Q1 2022 Tesla Inc Earnings Call
We've continued making progress and achieved our best ever vehicle deliveries.
Quarter, we demonstrated a series of new financial records, including revenue gross margin operating margin and bottom line profitability.
GAAP automotive gross margin reached 32, 9% and for the first time exceeded 30% when excluding regulatory credits.
Higher pricing continues to positively impact our financials as we make progress delivering cars in our growing backlog note that for most vehicles. Our delivery lead times are quite long. Thus cars delivered in Q1 generally carried pricing set in prior quarters and at levels lower than cars being ordered today.
Our per unit vehicle cost increased as well inflation raw material prices Expedites and logistics cost continues to impact our cost structure.
Factory shutdowns also occurred with little stone notice, hence we are unable to take action to plan those interruptions in a cost efficient manner. Additionally.
Additionally, we saw a slight mix shift towards more profitable vehicles, including the mono line.
We also recognized a onetime benefit of $288 million from credit revenue relating to a regulatory change in the U S cafe penalty without of which credit revenue would have declined compared to the same period last year.
The energy business has continued to be impacted by macro conditions more severely than the vehicle business. Our storage products are in need of chip supply and new import processes of impact has impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter.
Opex as a percentage of revenue continues to reduce driven by higher revenue lower stock based comp expense and other items.
As a result of our ongoing improvements in operating leverage we achieved a record operating margin of over 19%.
Note that commissioning costs for our factories are in R&D as Berlin started production in late March in Austin in early April these costs will be in automotive consequent forward. Given these factors are now producing customer and shuttle cars.
Our free cash flows have remained quite strong.
<unk> by working capital related to lower than planned production. Additionally, we have reduced our debt excluding product financing to nearly zero.
Looking ahead in the immediate term a few things to keep in mind for Q2.
We've lost about a month of build volume out of our factory in Shanghai due to Covid related shutdowns.
Reduction is resuming at limited levels, and we're working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2.
Second as I've mentioned before Austin in Berlin are just starting their ramps and thus those inefficiencies will start to flow through our gross margins in Q2.
Third we do have higher asps in our backlog, which will help to offset some of these headwinds.
We continue to drive towards further strengthening of our financials in the second half of the year and believe our 50% or above growth rate remains achievable for the year.
I want to conclude by thanking the Tesla team, our suppliers and our new customers for a great first quarter. Thank.
Thank you very much you will miss the opening remarks as well.
Sure.
Our remarks will be.
We're done with Zacks bedroom.
Maybe worth repeating.
Q1 was once again a record quarter on many levels.
Reaching the highest deliveries profit an operating margin of 19%. This was despite a lot of chip shortages Menlo logistics challenges.
And overall difficult quarter.
So I'd really like to congratulate the <unk> team.
Alright.
Achieving record profitability.
Despite.
Many difficult sort of headwinds.
And especially B.
Total China team in our Shanghai factory.
They really had it.
Significant challenges due to the Covid shutdowns and nonetheless.
Being able to output.
The transfer of high quality vehicles.
We are already back up and running.
With.
The Shanghai factory.
So.
Oh.
We remain confident of.
First present a growth.
Vehicle production.
20, <unk> versus 'twenty one.
I think we actually have a reasonable shot at a 60% increase over.
Last year so.
Let's see.
Sure.
Obviously.
Sure.
GAAP production as you will know with Google and Giga, Texas in the past few months.
So two fantastic factories with great teams.
And.
They are wrapping rapidly.
With the new factories that initial ramp always looks small, but it grows exponentially so.
You bet.
We have very high confidence in.
Teams at both factories.
And we expect to.
Rent those initially slowly, but like I said growing exponentially.
With them achieving high volume by at the end of this year.
Okay.
So.
Okay.
<unk>.
We're also working on new vehicles.
No.
That I alluded to at the Giga, Texas opening which is a dedicated robo taxi.
A highly optimized for.
Autonomy, meaning it would not have steering wheel or pedals.
And there are a number of other innovations around it I think are quite exciting.
But it's fundamentally optimized.
<unk> tried to achieve the.
The lowest but fully considered.
Cost per mile and cost per kilometer.
Hi.
Yes.
Counting everything.
And so it's I think going to be a very powerful product.
Where we aspire to reach.
To reach volume production of that in 2024.
So.
I think that really will be a massive driver of <unk> growth.
And we remain on track to reach volume production of the cyber truck next year.
Let's see.
So it's basically.
But once again I'd like to think.
The Tesla employees for their hard work, but also I'd like to thank our suppliers, who have really gone the extra mile.
Okay.
We have an amazing supplier groups.
Yes.
Say a heartfelt thanks to the suppliers that have really worked day and night to ensure that that tells us able to.
Keep the factories running.
And we're really at.
The early stage about journey.
Only crossed 1 million units.
In the past 12 months recently.
And we are we.
We aspire to have two <unk> million units here.
So were basically 5% along the way.
For towards our goal.
But we are growing.
Very very rapidly a year over year.
My hands.
We remain confident of exceeding 50%.
Annual growth.
Sure.
Foreseeable future.
That's great.
Several years several of the next few years.
So okay.
Yes.
And then there is of course optimists switch.
I'm surprised that people did not realized.
<unk> of the Optimus Robot program.
This.
The importance of autonomous will become apparent in the coming years.
Those who are insightful.
Carefully.
We'll understand.
So thats optimists.
But we will be worth more than the card business.
Worth more than SSD.
That's my firm belief.
So.
And then of course insurance is growing well.
<unk>.
Okay.
Expect to address that.
This will be part shortages that limited our progress with batteries and solar so we expect batteries and solar to also grow wells here.
And.
Basically the future is very exciting I have never been more optimistic or excited about the potential future than I am right now.
Thank you.
Thank you very much let's go to <unk> investor question.
Domestic pressures Nemo has historically provided the FSB timelines with not optimal accuracy with lumpy for the optimism for 2022 release, but is there any data at this I can share with investors to help them make their own conclusions on progress being made interventions per mile driven or any other data.
Sure.
Well with respect to wholesale driving.
Of any technology development I've ever been or Bolton.
I've never really seen more kind of false.
<unk> or where it seems like we're going to breakthrough, but we don't as I've seen.
Full self driving and ultimately what it comes down to is that two sold for self driving you actually have to solve real world artificial intelligence.
Which is which nobody assault.
The whole road system is made for.
Biological neural nets.
And eyes, and so actually when you think about it in order to solve.
Cross sell driving we have to solve.
Neural nets and cameras.
To a degree of a capability that is on par with Angola exceeds humans.
And.
Hi.
I think we will achieve that this year.
Best way to.
Reach your own assessment as to join the Tesla full self driving beta program and we have over 100000 people right now enrolled in that program and we expect to broaden that significantly this year.
So.
That's my recommendation has joined the wholesale driving beta program and.
Experience it for yourself and.
And take note of the rate of improvement with every release.
<unk> put out in your release roughly every two weeks.
So.
No.
Youll see a little bit of two steps forward, one step back but overall.
The rate of improvement is incredibly quick.
So.
That's my recommendation for reaching your own assessment is literally try it.
Thank you and the second question is how much of an impact Wilton production shutdown in Shanghai happen in Q2, what is the timeline for localizing the monitoring in Europe , and we'll never be <unk>.
Net where models be prioritized in Berlin.
Both.
Yes, we did lose a lot of important days of production.
There are sort of upstream supplier challenges, where a lot of suppliers or sort of lost many days of production.
But.
Okay.
Tesla Shanghai Giga, Shanghai is coming back with a vengeance.
So.
I think.
Notwithstanding.
But new issues that arise. So I think we will see a record output per week.
From Giga Shanghai this quarter.
Albeit we are missing a couple of weeks.
So.
That means that most likely.
Production in Q2 will be similar to Q1 may be slightly lower.
But it's also possible we may pull wrap it up.
And be slightly higher but it has to be call it roughly on par.
But.
But then Q3 and Q4 will be substantially higher.
So.
It seems likely that we will be able to produce over one 5 million cars. This year, it's Mike.
My Best guess.
And their model III.
It's important for new factories to be focused.
On.
And have the least amount of.
Complexity and variation which is why.
Capable and Giga, Texas, our focus on the model y.
It's <unk>.
From the point at which you have a factory complete.
Making us a small number of units to the point where it's.
Producing high quality vehicles.
In volume.
As.
Sort of nine to 12 months from start of production.
Now hopefully.
Getting better at that ramp so maybe it's a little less.
To get to sort of the 5000 a week.
Level is typically.
That's taken us.
Around 12 months from start of production.
Okay.
So.
Thank you.
Next question is how much raw material exposure do you have measured roughly in percentage.
Signage or cost of goods sold for example.
Given quarter versus one to two years out both direct and indirect separately, how do you think about price increases versus prioritizing higher mixed vehicles going forward.
Actually all on the price increase fund I should mentioned that it may seem like like maybe you were bidding unreasonable about increasing the prices of our vehicles given that we had record profitability this quarter, but the wait list for our vehicles.
Vehicles is quite long and some of the vehicles that people will order.
The waitlist extends into next year.
So.
Prices of vehicles ordered now are really anticipating.
Our supplier and logistics cost growth.
Yes.
February .
We're aware of and I believe will happen over the next.
Six months to 12 months.
So.
Got it.
That's why we have the price increases today, because the car orders that will arrive in some cases a year from now so we have a very long wait list.
And.
We're obviously not.
Demand limited production limited by.
Very much.
Ltd.
Raw material exposure.
Yes, just to add somebody on ethane.
There is different ways to calculate raw material exposure.
I think a simple way.
We estimate we're around 10% to 15% of our cost structure.
Exposed to raw materials.
And just to clarify a couple of things on that so we've been experiencing increases in cost in general, but also raw materials for a number of quarters now.
That pace picked up in Q1, so last quarter.
And what we're seeing for Q2 is slightly higher than that as well.
And as <unk> seen us move it doesn't impact us immediately or directly in some cases, we have contracts with suppliers, but then as those contracts expire we have to renegotiate them. So that there can be a lag in some cases are contracted to directly reflect movement in commodity prices and raw material prices.
But.
And at the timing in which that debt.
That has the pace for that has a lag associated with it as well based on the contract.
And so to <unk> point, what we're trying to do here because it is quite an unprecedented situation of raw material movement and all of these various lags and uncertainty around renegotiating contracts.
It is we're trying to anticipate where things will go and make sure that the pricing that we have put in place at the time that those raw material cost increases hit us that they align and that the company can remain financially healthy and various scenarios as we look out over the next four quarters.
Okay. Thank you very much.
The next question is why does Tesla continues to five dealership loss on a state by state basis versus sticking et federal separately why isn't just by using 800 volt architecture.
And its vehicles, where are the advantages or disadvantages.
Sure.
Tilda standpoint, obviously, we would love to have federal legislation that allows.
Direct sales in all states.
But we.
Not seen.
Willingness on the part of the Congress.
To conduct such loans that over to arise.
A variety of structures.
State laws so.
Fortunately, we have provided on a state by state basis.
And Andrew do you want to answer a question yes.
Yes, sure on the 800 volt thing.
Yes, so it's really a case by case thing for the smaller platform vehicles, three and y.
There is some wins and losses with 800 volts not everything is better.
And so we look at that platform.
Yes.
Not like ignoring the reality that you can go to a higher voltage, but there's nothing really encouraging us to do sell on that platform.
It's really about mass and power and as you look at bigger vehicles. There are some advantages.
On those bigger vehicles, just quantify that.
Additionally, Rs.
Our estimate is that it currently.
Turning for 400 to 800 volts might save a 100 bucks.
It's not really moving the needle and youre changing many things yes.
Infrastructure, all the way through the entire vehicle system, yes.
$100.
Yes, exactly so.
I mean, the USD 110 volts password.
Power and voltage and our gross.
Gross possible intellectual through 'twenty.
But really it doesn't make that much of our homes and appliances were pretty much as well.
So Europe visitor and loss.
So.
The advantages are small.
And the cost is high.
Let's just say like long term like yours now.
It makes sense, probably to an 800 volt architecture.
Probably but it really needs.
Very big vehicle volume to pay for the cost of.
Changing for 400 to 800 volts.
And then.
He doesn't want to continue our growth.
Say that 100 volts also kind of like spreadsheet exercise right 100, $100, sorry, $120 is roughly like a spreadsheet exercise.
You have to get through the full.
And to see that maybe it's in what all the way to 50 or less.
On bigger vehicles, where you are talking about higher power on the charging side are higher power from the battery to the power electronics already you need Mark torque.
And the current requirements go up Theres, a little bit more semiconductor in and actually.
Conductor savings are going to the higher voltage.
And so we do consider that for semi and <unk>, but for the <unk> platform, where we've got everything running and the benefit is question really small.
Basic reserve Robo taxi for Robo taxi doesn't make sense.
So.
Yes.
Sorry.
It says.
Okay.
Okay.
Okay.
Sounds good.
Okay, Let's go to the next question.
Next question is how are the current $46 80 is performing versus expectations set during the battery day in terms of expected range increase in dollars per kilowatt hour.
Okay.
Yeah Yeah.
We're working in all the areas we shared.
On battery day, and we have sort of consistent progress across all of those areas towards achieving the five year cost trajectory.
Goals for the cost within our control, but we do not control.
All of the commodity costs so.
Okay.
That's exceptional callout.
Similar to model three it will take us several years to get rate and yields to the point, where everything that we've discussed is achieved.
Our priority was on simplicity and scale during our initial 46, 80 and structural battery ramps and as we attain our manufacturing goals, we will layer in new material technologies we.
We are developing and higher range structural pack revisions.
I think maybe in a nutshell sure.
I think it probably is fair to say that.
680.
That's a structural pack will be competitive with the best alternatives.
Later this year.
And Andrew.
We think we'll exceed divest alternatives next year, yes, I mean, we have some good existence proofs.
The facility here in Texas like we know how much we spent on capital equipment in the facility and its more than five X less than prior technology installations. So we're saving huge on capex on utilities and personnel.
We know what those loads are and how many people are needed to run what is basically a highly optimized factory and we have massive reductions in both of those so like the cost model is well understood. It's really about rate and yield which will comment in time at the onset and over the course of this year or next year.
Thank you and the next question is how does <unk> plan to secure raw materials required to scale to extreme size.
Okay.
Yes. So this is something we think about quite a lot because what exchange size means swift.
<unk>.
Thank you so much.
At life saving.
$510 million to $20 million.
$510 3 million vehicles.
Levels.
You really have to analyze that.
Sort of macroeconomic.
Peter just like.
What is the tonnage.
Lithium in aid of nickel of cleaner plus base.
Graphite.
Separators electric lights.
It looks like.
Related to <unk> electric macro tonnage.
And we've talked about this for the world as a whole because.
Yeah.
Yes.
We went through what are the limiting factors for <unk>.
Accelerating yes.
A sustainable energy future.
And whatever dose limiting factors, our Tulsa will take action on those limiting factors. So right now we think.
<unk>.
Mining and refining lithium.
As.
Is there appears to be a limiting factor.
And it certainly is.
Responsible for quite a bit of cost growth.
Okay.
Sales.
I think the single biggest cost growth item right now.
And what percentage basis.
Although just blow through.
Truly notice.
The actual contents of lithium demand so is maybe around 2% to 3% of the cell. So five cases occur yes.
Except it's not.
As called out in my itself with by far the like the most expensive.
Heaviest item in the sales of the Catholic.
Yeah.
So that's the the nickel ore.
Our phosphate.
So.
We're looking carefully at all it's good.
Raw materials.
And trying to figure out how we can accelerate.
The total amount of approach reals needed to transition the world to sustainability.
And I think we've got.
We don't have enough time on this call to really go through all those details, but we are thinking about these things and.
We think we'll have some exciting announcements in the months to come.
Yes, one thing I want to call out is like we're also committed to recycling at all of our cell factories, where recycling 50 tons a week right now in Reno and ramping to a 150 with all of that required material going directly back into our Capex supply chain. So we're looking at the beginning and end of life.
Needs here.
Okay.
And that's true like since Reynaldo Giga factory, we started doing that with batteries as we felt newer factories for vehicles for example, Giga, Texas here, where we are today, we sit with all of its.
Non yogurt, our scrap aluminum from the sampling shop directly into the casting shop, we re grind any plastic, but yet and so we're really concerned about raw materials, not just like mining lemon consuming them, but when we get them in the door using all 100% of them.
Yes, that's a great point.
So were his story with tolling.
Okay.
Ralph bonuses for.
Protium <unk>.
For the model Y that we built here.
Texas has both a front and a rare quality casting so towards the casting almost two thirds of the body and then Thats Castle is high pressure die cast women.
And so we can take both alumina both scrap from the casting machine.
The gating that comes out and put them just really tough setback in smelting aluminum melting pot and then as long as we are saying also take at any stampings.
And any other aluminum scrap.
And also throw in that in the melting pot.
In fact.
We've also figured out that we can use.
Wheels wheels from practically any car makers.
So we're going to be recycling.
The aluminum cups moving wheels from.
Legacy gasoline cars as well.
Considering that in the melting pot.
For our.
Aluminum cast body of.
Why.
And also we'll be moving to.
The sort of accounts primary ore body.
Okay.
All vehicles over time.
Well actually maybe let S experts.
Three way.
Thank you.
At what rate do you expect brilinta in Austin to ramp relative to Shanghai are able to leverage learnings from Shanghai or are the processes substantially different in the new factories.
Ram production.
Within Shanghai, because we have lunch launch.
We've now gone through the <unk>.
Basically a veteran teams.
I've seen the three why ramped.
Why ramp, especially.
In multiple locations.
And we're obviously short sharing what we've learned.
So.
Yeah.
Want to get complacent are entitled but.
This should be a faster ramp because we have learned more and we have done a lot to simplify the production process of model y.
That should lead us to a fast ramp.
And Texas and Brian Portland.
We also had good.
Structural casting.
About 30% less robots, we expect it to almost double the capacity for body for example, reducing the.
And reducing the number of robots, but doubling our capacity in lot of areas.
Right The party line.
Sure.
For the structural pack.
If you've got structural packed and.
Alright function rear castings.
Body shop us.
Bob.
Its body shop size dropped by over 60% relative to.
The standard way of making a car.
Our tax rate to General Assembly.
Because yes, we have the structural battery that Florida is the battery we put seats on the battery and then we put that in their current so essentially.
Between 10, and 15% plus stations in G&A.
General Assembly side, yes, because as well so we really like.
I think about this in the way, we think about cars that youre waiting for the best Tesla is going to be waiting forever.
Awaiting for our best actor and Youre also going to be waiting forever, because every new factory, it's better than the last one because we take all of that learning to insurance.
Yes.
Thank you.
The next question is at Ciber Rodeo Elon mentioned that a futuristic driverless robo taxi vehicle is on the roadmap when can we expect more details on the product offering to be unveiled is this something that people can own our lucas be only offered by this license service.
So I think we want to hold off on we don't want to jump the gun on kind of exciting product announcements here much. So I think we will aim to.
If we do a product event for <unk> next year.
And get into more detail.
But we are.
Aiming for.
Volume production in 2024.
Okay.
Alright.
And maybe the last question from investors is what is the current run rate of 46 to 80 salt production at three months and at Giga, Texas, What do you expect run rates of 46% to be entering on the Giga, Texas or Berlin at the end of the year.
Berlin is using the.
2017 non structural.
Pack.
So they're not constrained by $46 80.
We'll transition to <unk> 46, a hopefully later this year.
But current pellet production does require that we also have.
Just as a risk mitigation.
270, non structural pack.
Capability.
Eric kick in Texas as well.
But.
Yes.
If things go according to plan, we will be in volume production was $46 80.
Okay got it.
Perhaps in towards the end of the third quarter and certainly in the fourth quarter with those networks first sector.
The other thing I would add is like put the China COVID-19 shutdown and the semiconductor bottlenecks, we had through Q4 and hence a little bit in Q1, we have sizable self inventory.
At the moment in excess sales to support the 2022 volume targets you described.
It gives us the.
The ability to be pretty deliberate in the 46 80 ramp where we can maximize the learning step by step take engineering downtime to upgrade key pieces of equipment and modify the structural pack designed to improve reliability, all while achieving what you just said so.
46 80.
It is not a risk to achieving one 5 million vehicles produced this year.
But.
Become a risk next year, if we do not so.
<unk> production.
No.
Okay.
By early 2023, but we're highly confident of doing so.
Thank you very much let's go to analyst questions now.
First question comes from Dan Levi from <unk>. Please go ahead on mute yourself.
Hi.
Good evening. Thank you for taking the questions. Two questions first maybe you can just talk through our address what some of the drivers of cost improvement.
In the quarter.
Was it just further improvements within Shanghai or in Fremont.
Anything around sort of ongoing kaizen that you've talked about in the past maybe you can just talk through.
What you benefited from in the first quarter.
Sure.
At a high level cars.
<unk> produced in Shanghai do carry a lower cost structure than cars produced in Fremont.
And so as our mix of cars shift towards Shanghai, and the average cost is positively impacted by that.
We're also seeing some progress in manufacturing efficiencies in Fremont.
Clearly on the <unk> side as volume increases improves there.
Expedite since then and huge story for the company in Q4, we.
We have massive amounts of expedite Q1 will still quite large.
We did make progress bringing that down some.
You mentioned like.
Kudos to the Fremont manufacturing team and our associates there.
Because we are achieving record output.
Pretty much yes.
On the frontline team is doing a tremendous job really set the tone at least from the back quarters.
Yeah.
Yes.
It's hard to under.
Underway like you should.
<unk> situation with the Crazy logistics that occurred with Covid.
And <unk> pointing at the Fremont team and also the Shanghai team that's been extremely dynamic with the unpredictable nature of our partner rivals and our supply chain team in particular production planning portion of that supply chain supply chain.
We often get very little notice when thats part shortages coming and it's kind of a scramble couple of days before that partner supposed to run to figure out how to get it here.
The amount of herculean effort that goes into producing a quarter like Q1, and even in the quarters before that is absolutely immense.
It's like.
Staying in the military.
This is Mike.
Images talk about tactics professionals talking about logistics when it comes to <unk>.
In conclusion.
Yeah.
So there were some inherent cost improvements as I mentioned, but there's also offsets that we've talked about previously on raw materials commodities.
Outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity, there and bring those costs down.
Okay.
Sorry, yes, yes. Thank you.
The second question one of the initial goals of model III with Ackman was to have an EV that was affordable for a wide portion of the market. We know prices are much higher now just given the supply constraints.
These are higher for all of the automakers, we know that there is inflation that youre battling through some of that needs to be passed through to the price of the vehicles.
And youre going to be supply constrained for the foreseeable future. So it's sort of a moot point, but given the the goal long term of making evs more widely available.
The math is over time, how do you look at the progression of prices over time.
We absolutely want to make.
Tvs as affordable as possible, it's been very difficult with the.
Yes.
I think.
Inflation is that like.
Alrighty equal 50 year high.
And I think.
The official numbers actually understates, the true magnitude of inflation.
No.
And that inflation appears to be.
Likely to continue for.
So at least the remainder of this year.
Okay.
When we're talking to suppliers suppliers under under severe.
Cost pressure.
No.
<unk>.
Yes.
Yeah.
In some cases, we're seeing suppliers request, 2032% to 30%.
Cost of revenue.
Increases for parts from.
In the last year to the end of the two.
At the end of this year so.
There's a lot of cost pressure there.
That's why we raised our prices because we.
Okay.
Things with the sensor nodes with respect to inflation.
Hi.
And we're we've got orders that go out a year or more in some cases, then we have to anticipate those.
Those costs increases.
But.
I think especially with the robo taxi and autonomy I think we will end up.
Providing.
Consumers with.
Paul at the lowest cost per mile of transport that they've ever experienced.
Okay.
Yes.
Through a tax like maybe five to 10 times the cost per mile. It's really quite.
Substantial work.
Words vessels undergoing yeah.
I mean.
Looking at some of our.
Our projections.
It would appear that.
Okay.
Robo taxi ride will cost less than a bus ticket.
Cause subsidize bus ticketing.
Or subsidized.
So ticket.
Thank you very much let's go through the next question from Rod Lache from Wolfe Research.
Hi, everybody.
I'm trying to just parse out your comments about the.
Inflation and constrained supply and battery feedstocks and the initiatives that you are working on internally to secure these materials.
It sounds like.
Youre optimistic about Tesla has the ability to solve this for Tesla.
But do you see this as a constraint on EV adoption more broadly.
Yes, absolutely.
Yes.
What's sort of keeping on.
Costs down at least in the short term is that we have long term contracts with suppliers, but.
Long term contracts, we obviously run out and then.
We will start to see.
Essentially significant cost increases.
But.
At a macro.
Sort of looking at the world as a whole and saying.
Okay, what does it take for both to transition to sustainable energy faster.
It's fundamentally the fundamental limiting factor is the output of.
So that basically sell upward.
Yeah.
At what rate can look them ourselves.
Increase gigawatt hours per year.
The fundamental limiting factor.
So.
We'll move as fast as the slowest least lucky elements of the whole supply chain.
Currently we see that.
As being.
<unk> with lithium.
And just to be clear, it's not that this.
A shortage of lithium or in the world lithium is present almost everywhere.
Very common elements, however, you still need to.
To dig up the.
Or.
Basically the spodumene or whatever.
Clay.
With him.
And then you need to go through a whole series of refinement steps.
That's a lot of industrial equipment as needed.
Two refined lithium or to lithium that can be used to ask lithium hydroxide or lithium carbonate in the battery cell.
<unk>.
So.
I think we're going to need to help the industry on this front.
But David I mean industries.
Very very fast.
Encourage.
Entrepreneurs out there who are looking for opportunities to get into the lithium business.
But lithium.
Margins right now are practically software margins.
I mean.
I think a way to think of this business.
Is that correct me, if I'm wrong, but I think.
We're seeing cases, where the spot lithium price is.
10 times higher than the cost of extraction.
So it's not like we're talking 90% margins here.
<unk>. Please go into the lithium business.
Do you like minting money.
Well look the business is for you.
[laughter].
<unk>.
So.
Interesting. So I guess, we'll stay tuned to see what happens from that.
Question is.
It's impressive to see just a modest increase in cost per vehicle cost of goods sold per vehicle given what we've seen in terms of commodities actually and from here you have a lot of savings opportunities with $46 80 cell to.
The cell manufacturing changes the anode chemistries structural patch Giga castings.
Are you suggesting.
Justin.
Even those may not be sufficient to offset the inflation that you're seeing in that you're going to need.
Additional pricing as well in addition to $1 <unk>.
<unk> initiatives that you've called out.
But we hope we don't need to increase the pricing further.
The current pricing is anticipating.
What we think is the probable growth in costs.
And if those growth and that growth in costs does not materialize, we actually may slightly reduce prices. So.
Sure Doug currently anticipate making.
Significant price increases.
But obviously, we don't control the macroeconomic environment.
<unk>.
Keep printing vast amounts of money.
And.
And if it does not.
Significant increases in.
Lithium.
Construction on refinements.
The raw materials, such that everyone's competing for.
Emitted amount of raw materials, and obviously that will drive prices too high levels.
So.
If you have a crystal ball that can tell us what the future will give you a likelihood.
Just accordingly, but.
With current prices are what we would be.
Power prices are for a vehicle delivered in the future like six to 12 months from now. So this is our best guess.
But I think if you zoom out right.
As you said our mission is to accelerate the transition of sustainable energy. So we are working on.
Our existing suppliers and others to figure out how to grow all of these raw materials as quickly as possible to not slow down.
The transition.
And whether that means we have to get directly involved in some cases or not it comes down to the counterparty and their willingness to extend it the way we think they should be able to expand and that that's similar to what we've done with everything else.
We built the Giga factory in right now because it needed to be done.
And so like we will do what needs to be done to not slow down the transitioning affordability is a goal because yes, it's an affordable.
It's going to retard the growth of what is inherently a good thing.
We can have that as an outcome.
Thank you. The next question comes from Pierre Fabre grew from New Street Research.
Can you hit.
Well, yes.
Great.
I'd like to ask some questions about.
Free cash flow.
Did you.
So first maybe in your own granular.
If you look at your performance.
Gross.
Gross motor oil and your growth ambitions.
The masquerade according again.
See you guys sticking on fall, maybe $500 billion of cash at the end of the decade.
And I was one seven.
Now you have given some thought to that.
Yes.
That might be like us.
No.
If inflation keeps going crazy $500 billion might be like.
$20 billion today I don't know.
So.
What we will see what $500 million Biogen.
In a decade.
But it might be a lot less.
So I don't know if we'll ever.
Seems like a lot of cash.
I don't know.
Sure I'll try to do something useful with it.
Jaguar.
So I realize that that's for sure.
Frankly.
We have to take this one step at a time.
And so we have investments that are happening right now.
Austin umbrella and up and running.
And then as Ilan mentioned installing capacity for <unk>.
Taxi production.
And there are some decisions that as Elon alluded too just to share in the future.
And what the economic model looks like.
Okay.
Okay.
Since the economic model looks like for regular Taxane and so the mainline and I have discussed.
Uh huh.
Let's just.
Maybe just to get everyone up here.
Yes, so our focus is to get to the point or rather the taxes are on the road optimization gains get the economic model for that dialed in.
And then evaluate.
The size of cash flows at that point and make deficient Spanish.
So what's next.
Okay do you have a follow up question.
Yes.
Yes.
Thank you.
Okay.
Yes.
Let's move on.
Alright.
Let's go to the next one the next question comes from trip Chowdhry from Global equity research.
Thank you two questions I have.
This is regarding the cyber truck.
I was wondering like in terms of number of box.
Cyber trust compared with the.
Traditional pickup truck in terms of number of box. The second question I have is on the Giga factory, Nevada Fox.
Will be have any production license and that factory or all the future production will happen and Giga Austin. Thank you.
I'm not sure if we've actually done a comparison of cyber truck parts versus regular truck parts Lars.
If you want to go down and really it depends on what your kind of heart restore ourselves in there.
Thompson.
If we don't count that like the simplicity of our structure is.
Cause significant versus traditional.
Pickup truck or any other vehicle.
As we've talked about particularly castings, we save hundreds of parts.
I mean, the entire rear kind of half of the car is one plus one one cost.
So with the cyber chart in the doors. For example, we have an exoskeleton designed where the doors ready and it takes a holder.
Side long term impact so it really has like we don't have a tour reinforcements we don't have crushing.
Crashing tiered menus.
To your point haven't counted them, because I don't often look back at <unk>.
<unk> technologies to decide how long I'm doing a check that once in a while but and.
In General architecture is always moving to reduce complexity reduce parts of our it gives <unk>, Kevin I would say ignoring the battery cells, we're probably.
20% to 30% margin.
Alright.
Okay. Thank.
Thank you, let's go to the legislators legato.
Or do you expect to expand would you.
Expect to expand kick in Nevada.
There's a lot of room for expansion, there and would you expect to.
<unk> increased our output from Nevada.
But.
By far the biggest increase in output will be from Greg of Texas.
Thank you very much. The next question comes from Alex Potter from Piper Sandler.
Alex can you hear US, yes, Hi, Martin can you hear me, yes, okay.
Okay great.
So first question I had was the extent to which.
Other plants outside of China.
Our insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID-19 lockdown things gets out of hand, clearly that's going to continue impacting Shanghai, but is there a point at which it could actually also impact other facilities.
Yes, if you were to continue.
There are some parts that are sourced from China apply worldwide.
And that would be that would impact production elsewhere, but.
All indications are that.
Okay.
We are.
Our Giga Shanghai is back in production.
At fairly high levels Friday in.
So our suppliers. So we don't think this is going to be a big deal.
Okay, Thanks, and second question.
Obviously, there are higher profitability you guys have been able to experience over the last couple of quarters, a lot of that is reflecting sort of corn quote real improvements.
Other part of it is because we're no longer paying you Elon as much as we were so I'm wondering.
The extent to which you and the board are in the process of contemplating another one of these long term compensation packages, which in the past it seemed to work quite well.
There are no no discussions currently underway for incremental competition for me.
Thank you.
Next question comes from Colin Langan from Wells Fargo.
Oh, Great Hey, guys here me.
Yes.
Just a follow up sorry to keep going on the raw material issue on the battery side of it obviously seems pretty important how quickly can raw material supply V belt, because my understanding it takes many years to build that out. So are we just sort of facing when do you think we see lithium shortage or a nickel shortage and is there even enough time to build that sort of mining capacity in place.
And then related.
How quickly can you switch to like LSP.
Alicia.
Yes, I'll take the question.
And it says, though in our letter, but like half of our products for LLP last quarter, which shows how quickly we were able to.
Respond to.
Honestly it wasn't because of the raw material shortage, but just because it seemed like the right thing to do we could change our cathode chemistry.
And there is more to be done on.
On the Capex side, and we are actively pursuing it to to give us substitution flexibility in response to market conditions between.
The other cathode cut catheters that are out there that can be competitive in our vehicles for which there are many options.
So we.
I guess, what I would say is specifically on the cathode side like flexibility is the way we're going to achieve this and not all of the materials that go into cathodes are actually for.
First of all hard to secure like reminding our refining.
And second of all in many cases are like with very plentiful already like huge scale and if all of the batteries in the world use those cathodes, it's less than a 1% increase in total.
Annual output.
That's the Capex side, I think <unk> already spent a lot of time talking about lithium.
It really depends on the resource and some resources like just getting rocks out of the ground.
Spending the amount of rock that Youre getting out of the ground is maybe a little bit of paperwork and some additional.
Sort of plastic and trucking operations. They are finding is as maybe where there's it's a little bit more chunky to bring it online but also the refining it doesn't it's not like an oil refinery its a much much smaller operation to refine.
The amount of spodumene ore for liquid.
Brian or salt Salt ponds evaporation. So you are talking about at a time scale of one to two years and it's not like we haven't been talking.
To all of the lithium.
Suppliers out there for many years they have a lot of projects already in the pipeline to come online this year and next.
Some of what's going on in the lithium market share it doesn't actually.
Half truth to bear to the fundamentals of supply and demand.
Which is also a little frustrating.
But but but yes, if we look past this year and next year and into 2030, when we need 15 to 20 terawatt hours of this stuff too.
Get on the growth trajectory stay on the growth trajectory we're on.
We need we need everybody to do more in the lithium space than they currently are.
I know if that answers the question.
Yes.
Thank you very much so let's go to the last question from Mark Delaney from Goldman Sachs.
Yes, good afternoon, and thank you very much for taking the question I was hoping you could comment on your latest thoughts about potentially opening up the charging network in the U S to non Tesla owners, certainly really important to have a good experience for Tesla owners in terms of wait times are charging installs, but.
The test was able to have enough capacity it could be a really good way to bring other vehicle orders into the Tesla network, perhaps helped Tesla to sustain its network benefits and maybe make more people likely to buy it as the vehicles in the future.
Okay.
As as Elon has said and as we've publicly committed yes, we do plan to two.
Provide third party vehicle access and all over the world not just in Europe , where our original pilot was in <unk>.
We are working.
Working on solutions in North America, which is a bit more problematic with.
Our.
Connecter being different than others.
But we are.
We are moving in that direction.
Come on up.
Yes.
Thats.
More to be setting up for growth.
Yes, we want to do the right thing with respect to the whole system.
And we're going faster on adding Chargers.
Absolutely.
For clients that we're producing and then anticipating lectures discussing overall charter capacity is very important.
The pace of our investment and Supercharging has accelerated absolutely.
Okay.
Okay. That's helpful and for my second question could you share any more details on Tesla insurance in particular as you're rolling it out in more states and are there any metrics you can share on what take rates have been like in housing our profitability and margins on the insurance offering compared to the Hopper average. Thank you.
So we just launched Tesla insurance.
Real time insurance in Virginia, Colorado, and Oregon earlier this week.
Maybe one stat that I'll Saracen 10 census, our longest standing realtime insurance market.
Based on the information that we have touched on is the second largest insurer of Tesla and the state of Texas.
And.
Possibly by the end of this quarter, maybe early next quarter will be the largest in China.
Cash flows.
The customer reception to this has been quite positive.
And.
I was reading social media on Monday, after we launched in 19 states.
A lot of folks who are reporting that storage the same thing quite substantial amounts of funding relative to their previous insurance.
And so we're quite encouraged by that and we're working as quickly as we can to get to 80% of customers, having access to a Tesla insurance product by the end of this year.
In the United States.
Bridgepoint welcome and our attention to expansion outside of the U S.
The other thing I'll say on insurances with these three new states.
The model is different because they are now the underwriter and we are also not holding the risk.
So with those states, we are a fully vertically integrated provider of insurance from systems and financials.
With respect to the financials of the program, it's still very early and so as the program gets more scale.
To share more information on that.
And one side note is that we are seeing that the.
Having real time.
Feedback for <unk>.
Driving habits.
Is actually.
Resulting in Tesla owners.
Driving our cars.
In a safer way.
So.
Because they can see the.
If they get real time feedback on.
This is affecting my insurance rate or it isn't.
And.
So.
And people will consider near real time score.
And realize that we've got.
Make the polling changes Mike.
Driving habits, then I pay less in insurance.
They have.
Real time feedback loop for.
Driving for safer driving.
To do so so it is actually.
Seeing as it is causing people to.
Drive their cars in a safer manner.
And also not good.
It's safer on average what we see in the data that <unk> 10.
Premiums are lower.
We see that and they take great data to have extremely high retention.
For customers, who experienced the product.
I think I've talked about this in the past, but this has become a real passion program for us.
These benefits, it's bigger than just the economics.
Trying to do a good thing here.
For our customers' safety.
Save people money and make the rents a little bit safer and I think it improves just overall macroeconomic conditions.
It's also a feedback loop for Tesla because.
Because we see.
If there is.
Crash.
Large or small.
We still see exactly what that cost and now we are you can think about how can we change the design of the car or the software.
In order to minimize the probability of that.
Excellent because most accidents are minor.
But how do you how those accidents occur less frequently.
And how do we make the repair associated with an exit that accident.
Super fast like aspirational here like same day repair from FERC collision.
Which is night and day difference compared to sometimes having to wait for a month, while insurance claims are settled and figure it out.
Because Tesla is also doing collision repair.
Again, the feedback loop of influence yeah, right. So I mean, we do claims management in house and so we received the notification that theres an accident, we work to prepare the estimate.
And we can with the support of our customers use our collision centers to date and the parent.
And so its full end to end visibility in all of that to <unk> point. We can then identify areas for cost and efficiency pizza is back to engineering teams or elsewhere software teams actually improve the product.
So as the constant.
Improved reliability of the product.
Full circle.
If the customer experience.
Just possibly better.
It was an accident it does no argument.
We repaired immediately.
This is compared to arguing with an insurance company and then the claims adjuster and then a question repair center and.
This is <unk>.
This can be a nightmare basically so what we're trying to turn a nightmare Intuit dream with Tesla insurance.
Fantastic. Thank you very much. Unfortunately, that's all the time, we have for this quarter. So thank you very much for all your great questions and we'll speak to you again in three months.
Thank you.
[noise].