Q2 2021 Tesla Inc Earnings Call
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Good day, and thank you for standing by welcome to the Tesla second quarter of 2020.1.
Financial results and Q&A webcast at this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone please.
Be advised that today's conference is being recorded if you require any further assistance. Please press.
I would now like to hand, the conference over to your speaker today, Mark and be a cause senior director of Investor Relations. Please go ahead.
And thank you and good afternoon, everyone and welcome to Tesla second quarter, 2021, and Q&A webcast I'm joined today by Elon Musk Zachary current corn and a number of other executives.
Starting with the results were announced and about 1 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 and results could differ materially and due to a.
Risks and uncertainties, including those mentioned in our most recent filings with the SEC during.
During the question and answer portion of today's call. Please limit yourself to 1 question and 1 follow up. Please press star 1 now if you would like to join the question queue.
But before we jump into Q&A Elon has some opening remarks.
And number of lung.
Sure.
So to recap Q2, 2021 was a record quarter on many levels.
Record production deliveries and surpassed over 1 billion net.
Net income for the first time, and so history I'd really like to congratulate Don wanted to look for an amazing job. This is really and.
Yes, Don.
It also seems that public sentiment towards Evs is aetna and inflection points and.
At this point I think almost everyone agrees that electric vehicles are the only way forward.
Regarding supply chain, while we're making cars at full speed the global chip shortage.
<unk> remains quite serious.
For the rest of this year, our growth rates will be determined by the.
The slowest part and our supply chain, which.
Yes.
And there are a wide range of chips that are at various times, the slowest parts and supply chain.
And that if we had.
Everything else if we.
And credible model.
Numbers of vehicles and so.
We will not be able to make make them.
Everything except the chips, we won't be able to make them.
Chip supply is fundamentally.
Operating factor on our output.
Breath to see how long this will last because.
We don't have.
This is because out of our control essentially.
It does it does seem like it's getting better.
Yes.
It's hard to predict.
Okay.
And so.
And in fact, even achieving output that we did achieve.
Omidria.
And I managed efforts from Pete will then Tesla.
We.
We're able to substitute alternative chips and write the firmware and a matter of weeks. It's just a matter of swapping out a chip and you also have to rewrite the software so.
It was.
2 incredibly.
Incredibly intense effort.
Finding new chips, right and you for and we're integrated with the vehicle and testing in order to maintain production and.
And I also like to thank our suppliers work with us.
Yes.
And.
And then many calls.
Midnight, 1 I am just.
And with suppliers.
Alright.
And resolving and love the.
Shortages so.
Thanks, very much just buyers.
Let's see if there was an epic efficacy of subscription where you're able to launch.
Wholesale driving subscription.
Last month.
And.
We expect it to both.
Slowly and then.
But then gather a lot of momentum over time.
Obviously, we need to have the full self driving both widely available for it and really to take hold.
At high rates and.
Great and a lot of progress there.
So.
Yes.
I think I think FSC subscription will be a significant factor probably next year.
We've got 2 Giga, Texas and Gabon.
And we're actually doing this earnings call from Big and Texas. So we're in the factory right now doing this vertical specific scope.
And the team has made incredible progress here you.
And the pictures online.
And I would say that those basically.
Nothing a year ago and.
And this.
Yes.
A logical and.
Mostly complete barge factory a year later.
So really great work by the <unk>.
Good day.
And can see the.
And then also the great work and Berlin.
Rottenberg.
And with the team there so.
We expect.
To be producing.
The sort of net.
And you design, a boat model y and both.
<unk> factories and limited production.
Later this year.
It's always like.
It's hard to sort of explain to people who have not been through.
And the agony of a manufacturing ramp.
Like why can't you just turn it on and make.
Peter.
5000, a week.
It is so hard to do manufacturing and so hard to do production.
Gross approximation there are 10000 unique parts and processes that have to work and the greater growth production grows as fast as the least lucky.
And most of those 10000 and things.
And a bunch of them are 90 minutes and our control so it's like.
It's insanely difficult.
A bunch of saying that's prototypes are easy and production is hard.
And arguably the.
Really remarkable thing that Tesla has done.
Not to make an electric car.
And our cost startup because there have been hundreds of car startups.
And the United States.
And as.
So.
And Thats remarkable is that Tesla didn't.
Didn't go bankrupt and reaching volume production.
And that's the amazing part because everyone else debt.
Because they all both the prototype for the idea with the hard parts and it is not it is trivial by comparison with actual production.
Yes.
So.
And it's always worth noting.
Debt.
Our volume.
By companies and there are only 2 of that and I'm not going bankrupt and that is important Tesla.
So.
The seeds of defeat Us so and on the day of victory and we must be careful that we do not do that.
And if you look at the if you look at that.
And look at.
And so often.
And the Caesars Peter said on the day of victory.
We'll endeavor to make that the case of Tesla.
So, let's see the other lines, and Texas, and Maine, and Texas and.
Well and will be will look very much like the Budweiser currently make.
History.
There are substantial improvements and the.
Difficult to manufacturing.
So for example, the model Y and made sure and it will and we will have a cast current body and a cash for everybody.
Whereas the 1 in <unk> and <unk>.
California has cash for everybody, but a lot of cash currently.
But.
We're also aiming to do a structural path with 46 cities.
Sales, which is.
And and mass production and our cost reduction.
And.
But we're not counting on that as the only way to make things work we have.
And the backup plan.
And non structural.
And with a non structural pack and.
270, and essentially so.
But at scale production, we obviously want to be using 46 cities and structural Pat.
From a physics standpoint. This is the best architecture and from an economic standpoint.
It is the lowest cost way to go.
So the life is lowest cost.
But there's a lot of new technology, there. So it is difficult to predict with precision.
When does it work and when do you reach scale and scale production and.
Andrew is going to talk.
But more about the 40.60 80 production.
Yes.
We are making great progress and 46.80 sales.
But there are there is a tremendous amount of innovation that we're packing into that 46.80, so and so.
It's not simply.
And you sort of minor improvements on state of the art.
There are and we went through this on.
On the battery cell base.
And I really dozens of.
Half a dozen major improvements and dozens of.
A small improvements.
So.
I think it will be great.
But.
And I'd simple to say when the last of the of the technical challenges will be solved.
So in conclusion, our team continues to make huge efforts to make our factories run at full speed, which is it's very difficult.
<unk> had some factory shutdowns due to a partial outages.
Those would be relief.
The coming weeks and months.
And.
And.
We're making great progress on wholesale driving.
So the progress is not easy to see because it is absolutely foundational software level.
And so that ends up being sort of a 2 steps forward 1 step back situation.
And but over time should do 2 steps forward and.
And 1 step back and keep going to move forward.
So.
And I'm highly confident that the Cosmo.
We will be capable of full self driving.
Full self driving computer and.
And the cameras.
I am confident that there'll be able.
To drive themselves with the safety levels substantially greater than that of the average price.
And thanks to all of our fleece and making this a breakthrough year for Tesla and and a couple of quarter.
Thanks, guys.
Thank you very much and we have some follow up remarks firms that can record volume.
Yeah, Thanks, Martin and.
And thanks Elon.
And just to reiterate Q2 was a great quarter for the Tesla team and a strong improvements across the business.
And in particular auto gross profit and margin excluding credit increased substantially this was primarily driven by better cost optimization across our factories and good execution against our cost reduction.
10 plans and as well as increases in production and delivery volume.
There was some benefit from pricing actions, mostly in North America. However, it was small and the context of the other contributors.
Note that the model S and X program was at a slight loss for the quarter due to the relatively low volume.
And supply.
Fly chain challenges, including expedite and continued to provide cost headwinds.
Additionally, it's encouraging to see the progress made on profitability within our energy and San Francis and other businesses.
While there is some benefit to looking at our progress quarter over quarter.
I find it more helpful to look and progress of our slightly long term price.
Over the last 2 years, our vehicle delivery volumes have more than doubled.
This volume increase was made possible by a steady decrease and asps of more than 10% driven by our roadmap to increase affordability and shifting mix towards our more affordable vehicles.
Yet over that same period of time, our auto gross margin excluding.
It has increased nearly 10 percentage points to our highest yet since the introduction of model 3.
This is only possible because our average cost per vehicle has reduced by more than the reduction and average price.
This is a remarkable achievement and the context of the volume growth and ASP reduction and I've mentioned and a testament.
And I meant to the hard work by the Tesla team.
Additionally, opex as a percentage of revenue has declined and in particular SG&A, representing the work we've done to become more efficient as we scale the company, while still making the required R&D investment to support our future.
As a result, our GAAP operating margins have risen from negative to.
Double digit in line with what we have guided.
By managing our overhead costs and driving higher volume our P&L is benefiting from the marginal profitability of each incremental units or said differently. We are recognizing the benefits of scale and improved fixed cost absorption.
With strong operating cash flows and cash.
Balance, we're putting that cash to use capital.
Capex continues to tick up primarily driven by capacity investments and Austin and Berlin and Shanghai. Additionally, each quarter, we are using our cash to retire legacy debt, which was taken on at a time when interest rates and company reservoir and much higher than in today's environment.
And as I've mentioned before.
2021 volume was skewed towards the second half of the year as we push for continued sequential increases in volume.
Despite the great work, so far and managing the instability of the supply chain. These challenges remain and are unfortunately, increasing and pain at the higher volume.
As we work through the uncertainty we want to ensure we do our best to manage customer wait.
Timed as well as the impact these interruptions have on our employees and cost.
And as Elon mentioned volume growth will be determined by part availability as we have the factory capacity ready and are in a strong demand position.
And I'm excited to see the progress made by the Tesla team as we continue.
And building the business and strengthening.
<unk> our financials. Thank you very much.
Great. Thank you very much and now let's go through the retail investor questions on state Dot com.
First question from Robert is Physicals website skill set cyber truck production is expected to begin in late 2021.
And I'll share more details on the current status of the cyber truck.
And confirm if production silicon.
Okay.
And.
Largely you want to.
Sorry, we cut out there for a second.
Yeah, the cyber shark is.
Currently and as Alpha stages, we finished basically engineer.
Hearing architecture of the vehicle.
With this arbitrary redefining how vehicles we made.
And even outside of carry as much of a structural pack and large casting designs of the model Y being built and Berlin in Austin and.
Obviously, those take priority over the cyber trucks, but we are moving into the beta phases of cyber truck later this year and.
And we'll be looking to ramp and production and.
And to get Texas after them, otherwise up and going.
Yes, and just with re emphasizing beds.
Extraordinary difficult.
Jordan or difficulty of of ramping.
Production of large manufactured items.
The risk of being repetitive it is.
It's actually easy to make and prototypes or sort of handle small volume production.
And can produce at high volume, which is really what's what's relevant here is.
It's going to move as fast as the slowest of the share.
A rough order of magnitude 10000 unique parts and processes and so you could have.
$999.
Thanks.
1 is missing.
I mean, we're missing for example of ex struggled this quarter was.
And the module that controls the airbags and seatbelts and obviously you cannot share of a car without those.
And that's that.
And that limited.
S fashion.
Civilian and Dod.
Worldwide and Chang.
Hi, and in 3 months.
So.
It wouldn't have mattered, if we had like 17 different car models.
Because they won't meet the airbag module.
This is irrelevant.
So the.
And in order for a set of trucks and semi to scale to volume is meaningful and customer deliveries.
We've got a so.
The chip shortage.
And working with our suppliers and beautiful and I'll say why don't you just check that okay, well, okay that would take us even moving like lightning.
12 months to 18 months.
So it's not like.
And just woke up a chipset.
Yes chip fab.
So.
Some of these things are.
Yes.
It is quite a trial dealing with all of interest rates.
Scaling and large manufactured object I think it may be the case that Tesla has.
And is scaling.
I think we might be the fastest and history.
Ever for scaling large manufactured object.
And maybe the model T.
Ben comparable back and the day the Port model.
And probably the Internet is the answer but I think there may be scaling large manufactured object.
And the fastest rate and history or I'd like to know who can do it faster and so we can learn from them.
And so it's worth just noting that.
And the Grand scheme of things we saw that.
So.
Yes so.
And I was referencing.
Both are heavy users of.
Sales capacity.
So we've got to make sure we have some capacity.
Those 2 vehicles.
And as we can make a small number of.
Our vehicles.
But.
A cost if you make a small number of vehicles.
Like they were literally costs.
And $1 million piece.
1 more.
There's a reason why you think that volume.
And for which is to get the.
And because of scale it gets us down.
So.
Hi.
But we are looking at a pretty massive increase and cell availability next year.
But it's not like in January 1.
And it comes through and through.
<unk>.
Reduction.
Amped up through the course of next year.
But.
Even without Tesla.
Sales and.
Okay.
And even without.
Tesla cell production.
We believe our suppliers will be able to deliver about twice as much cell upward and.
Next year as this year.
Andrew do you want to talk more about that yeah.
And concerns over sales bottleneck and growth our target is to grow sales supply ahead of the 50% year on year growth targets of the vehicle business and also enable increased energy storage deployments, yes. So yes, our sales suppliers are tracking to double their production and 2022.
Yes.
It's worth noting that if you have a target.
Give me a certain number that doesn't mean.
It happens like assures night follows day, it's a target. So if there is some calamity.
And the world that address the supply chain and it will be less.
But.
The <unk>.
Contracts that we have with sales of buyers.
Coupling of so.
Sales quite a Tesla and 2022.
And we have to <unk>.
Ex special.
Whole bunch of ex natural Rob sort of.
And on top of it.
Each other.
And small changes and where you.
Roughly.
On the X axis of time.
Ken.
Substantially changed area under the curve.
So.
What we what we are thinking of doing.
Mike.
And depending on if it's basically overshooting on cell supply.
There are 4 vehicles and then.
And as we have to say Xsl's prime and 1 month or another Ben.
And then routing debt so output to the Mega pad and Powell.
Or by the senior debt.
We're prioritizing vehicle production.
And if there's a.
Shorted yourself upward for some reason and that we will throttle down mega pad and power production.
And could be something has got to get basically or if there's a disruption and the vehicle production.
And the outlet.
Yes exactly.
There's a tremendous amount of it.
Russia and the supply chain.
So we say it and to aspire and we want you to do wholesale offer well you've been doing that and in a year, it's very difficult and then.
And with that system has a tremendous amount of momentum it has like a quick tour of supertankers.
[laughter], James speaking and rich from a raw materials perspective, we.
Also long term contracts to secure our supply chain to also enabled and scripts that were not just looking at the suppliers, but upstream from there yes.
Which is more volatile.
Yeah.
Absolutely.
And as I've mentioned, thanks, we'll move as fast as the slowest departures and has in place.
Place and supply chain, which goes all the way back to raw materials.
And.
Lithium and nickel and that kind of thing.
And.
And there is sometimes a misperception that Tesla uses a lot of public, but we actually don't do that.
Apple users.
Think almost.
100, <unk> cobalt and their batteries and cell phones, and laptops, but Tesla uses no cobalt and the.
The iron iron phosphate packs and almost almost none and the nickel based chemistries and so.
On a weighted average basis, we might use 2% total compared to samples 1 other thing.
<unk>.
Anyway, so it just.
It's really just not a factor and we expect basically.
Zero, coupled and the future.
I do agree with and I think probably there.
There is a long term shift.
And the direction of.
Iron based.
And my and cells.
Over a nickel.
As the energy density of solar.
And sort of iron ore.
Iron phosphate.
And Michael export Iron and the cost base.
Take for granted.
Iron based sales looking at ourselves and nickel based.
Base lithium AD sales I.
I think probably we'll see a shift my guess is probably 2 thirds iron 1 third or something on that order.
And this is actually good because this.
Plenty of iron and the world.
And it is saying about and iron.
And with nickel.
Or is this much less nickel and this wave S cohort.
No.
It is good for.
And we're leaving the long term scaling.
And to move to iron based sales.
Sales.
Mostly.
And I think long term.
Possibly.
There's a good chance at all.
Stationary storage.
That is powerball and Mega patent.
Moving to iron.
And it seems the most likely the case since you do not need to transport it and there is less volume and match.
Great for stationary storage.
So and nickel would be for.
Sure.
But really for long range.
Road transport.
Ships and aircraft and that kind of thing.
Thank you.
Let's go to the second question from retail and wishes you won't have said that person will be up and opening up the supercharger network to other EV later this year can you share.
With details and how this will be structure and.
And we'll just be a select brands or will they contribute to the growth of this network.
Yes.
And currently thinking is a real simple thing where.
And you just download the Tesla App and yogurt soup charterer.
And some indicators.
And which saw year and.
So if you plug in.
Youre not.
Tesla and then you just.
Access to the App and say turn on the stool that I'm in for how much electricity.
And this should basically work with.
Okay.
And it is almost any manufacturer's cars.
There will be a time constraint. So if the charter rate is super slow.
Somebody will be charged more because.
The biggest constraint and pursue charters at this time.
How.
How occupied.
And we'll also be smarter with how we charge for.
Electricity at the Super Chargers.
Rush hour charging will be more expensive Ben.
Or bowers charging because there are times when the surcharges were empty and times when the Jampacked and so it makes.
It has to have some.
Time based.
Discrimination.
And we've been doing that and it's been working and Peter will respond.
Alps with utilization.
Was that day.
So.
Yes, I think we are.
And.
And so Europe, and China, and most parts of the world.
At the same connector for everyone.
So this is a fairly easy thing to do to.
And our own connector.
And my opinion is actually the rest connector small and light looks good.
So we developed our own connector.
And my opinion is actually.
The rest connector small and light looks.
And that's good.
So and adapter is needed to work for.
Evs and North America.
But people could buy this adapter.
And we anticipate having.
Having it available at the shipyard.
<unk> charges as well.
And sort of steel and the survey.
We have a good solution to them okay.
And then.
And so.
That's the constraint on North America, Inc.
Basically a vestige of history, but.
I think we do and emphasized that it is our goal is to.
Support.
And what event of sustainable energy. It is not just to create a walled garden.
And to use debt to bloods, and our competitors, which is sometimes used by some companies.
Yeah.
I think it's also important to comment that.
Increasing.
The addition of the network actually reduces our cost which allows us to.
And lower energy prices for our customers makes the network more profitable allows us to grow the network faster that's a good thing there.
And then and no matter, what we're going to continue to aggressively expand and network capacity, increasing charging speed improving the trip planning tools to protect against.
The utility congestion using dynamic pricing as Elon mentioned and just continuing to focus on minimum wait time for our customers. Obviously in order for this to be for surcharges to be useful to 2 other power companies.
We need to grow that network faster than we're growing vehicle output, which is not easy and we're growing vehicle and I'll put out at.
Again.
And so surcharges need to grow faster than big output services, a lot of work with your chartering team.
But it is only useful in the Grand scheme of things.
Its only used with Republic, if we're able to grow faster than Tesla if other.
So.
But that is our goal.
Yes.
Hello, and thank you very much and the third question as Elon said 46, 80 sales armed reliable and not for vehicles.
Referring to cycle life degradation or something else.
Please update us on progress of 46 cities and what is still needs to be done.
And to make them reliability not for vehicles.
Yes.
And really this is not.
Well definitely make the 46 to 80 reliable and on vehicles and I think at the point, where and limited volume it is reliable and after vehicles.
The.
And again going back to like limited production is easier.
Prototype production and high volume production is hard.
There are a number of challenges and transitioning from.
And so small scale production to large volume production.
And.
Not to get too much and so the weeds and things, but right now we are challenged.
Okay.
And basically be what's called Calendaring or basically squashing the cathode materials.
But to a particular Heinz and so it just goes through these rollers and gets and gets squashed.
Like like Pizza dough basically.
And but very hard pizza dough.
And the.
At closing, it's denting the calendar levels. This is not something that happen.
And when the calendar rolls was smaller.
And when the calendar rolls are bigger surgeons like.
And we're like Okay, we weren't expecting that yes.
It's not it's not a life science problem.
And it's an engineering company and a question of interest a question of when and the team is 100% focused on resolving these lending processes as quickly exactly.
<unk>.
Yes.
On the reliability side as Elon mentioned, we have successfully validated performance and the lifetime durability up to 46 days sales produced Takeda.
And.
And we're continuing ongoing verification of that reliability, we are actually occurring over 1 million equivalent miles on ourselves that we produce every month and.
And our testing activities.
Focus on that is very clear, we want high quality sales for all of our.
<unk>.
And yes, we're just focused on the.
Unlucky.
Limiting steps and the facility and.
And with the engineers focused on those key steps remaining we're going to break.
It sounds as possible.
Meantime, we are we have a massive amount of equipment.
And on order and arriving for the.
High volume.
And so production.
And.
Both the Netherlands and.
But obviously given what we've launched with the.
Pilot plants, which is.
And.
And free model, which is really quite a big plant.
By most standards.
We will have to modify a bunch of that equipment. So.
It won't be able to start up immediately.
But it seems like.
And we do correctly.
We think most likely.
We will hit and annualized rates.
100.
Gigawatt hours and year sometime next year, we'll.
We will have all the equipment installed yet to accomplish 1.
100 gigawatt hours and it's possible that by.
And of the year and we will be at an annualized rate of 100 gigawatt hours by the end of the year.
Yes.
Yes.
And my guess is.
And more likely than non interest above 50%.
Reaching a 100 gig.
Year by the end of next year on annualized rate something like that.
We are it could shift a little bit so yeah, but nothing as drew mentioned nothing fundamental.
And just.
A lot of work and even to the large roller question Elon right like on the energy side, the large rollers, where great no concerns and so we're just learning as we go.
And the nice thing about having that facility on.
On a fast track like we had it and we've talked about it and battery day was really derisking the big factor.
Yes, and we've done and.
We've learned a lot and.
With each successive iteration.
The ramp up and the equipment installation will be faster and our share.
Yes.
Alright, Thank you very much and the last question from retail is from M. S. Elon do and interview with 1 of our.
Youtube channels once or twice a year I would not and many David Lee are investing or roadmap Tesla.
Daily channels is first possible candidates.
Yeah.
Yes.
Sure.
And like if I'm doing interviews and I can.
Can't do actual other work.
It's not.
Yes.
Okay.
Obviously understanding the day so.
Right, Yeah out of other what I would do it annually, but the other 1.
I think also I would like.
And.
But this is.
Let's say the last time and other earnings calls, but this is the I will no longer speak defaults during earnings calls.
And so.
And our sales withdrew the annual shareholder meeting.
I think going forward I will.
Most likely not be on earnings calls or unless there is something really important to debt.
And if you say.
Okay. Thank you and let's go to institution.
And our questions.
First 1 and we covered a lot of this already can you. Please update us on timelines for the start of production of Brilinta, and often model y and cyber tracking and the semi U S.
And the ramp of cyber truck to be as difficult as it is a new process.
I think some truck ramp will be difficult because.
Additionally, as such new architecture.
Or it's going to be a great products and Mike.
Via our best product ever.
Right.
If there is.
A lot of fundamentally new.
And so and it is our truck nobody's ever really made a car like this before.
The vehicle like this before so.
You'll probably be challenges.
Because there's so much unexplored territory.
Yes.
Thank you I think question and question 3 we can skip and given we have already addressed it and I'll get the question 4 and 5 years' time, how much faster better and could you be at manufacturer.
And capacity expansion using current pace.
And what are the biggest issues you need to solve to get to that rate.
Well like I said.
I think we might be the fastest growing.
Company and history reporting of Australia.
Factoring.
<unk>.
Those who have not actually been a global manufacturing ramp up just have no idea.
Painful and difficult it is.
And it's like.
You got to eat a lot of glass and for all.
Our manufacturing ramp is hard.
Cash side.
Yes, I mean, I think if you look at the expansion that we've done in Shanghai.
Yeah that debt factor, it was built and less than a year and ramp to.
5 to 6 months to full volume when you can notice that.
Good ones in that but about a year.
And when you consider cut and paste we've repeated that.
And in Fremont and or whatever but now with Berlin and Austin, we have new.
Factories, and new designs and so there's always challenges of U S. You said them on with new designs and ramping that but I think having teams and 3 locations are 3 continents will definitely expand our ability and our capacity too.
No.
Grow more lines.
Rather than just having the 1 factor and it came out that we had.
Peter.
Yes.
And so for Shanghai.
Credible and booked both the Bakken 11 months, but it took longer than it's longer than building a factory Christmas it took longer.
It's actually reach volume production and production.
So and so about a year.
And so.
And when you when you put a factory and a new geography.
In order for that Patrick to be efficient you have to localize the supply chain.
So there is no such thing.
S cut and paste it does not exist.
And that's obviously.
And obviously again same to do vehicle production and Europe, its and vast numbers of parts from North America that would be.
Debt that would make the.
And in Europe for example.
Just crazy.
Other than that and you've got to look like and supply chain and efficiency and then youre moving as fast.
As your least lucky.
At least good supplier.
Yes, and certainly the supply chain free Gerlach.
3 or 4 layers.
Yes.
And it's frankly.
I feel at times that we are inheriting.
Of course mature offering.
So if anything goes wrong anywhere on Earth.
And thing happens to mess up the supply chain.
So yes.
Yes.
I think the human capital the human capital growth.
And having factories here.
Sure.
Shanghai 3 months.
It does allow us to.
Maybe not exponentially growth.
Hopefully we are essentially brought again hopefully maintain net expansion rate.
So yes.
Yeah.
It takes a while to hire other people and training people to operating factory and.
Our factories like giant cybernetic and collective.
And you can't just hire 10000 people and have and how.
And we're working and simply not possible.
I really encourage more people to get involved and manufacturing I think especially and the U S. Like this has just not been an area where.
All that many smart people have gone into.
I think the U S has.
And the over allocation of talents and finance and law.
That's perfect Christmas.
Criticism and accomplishment.
[laughter].
And I was saying, we shouldnt have people and finance and vote I'm, just saying and this might be maybe we have too many smart people.
And in those arenas.
[laughter].
So.
Manufacturing is fun, yes, Hey, Patrick.
And as Greg.
It's very simple.
And obviously.
You cannot have stuff unless someone makes it [laughter].
And that's how it gets up.
Yes.
Okay. Thank you very much and let's go through the last Investor question and Boston.
And I plan to offer more services beyond FSD or high speed connectivity as part of its subscription bundle going forward, both areas and particular presents an opportunity.
Yes, we don't have a lot of ideas on this.
And since we bank.
Really wholesale driving and to maintain.
And I think we're obviously headed towards.
Fully autonomous and electric vehicles.
And future.
And I think tells us.
It's well positioned and frankly, it is the leader objectively and us and both of those waiters and electrification and autonomy.
And so.
As always it's always Patrick strikes and.
Analogies, but.
And with other companies or whatever.
Really.
And the value of a fully electric.
Autonomous.
Pete.
And Stanley gigantic Boggles my mind really.
So.
That will be 1 of the most valuable things that.
As ever done and the script utilization.
Thank you very much and now let's go back to analyst Q&A. Please.
Thank you asked and a reminder to ask a question you will need to press star 1 on your telephone so let's try and question press the pound key and then just a time, we ask that you please limit yourself.
And to 1 question and 1 follow up.
Our first question comes from Colin Rusch with Oppenheimer. Your line is open.
Thanks, So much cash can you speak to the attach rates for FSD, so far and where you're targeting in terms of a subscription model.
Yes.
And with.
We're commenting on right now it's not meaningful.
And we really need.
Also driving at least the beta to be and why it widely available so anyone who wants to can get it.
Otherwise it requires us to read anything into where things are right now.
So and.
Okay.
Okay, and then just a follow up there is about the cadence of the regulatory environment and keeping up with the technology are you seeing meaningful.
Evolution in terms of other regulators really understanding the technology and and began to set some standards here sometime in the near term.
At least and.
The U S.
We don't see.
And regulation as the fundamental limiter.
And we're going to obviously going to make it work and then demonstrate that.
And the reliability is significantly in excess of the average human driver.
For it to be allowed.
Yes.
We'll be able to help use it without paying attention to the road.
But I think we have a massive fleet. So it will be I think.
Straightforward to make the arguments.
And on statistic statistical grounds.
Just based on the number of interventions.
<unk>.
And.
Especially and events that would result in a crash.
And at scale, we think we will have billions of miles and travel to sales.
We also show.
It is.
Safety.
The car with order put on us.
100% or 200% or more safer than the average unit driver at that point I.
I think it would be.
Unconscionable to not to allow.
Other pilot because it took the car just becomes whaler and say it would be sort of like particularly elevated analogy.
Yes.
Back in the day, you used to have elevator operators.
And with like a big sort of switch.
The operating elevate and move between floors.
But.
And that gets hired or maybe drawn or something.
Distract distracted.
And every now and again somebody would be kind of shared and half between flaws.
And that's kind of a situation we have and cars.
And for autonomy will become associate that it will be unsafe to manually operated.
Relatively speaking.
And.
And today.
Obviously, we're just getting and elevator with press the button and for which for we want and it just takes us there safely.
And it will require alarming.
Elevators were operated by a person with a giant switch.
That's how it will be with cars.
Thank you and let's go to the next question. Please.
Next question comes from the liabilities with Wolfe Research Your line is open.
Hi, everybody.
Your your cost of goods sold per vehicles are already down to the mid 37000 dollar range and a quarter. It's 5.
$5000 year over year despite.
Some of the inefficiencies that you talked about.
And I know that a lot is going to change from here just given how mix is going to evolve, but if you're successful.
On the structural pack and front and rear castings and the launch of the 46.80 cell can you just maybe give us a sense of what a successful outcome would look.
Like maybe a year from now.
Obviously, a lot has to go right, but just any any kind of broad framework for us to think about.
Yes, it's really difficult for us to.
To make specific.
Make predictions is very difficult.
I think.
And we feel confident of.
I would say at least at 50% growth year over year next year.
And maybe it's a 100% but thats.
And you need a lot of crystal ball to figure out exactly.
And what it's going to be and we're just it is virtually impossible to make specific predictions.
Okay.
But at least 50, maybe a 100 and stuff.
Like that.
Okay.
And and maybe just separately from this.
Yeah.
Can you just clarify what the status is of some of the advances and and battery manufacturing things like dry capital and mixing that you talked about on battery day.
Whats the timeline how are those evolving.
Yes, Yeah, we commented on it today.
Already actually but.
And this facility to caito over 90% of the processes have demonstrated right there, but we are limited by the unlucky few that have not and that's what we're working on.
1 of them that Elon mentioned was.
Running the full scale catheter.
Catheter calendar.
And we are working through some.
Improvements that we need to make to that equipment into the.
The actual raw material itself to not have those limitations, but again, it's an engineering problems and not a question of if it's a question and 1.
<unk>.
And the mixing side, we havent actually really had any challenges specific to.
To your question.
And fundamentally we're still happy with the dry process direction in terms of the factory footprint complexity utility consumption space.
And overall complexities and communication.
Yes, and I mean, and the cost associated with them.
Yes.
Jeff.
And.
And our program says dry Catherine.
It is.
Okay.
I don't know maybe its Mike.
10, or 15% other cost improvement or something like that 20%.
Well, yes.
Yes.
And just like.
And people don't think like this is like <unk> or something.
Work versus dry.
Reduces.
Dry is like 10% less cost and west.
It's not.
Not 10%.
So nothing to sneeze at especially if they are making.
And how does the gigawatt hours a year.
But it's not it's not.
This island.
Yes.
Thank you very much we can go to the next question. Please.
Next question comes from Tsi and deal with New Street Research. Your line is open.
Hey, Thanks, Thanks, very much for taking my question I haven't done enough question and I'd say on batteries.
So if you define and Dan.
I was wondering how youre looking at your sourcing strategy for the sake 6 acre you spoke to learn and so that's all.
And I feel doing to develop in house production.
But what about asking was there a battery manufacturers to do something to Jason says 1 technology.
Maybe less.
Less innovation.
And what you guys are lining up internally and.
And I was wondering U S.
46, 8 and he says that we'll see.
On the road will definitely come from Tesla is 1.
Oh and manufacturing.
Lines are whether they could be coming actually from outside suppliers as well.
And we put out.
Yes, we are in fact working with our <unk>.
Existing aspires to reduce 2680 format.
Net sales.
And.
And then.
The gas right now.
And I see a sort of like Chuck and.
Hitting around $46.80.
Nickel based and structural pack and.
And for long range vehicles and then.
And not necessarily a 46.8 format, but and some other format.
And for Iron based sales.
And so we are right now and we kind of have the Baskin Robbins of batteries situation.
Theres.
And so many formats and so.
So any chemistries.
So we've got like 36 flavors of a battery of Australia.
This is just this results and engineering drag coefficient.
And where each variance of cell chemistry and format.
Requires.
And that's been an amount of engineering to maintain it and troubleshoot and.
And this.
<unk> inhibits our forward progress and so.
It is it going to be important to consolidate 2.
And just maybe ideally 2 form factors, maybe 3 right.
And ideally too.
And.
And then just.
And 1 nickel chemistry.
And when I and chemistry and.
So.
We don't have to mature.
Sure so many different variants.
Yes, and tours and and we are engaging with the suppliers debt.
And good partnerships with on 46.80 designs.
That simplification.
And so so far so good.
And they're working on.
And they're bringing their core competencies to bear on that we're not mandating like what's going on inside.
It's been a good collaboration.
Yes.
And we do expect to see significant increase in supply from our existing suppliers. In addition to that.
Sales and Tesla is maintenance.
<unk>.
Sometimes I get questions from our sales players of like Oh, we're just going to make all the sales ourselves. So that we're like note. Please make as many as you, possibly can and submit them to us.
We have a significant unmet demand and stationary storage.
Mega Pack is basically sold out through the end of next year I believe.
We have a massive backlog and power will demand.
Power versus production.
And say and mismatch now part of that problem is also the yes.
And yes specific doctor issue.
So we use a lot of the same.
Chips and the.
And the power was a good a car and so it's like which 1 you want to make cars apparel. So.
We need to make cars. So therefore parallel production has been reduced.
But as debt semiconductor storage is alleviated.
Then we can.
And as we ramp up and parallel production.
Yeah.
I think we have a chance.
Hitting and annualized rate.
And 1 million units and power will next year maybe.
And maybe.
So we're sort of on the order of 20000 a week.
So again dependent on self supply and.
And.
And civic sectors.
But in terms of demand I think there's probably demand and excess of 1 million barrels.
And <unk>.
And and.
And actually.
Just a vast amounts of mega packs for utilities as the world transitions to a sustainable sustainable energy.
Induction.
Solar and wind are intermittent and by their nature are really.
Need battery packs in order to provide.
A steady flow of electricity.
And when you look at all other utilities and oil versus <unk>.
Vast amount of batteries that are needed.
That's what long term.
Energy Inc.
And sort of.
Combined Tesla and suppliers and need to produce.
At least 1000 gigawatt hours a year and.
And maybe 2000 gigawatt hours here.
Okay.
Great. Thank you and I have a quick question and I know.
And we really knew you don't you don't think it's meaningful today.
I'd be curious to know you know you should have any stats about.
When you you announced the new pricing on a S. A degree.
You can read from ground up phone to 199, and we got Lucky and.
I'd be curious to understand and you know how it.
And I hated behavior and she still has a massive effect.
Taking this and I'm not thinking about people looking at it as a message Z, but more to try and the most advanced Nash and pilots and.
2.
And to try and so the first day, you announced the pricing how do you see.
Yes.
Spike and that.
And the take rate and can you get.
A sense of how big each 1.
Okay.
Peter you're asking like if the FSC take rate too expensive and and that's why we're doing subscription or mature biased and your question correctly.
No.
Question is from the time you announced.
Subscription and that's.
199 go and Austria.
And our Mt.
How much did like the take rate increase.
S and vigorous people who.
Basically.
And as they booked and UK.
Yes, she is how each 1 and when they have to take on ground and Crohn's.
Yeah. This is Ken and I think we're still early and understand.
Standing power.
The subscription model unfolds, but a couple of data points here.
So we took a look at our backlog.
Our customers and our backlog or order and FSC did they cancel presumably to bone and subscription after they take delivery and the level of cancellations and.
And there was and that same cannibalization there it's possible that that changes, but that was also part of our pricing strategy at $99 and 199.
Yes, and also part of our pricing strategy at $99 and 199.
Yes.
And it's like any given price is going to be wrong. So we'll just adjusted.
And that overtime.
As we see.
So if the value proposition makes sense to people so.
We're just really not thinking about this a lot right now we need to make full self driving work.
In order for it to be a compelling value proposition and otherwise people are.
And kind of depending on the future I mean like right now.
Is it does it make sense for somebody did you ever see subscription I think it's debatable.
Great.
Once we have.
And also driving widely deployed.
And the value proposition will be clear and.
And at that point.
I think basically everyone and we'll use it.
Or could we rare rare.
A rare individuals.
Okay. Thank you very much.
For your help and I think that's all the time we have for today.
Thanks for all your questions and we'll speak to you again and 3 month's time.
Have a good day, everyone alright. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].