
<unk> addressed this limitation is.
Physical limitations, even relative investing we're charging and the energy and equation.
Uh huh.
Yeah.
Just let me jump in and out with Empire drew yes.
That's definitely not the issue good lithium atom and cell self discharges and 0.00 or 1% of its energy per day. So it.
The Empire and <unk>.
Maybe not exactly Amit.
Yeah.
Okay.
And as met that goes back and buyers.
Yes, I think I think the challenge with seasonal storage is.
Our value proposition drops from hundreds of useful full cycles for that per year and to less than maybe 10, or maybe even less than five cycles per year.
So it's just a different type of technology.
Altogether that would make sense given that it's more than an order and the magnitude different use case.
Yeah.
We've got a long way to go before we're doing with seasonal technology issues.
Certainly a way to deal with seasonal and technology.
It would be too.
Yeah.
And in solar.
Borrowing on the side of it.
More suddenly latitudes.
And and.
And.
Across.
A variety of longitude so essentially.
And the U S. For example, if there was.
I'm not sure if I understand that you could actually powered the entire United States with just sort of a 100, roughly a 100 mile by 100 mile grid of solar.
Sometimes people don't quite understand like or how much solar is needed.
Almost almost nothing of this company.
Yes.
Alright.
It's true of almost any country and the world.
The silver incidents is a gigawatt per square kilometer.
This is insane.
In fact, if you took the clear area.
The area.
We're seeing from nuclear power plants.
That is considered not usable because and your pipeline is there and most cases.
You just put solar there would generate more power and.
And the nuclear power plants.
And because they typically have pretty wide clearer areas.
So.
It really.
And if you have say, 25% efficiency solar panels.
And and.
And then those are 80% proficient and how they laid out youre going to do about 200 megawatts per square kilometer.
And therefore.
Five square kilometres and gigawatt, which might be a typical sort of power plants.
It's really not much.
Area at all.
A lot of places can have wind and solar and place.
So.
Anyway, and it's entirely possible to power all of us with a small percentage.
Area.
And then two.
To transmit that power.
Drew.
And high voltage DC lines, no new technology no no.
And you don't need like.
Room temperature superconductors.
And often another myth.
Room temperature superconductors.
Almost irrelevant in my opinion almost irrelevant.
Low cost long distance power lines using copper.
Our aluminum.
Very important.
So heating is <unk>. So that's current square two types of systems. So as you increase voltage.
You can drop the current dramatically and dropped the heating dramatically to the point where it is.
And.
Minor relevance like baby, you lose 5% to 7% with a high voltage DC power line something like that.
So I wanted to clear.
And that Sir.
Cereals and necessary with <unk>.
Just need to scale this thing up.
We have the technology exists to day too.
So renewable energy.
And so on and if you will say well why do we do it because the energy based on sort of the Earth is try again take.
Super Omega and finally gigantic.
So you can't just go and do.
Australia, and Terawatts overnight, you've got both the production capacity for themselves.
For the battery sales for solar cells.
To put that into vehicles and put that into stationary storage packs, you've got to prevent and solar panels and solar glass roofs, and you got to deploy all this thing all the stuff, but it is certainly the case that we can accelerate this.
And we should try to accelerate it.
And.
The right thing to do I think from an economic standpoint.
And the economies to agree as to have a carbon tax.
Just as we have a tax on.
Cigarettes and alcohol.
Which we think are more likely to be bad and good and we tend to tax for fruit and vegetables less.
And essentially true we should we should.
Tax energy, but that we think is probably bad and.
And so important and as we think it's probably good just like services and I'll call, Chris and fruits and vegetables.
It's just common sense.
And.
But on the plus side I'm, not suggesting anyone be complacent, but.
Sustainable energy renewable energy will be sold it is being solved but it matters how fast we solve it.
And if we solve it faster that's better for a while.
Thank you very much.
There's no question in my mind whatsoever at the energy storage problem can be solved with Oklahoma.
And batteries.
Zero I want to be clear zero.
I think the bias will be towards.
Iron based.
The combined sales and we hope they look they might be lifted and must be it.
Big constituent of the sales.
And it's more like 1% to 2% of the cell.
Lithium.
But the main part of the sale is the cathode.
The main mass and cost and the sales was the catheter.
Our high energy.
Sales.
Like for example, what we use and most of them.
And most helps us have nickel based lithium ion cells, which have higher energy density longer range and iron base sales.
However, stationary storage.
The energy to Etsy is not as important.
I was just saying on the ground.
And so.
I think the vast majority of stationary.
Storage will be.
Iron Iron based.
Lithium ion cells with and iron.
Iron phosphate catheter and technically but and the phosphate part is unnecessary and nickel.
And.
I'm, sorry, and the terminology and just to think about iron nickel and.
And it's and amount of iron and the world.
And then.
And could possibly use and there is one.
And more lithium and we could possibly use basically there is no shortage of anything whatsoever and iron phosphate Blake's.
And one sales.
Thank you very much and let's go to the next question from these additional investors wishes you suggested that between a five ex <unk> improvement is achievable in the automotive production versus the <unk>.
Versus the first model III line on.
And the first.
Principles physics analysis.
Where does bill and sit where does Berlin sit relative to that limit.
Yeah.
And I think we will so we're still quite far away from it.
I mean, the thing to bear in mind with <unk>.
With production is.
For those who have not we've never done production, but they just don't understand how insanely hard production is.
And.
I Wonder if we will be very very emphatic chair prototypes.
Reveal.
Their child's play.
Duction.
<unk>.
It is very hard now.
And now you say production.
And at large scale with higher liability and low cost.
Mainly difficult.
What Tesla achieved on the automotive side was much to create and electric car.
The truly profound thing on the car side is that Tesla was the first American car company to achieve volume production of a cart and 100 years and not go bankrupt.
So.
This is this.
And basically.
And myself and many others and have that basically have several aneurysms.
Get this done.
It was it was so hard to do.
No idea.
So.
Anyway.
And the thing about making a large complex manufactured object is let's say you have first order approximation 10000 unique items.
And even one of those items.
It's slow.
You're right.
Just one.
It doesn't matter.
So trivial we've had.
Production and production.
Stopped because of <unk>.
Carpet and trunk.
Net production stuff because a USB cable.
And one point for the model.
The real estate rated every.
The electronics.
Stuart and the Bay area.
For a few days there nobody could buy a USB cable and the Bay area, because we went and bought the mall and put them in the car.
[laughter] literally and as I'd.
So like.
Hundreds of storage like that so anyway, that's the.
Solving that.
Those constraints and.
And.
And and logistics problem that makes World War, two look trivial I'm not kidding like the scale is insane.
Yes.
We're talking millions of cars, some massive global supply chain.
And 30 countries.
Yeah.
Dozens of regulatory regimes.
Yeah.
It's a day.
So.
Yes.
Thank you and last question from institutional investors.
Master plan and part two talks about and urban transport vehicle that is smaller than traditional bus with greater areal density achieved by removing the central aisle do you have any updates to share on this goal.
Not at this time.
Okay.
Okay. Thank you very much so let's move to analyst Q&A.
Thank you.
First question is from care for other witness Street Research your line is open.
Hi, guys. Thanks for taking my question.
And I'd love to get back to you and the data from what you presented on the battery day in the last six seven months I won't I was wondering how much progress you've made there.
And that trend and first in terms of pluses development. So how are things coming together on your pilot line, how you're getting to the kind of stuff.
<unk>, we're aiming for and second and is actually on your products and.
And so I wasn't there and which sites youre ramping production and capacity Foster Wheeler.
$46 80 sales.
And where you stand on.
On the on ramping and debt capacity as well and I'll have a quick follow up on James receptionist.
And we substitute them.
Well.
So we're happy.
Could you add to this but.
Right.
We have.
The other asthma, so a pilot plant which is.
And still big buy notice and it's expected to have like a 10 gigawatt gigawatt out for your capability and.
Pretty much California.
And.
We've made quite a few sales.
We're not we're not quite yet at the point where.
We think for sales.
Our reliable enough to be shipped and cars, but.
And we're getting close to that point.
And.
And.
And then with already.
Ordered.
What's the equivalent for battery production.
And in Berlin and.
And then and then.
Sure of course and as well.
Okay.
So we're really down to like the Nitty gritty elements.
But overall I think we're still quite optimistic about.
Achieving volume production of the <unk>.
In next year.
Great. Thanks, Okay. Thanks.
One thing I would add is there's been a lot of questions about yields actually I noticed people asking about that and.
The yield progress has been really strong.
Good day, and we were really still and commissioning phase and we were really still and commissioning phase of the rest of the tools.
To the point, where we're confident that the yield trajectory aligns with our internal cost projections.
And we did talk about yield also a better day, but there's other reasons, it's useful to check in on that.
It takes a while as Elon just mentioned and to go from.
Prototype to production and it's not just parts it's processes, it's equipment, but as we've matured does is the process the process equipment.
And to where we need to be on the yield side.
Yes basically.
This is just a guess because we don't know for sure but it appears as though were.
About 12.
Probably not more than 18 months away from volume production of 846 weighted.
At the same time, we are actually trying to.
Our sales supply.
Partners wrap up their supply as much as possible. So this is not.
And something that is to the exclusion of suppliers.
And in conjunction with suppliers.
So yes, we are.
I was wondering if super clear about that and does not about replacing suppliers and it's about supplementing.
Suppliers so.
And we have a very strong partnership with DHL with Panasonic and LG.
And we would.
A request to our.
And strategic partners poor sales play is please.
Chris the plans with us as much as you possibly can.
Provided the prices affordable we will buy.
Everything that they can make.
Oh, yes, yes and specific to that.
We're on track and more than double the supplier capacity over the next day.
Yes.
And we exactly we do expect from suppliers and willing to proceed.
Perceived double go sell output next year versus this year.
Yeah.
Okay, and I had a quick follow up on.
Maybe as I call you on your energy business. So I understand like you might get some gross margin was.
Solar roof right, but I was wondering you know.
And what do gross margin look like.
And when you look at the storage business and where are you.
What's your ambition in terms of gross margin and the.
And that business I guess, it's going to grow to grow and the mixing and coming is so important for long term modeling.
Yeah Dan.
Sort of.
Okay.
We're I think broker Paolo margin and.
Storage as an and.
Nickel.
But it isn't going to bear in mind that vehicle is more mature than the storage.
So.
We already are at good margins with the power wall.
But some additional work is needed or put a mega pack so to your gross margins.
Good day.
Pretty good.
Thank you.
Yes.
Sorry, just jumping and absolutely agree parallel has matured we've been producing Carlyle two for three years now and we are at.
And good margins, there, but magnetek has more room to go to achieve our targets.
And we haven't we have a clear runway for improving the <unk>.
For.
And megawatt hours and Mega pack.
Absolutely, yes, we do.
Thank you let's go to the next question. Please.
From from Rod Lache with Wolfe Research. Please go ahead.
Hi, everybody.
I was hoping maybe just first you could talk a little bit about.
How youre thinking about the rollout of version nine of FSD and and <unk>.
Transitioning to a subscription model it sounds like some some of this is about to rollout next month I'm not sure. If that's a subscription model, but maybe you could just.
Spend a little time talking about how impactful you expect that to be.
So I Gotta go ahead guys.
Okay.
Yeah, we're working on.
Getting FSD subscription out and.
And then there's a couple of internal technical dependencies, but from a business model perspective Thats aligned.
And we're hoping to roll that out soon and the key thing that I say here that.
There's a lot of potential for recurring revenue based on and FSD subscription.
And the.
If you look at the size of our fleet and you look at the number of customers.
And you did not purchase FSD upfront or on a lease and maybe want to experiment with FSD and isn't it.
Great option for them.
One of the things, we'll need to keep an eye on is the potential transition from cash purchases of ssds subscription over to cash purchases of FSD, who may move over to FSD subscription.
And so there could be a period of time and which.
Cash reduces in the near term and then as the portfolio of subscription customers built up and that becomes a pretty strong business for us over time, but.
But we're hoping to get this launch pretty soon.
And and see what their responses to them.
Okay.
Great and.
I was hoping Zach maybe you could just talk a little bit about opex and it was.
Is that.
Noticeable increase even excluding SBC.
Obviously, a lot going on this quarter, but can you maybe just talk a little bit about how we should be thinking about that going forward.
Sure.
The R&D side and what we're seeing as I mentioned in my opening remarks.
Is kind of a convergence of a series of programs that are happening and our R&D opex spend kind of correlates to where we are and the product lifecycle and different programs and.
So we're kind of at the tail end of investments and what we call internally Palladium, which is the new model S and model X.
And so we expect that to decrease over time.
It was high in Q1.
And for a lot of other reasons and Elon has mentioned.
We're also getting very heavy into 46 80 development that drew and team are working on and the associated structural battery pack and that goes along with that and.
So these are new technologies, not only new to Tesla, but new to the industry and so we're investing heavily there and and R&D side to work out those kings.
And you know spend along along and those areas should continue over time as we continue to work through the development cycle and stuff.
And then I also mentioned Elon talked a bit about and it does you on and the potential.
Potential there so from.
And neural net investments and custom silicon and investments. These continue to be areas that we spend on and make investments and.
On the SG&A side.
The business is pivoting very quickly to be global.
And China.
China is ramping quite quickly and we're trying to make.
Make sure that we are staying ahead of the volume so that we have the right sales capacity storage capacity, there local investments and ITE and others to manage the growth such that as the growth comes and the execution challenges are smaller than maybe and similar periods of growth that we've seen in the past.
And and so we're making investments there ahead of the growth and overall and so we look at Opex as a percentage of revenue over the course of the year, we do expect to see a substantial drop from 2000 and 'twenty to 2021 and.
The volumes and the latter part of the year pick up.
Thank you let's go to the next question. Please.
Thank you from Dan Levy with Credit Suisse. Your line is open.
Hi, good.
Good evening thanks.
Two questions.
One is on Cogs I think we've gotten from battery day, and a pretty good feel about the potential for Cogs reduction was related to powertrain, but I'd like to get a sense of the path to reducing Cogs ex powertrain is.
It's still need a meaningful reduction from that front to make the math work on the $25000 vehicles. So what levers do you have to reducing your cost ex powertrains and just more scale better supplier pricing or is it just based on ongoing cost reductions.
Okay.
Sure I mean, I think Oh.
It will be above.
Okay.
Yes.
On the on the vehicle side, there's plenty of opportunity as well, obviously building a car like a model S.
And quite complex and has various moving parts model, three and model y or steps of improvement and that but when you look at some of the other advances that were including in the model y factories and to Austin, and Berlin, and we've reduced the body count by as much as 60% and the part cost money. So we continue to find optimizations, there as well as we get economies of scale when we started.
And talk about the volumes, we're considering worldwide with four factories building the same vehicle.
And so both of those things are on the vehicle side will improve our cogs as well and and powertrain continues to be integrated into that.
Great and then just related.
C.
Berlin, and and often ramp, but I'd like to just get some from the comparison of Fremont versus the new capacity, obviously freelance and optimize because you.
The old NUMMI facility to retrofit that you need.
Maybe you can give us a sense of how your new capacity is going to differ versus Fremont. What are the areas that you have efficiencies that you previously didn't have and maybe you know.
How much does that add up to improved Cogs over time to help you achieve that $25000 vehicle.
Yeah.
Yes.
Talk too much about.
Future product development.
And earnings calls and that's not the right place for them.
Yes.
Product announcements.
So yes.
Sure.
We will get there.
Yeah.
We'll come out with.
Yeah.
Alright, Thank you very much and unfortunately this is all the time, we have for today and thank you very much for dialing in and for listening and we will speak to again and about three months.
Thank you thanks, Jeff.
Sure.
This concludes today's conference call. Thank you for participating you may now disconnect.
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