Q3 2022 Tesla Inc Earnings Call
[music].
Good afternoon, everyone and welcome to Tesla's third quarter 2022, Q&A webcast. My name is Martin Villa Count VP of Investor Relations and I'm joined today by Elon Musk Zachary <unk> corn and a number of other executives.
Q3 results were announced at about three P. M Central time in the update that we published at the same link as this webcast.
During the call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC.
During the Q&A session portion of today's call. Please limit yourself to one question and one follow up.
Please use the race and buttons to join the question queue.
But before we jump into Q&A Elon has some opening remarks.
Thank you Martin.
So just to do a tier three repo to freak out.
Q3 was another record quarter on many levels.
We had our industry, leading operating margin reached 17%.
And our free cash flow surpassed 3 billion Q3 and approaching $9 billion.
Once.
<unk> ramp.
Forward to a record breaking Q4.
Or is it really.
Knock on wood it looks it looks like we'll have an epic and end of year.
So Q4 is looking extremely good.
On the <unk> Giga.
<unk> achieved another milestone.
2000 cars made in a week.
Very good quality.
And.
It's ramping rapidly.
Austin, Texas.
Texas should reach this milestone vessel.
In fact, just yesterday, we extrapolated yesterdays bulk rate it will be 2000.
Our production of $46 80 cells has tripled in Q3 compared to the previous quarter.
We are finally, gaining rapid traction on the 4600 or so.
And.
Its output is growing.
And we expect it to start incorporating and cause and having it be.
I would say a significant portion of our production there in Texas.
Months.
We also have our second generation of manufacturing equipment.
<unk> thousand 600, yourselves in Texas, which continues to show great progress on our original pilot lines pretty much.
The Fremont factory team once again reached record production in Q3.
Intend to keep raising production and prelaunch.
Regarding autopilot at the end of April .
At the end of September we hosted our second AIA.
<unk> the first prototype of our Optimus robot.
The latest updates on <unk> computer.
And.
By range of improvements of course, our pricing software.
Our vehicles now drove nearly 60 miles and wholesale roaming beta mode. In December continues to grow exponentially.
I'll go with that payout was to push recruiting and we've seen a massive influx of world class artificial intelligence.
Eric.
Plant just.
Resumes so.
Generally a tremendous amount of interest from some of the best AI researchers in the world I can't emphasize the importance of Brazil.
Finally has become clear to us.
<unk> was our smallest AI.
Technologists in the World that Tesla is among the very best.
So.
And this quarter, we expect to go to.
A wide release of wholesale private beta.
In North America so.
Anyone who has ordered.
Also driving data for that program will have access to the FSB paper program. This year, probably about a month from now.
So.
Our outstanding New Cup, new anyone who buys a car.
Purchase pushed through wholesale private option will immediately have that available to them.
So the safety that we're seeing.
On the cars and FSP mode is actually significantly greater things from a safety, we're seeing bandwidth when it does not.
As a key threshold or go to a wide data.
Let's see with respect to demand.
Okay.
But a lot of question about demand in recent weeks.
I can't emphasize enough.
We have excellent demand.
For Q4, and we expect to sell every car that we make for.
As far as future as we can see.
So the factories are running at full speed.
And we're delivering a recovery make and keeping operating margin strong.
Sure.
We're still a very small percentage of.
Of the total vehicles the road of the $2 billion plus in trucks in the road, where we only have about $3 5 million.
We've got a long way to go to even reach 1%.
The global fleet.
Let's see there based on Mei.
But.
When people are.
Based on on many things but.
Certainly questions, we get on Twitter about buybacks.
I think every one of our board members has gotten questions about buybacks.
B, we have debated the buyback idea accessway at board level.
Yes.
Report generally thinks that it makes sense to buyback we want to work.
Broke through the.
The right process to do a buyback.
It is certainly possible for us to do.
Buyback on the order of $5 billion to $10 billion.
Even in a downside scenario.
Next year, even if we give a refresher is.
It was a record year.
We still have the ability to do a $510 billion buyback.
Obviously pending.
Board review and approval.
So.
It's likely that we'll do some some meaningful buybacks.
So in conclusion.
While the market themes revolve around the short term.
Very important to focus on the long term.
I can't emphasize this enough with <unk>.
Investors and I think.
As long time, investors, obviously rate classes, which with Tesla.
Right.
We are just sort of local ups and downs, but long term trend has been extremely good.
And several years ago.
I said.
I think on our earnings on an earnings call.
Yes.
I thought it was possible for Tesla.
With more than Apple, which has been the highest.
Market cap company I forget the market.
And Apple time, I think was around 700 billion.
And I said are required.
Incredible execution.
But at least some lunch.
And we did indeed.
To achieve that as they went through.
In fact.
Our past.
Apple's market time.
Got it.
And.
And now.
Some of the opinion that.
We can far exceed apples current market cap.
<unk>.
I see a potential path, which has led to be worth more than Apple.
And Saudi Aramco combined.
So.
Now that doesn't mean it will happen.
Or that will be easy in fact on our group will be very difficult for a quite a lot of work.
Some very creative new products.
Tremendous expansion.
And always somewhat.
But for the first time I am seeing.
I see a way for <unk> to be.
Uh huh.
But let's say roughly twice the value of Saudi Aramco.
And I think thats.
I haven't quite seen that yet.
This is the first time <unk> seen that potential.
So.
Probably we have an incredible product portfolio I think we've got.
The most exciting product portfolio of any company on Earth.
Some of which you've heard about some of which you haven't.
Fair enough.
Final.
Lapsed for cyber truck.
For both buildings have truck line here at <unk>.
Giga, Texas Austin.
And.
We have a lot of progress in the robo taxi platform design.
And.
Alright.
With respect to.
Batteries Ware.
Moving as fast as possible to have.
Joe to achieve 1000.
<unk> production capacity in the United States.
Vertically integrated.
And our cat beverage.
Second in refining.
We're moving at a top speed to do that.
So.
So we're incredibly exciting future.
And really unprecedented future.
But none of this would be possible without the incredible team that we have here at Tesla.
So I'd like to give a huge shout out to all of our factory employees.
Insurance.
And then the whole Tesla team.
You guys rock.
Hi.
The other ones they can't happen. Thank you.
I think everyone.
Thank you very much Zack as our opening remarks as well.
Yeah. Thanks Martin.
Just to continue on the on screen.
Thank and congratulate the Tesla team for achieving record vehicle deliveries production and storage deployments in the third quarter.
On automotive profitability, our GAAP operating margin was 17, 2% with automotive gross margin at 27, 9%.
Operating margin is one of our best yet with improvements in operating leverage however, Austin in Berlin ramp costs weighed on our margins, particularly as you compare it to Q1.
We're moving regulatory credits and Austin in Berlin are operating margins would have been our strongest yet and on a gross margin would've been nearly 30%.
Note that while small and growing each car, we built an Austrian Berlin is contributing positively to profitability.
We also continue to experience margin headwinds associated with macroeconomic conditions as we've discussed at length on prior calls in particular raw materials logistics and foreign exchange was a big part of this past quarter.
On energy profitability, we achieved our strongest gross profit yet for this business driven primarily by record volumes of our Mega pack in parallel products.
Our free cash flows were also a record despite an increase in cars in transit at the end of the quarter, which has a negative impact on working capital.
Specifically on cars in transit as noted in our press release on October 2nd they started to experience limits on outbound logistics capacity, which we didn't anticipate.
This issue is particularly prevalent for ships from Shanghai to Europe , and local tracking within certain parts of the U S and Europe .
Our historical operating pattern of batch building by delivery region needs to extreme concentrations of outbound logistics needs in the final weeks of each quarter.
Just to put this in perspective, roughly two thirds of our Q3 deliveries occurred in September and one third in the final two weeks.
As a result, we have begun to smooth the regional builds throughout the quarter to reduce our peak needs for outbound logistics.
Expect us to simplify our operations reduce costs and improve the experience of our customers.
As we look ahead, our plans show that we're on track for the 50% annual growth in production. This year, although we are tracking supply chain risks, which are beyond our control.
On the delivery side, we do expect to be just under 50% growth due to an increase in the cars in transit at the end of the year as noted just about.
This means that again, you should expect the gap between production and deliveries in Q4.
Those cars in transit will be delivered shortly to their customers upon arrival to their destination in Q1.
Okay.
Boston and Berlin ramp costs will continue to weigh on margins, although we expect the impact to be less than what we saw in Q3.
And as Alan mentioned, we are continuing to build as many cars as possible.
Maintaining strong operating margins. Thank you.
Thank you very much and let's go first through the shareholder questions.
Our shareholder question is given the stringent battery content and assembly requirements for consumer tax credit eligibility under the inflation reduction Act.
Speak to <unk> ability to meet those thresholds in each of 2023 2024 and 2025.
Our existing and planned supply chain.
Well, yes, I mean, I think just at a high level I'll say, we do expect to fully meet the.
<unk> requirements.
Yes.
We view that passionately inflation reduction act as a significant boost towards accelerating our mission. While also scaling the battery supply chain at large in the United States is such as you to publish detailed guidance by the end of the year until such time its difficult to fully determined eligibility criterion that we believe Tesla is very well positioned to capture a significant share of that sort of solar storage and electric vehicles.
Yes, I'd like to say we will.
Alex It like I said earlier, we're going to go.
So basically pedal to the metal.
As fast as humanly possible to get to 1000 gigawatt gigawatt hours a year of production in the U S.
We integrated.
Thank you.
Let's go to the next question next question is what updates can you offer on the backlog and recent order intake trends, especially outside of the U S and especially in China.
Well it's a.
This definitely.
China is experiencing.
Our diverse of a recession of sorts versus property market distribute driven property market mostly.
And Europe has reception switch.
Driven by energy.
Actually using.
Great.
North America is in pretty good health.
Although the fed is raising interest rates lower than they should but I think they'll potentially realize that and bring it back down again.
So.
The bad news, a little hotter than otherwise be but as I said earlier.
Our extremely confident of our great Q4.
We.
Space continuing to grow.
Okay.
Sure.
Our vehicle production sales deliveries by.
On average, 50% a year plus.
Thus far into the future as we can see.
Thank you.
The one caveat I stick.
Growing production by 30% every year, because deliveries, which was 3000 deliveries in March.
How those crazy delivery wave at the end of every quarter. So.
In fact, we were just fundamentally run kind of.
Should they weren't enough votes or enough trains there weren't enough car carriers to actually support the wave has it got too big.
So.
Whether we like the drug we actually have to smooth out.
Delivery of cars intra quarter, because there just aren't enough.
Transportation.
Yeah.
Okay.
Objects to move them around.
Okay.
Thank you.
Our next question is do you still expect 50% annualized growth for the foreseeable future. It is also true specifically for the Chinese domestic market do you expect.
To me to cut vehicle practices for offer incentives in any markets and sustained demand.
Or has demand remains stable or even rising.
Quite a few questions there.
But like I said.
We wanted to focus on a high level on what we think is possible here.
To best of our knowledge, we believe.
Tessa will continue to grow.
Deliveries and revenue production.
Production at 50%.
Greater compound annual growth rate.
We might occasionally be a year that is little less than seven.
Some years will be maybe a little more or a lot more.
And some of our out year planning.
We see potential.
Annual growth rates that are in excess of 50%.
Thank you.
The next question is can you tell us more about the product feature roadmap beyond new models of efficacy and especially for interior and powertrain of existing vehicle models.
Yes.
We could <unk>.
Sorry, guys, we can't we can't like jumping on huge product announcements.
Committed to continuous yes, we obviously are going to be hit yet.
Yes.
But that surplus.
Not really.
There will also be committed to continuous improvement.
Yes, it does.
We've always been committed to continuous improvement.
<unk>.
The spreads might have asked me like when should I buy a car online.
Now because we just keep improving the cars.
It's always been.
<unk>.
Hum.
And I really see that.
Every now and again, we do have some big technology upgrade like flat.
And by the way.
That model S. Max of the best cars on Earth.
On a year on gross margin.
Just try one.
Perfect.
Thank you.
The next question is we keep hearing of dire energy prices in Germany, because winter product.
Tesla's plans to combat power cuts and.
Will there be any delays in ramp up in production from Giga Berlin because of this.
Yes, I can take that.
Turning to Simon's question.
The first is that.
And based on everything that we know we don't see this as a large risk to the company.
Even our production down did go down for a period of time. This is our near term it doesn't have any impact on the long term of the company, but we don't work with US we have no indication whatsoever that we will have to cut our production equipment.
And we put in place backup plans and are working through the supply chain as well nearly all of our suppliers have prepared as well so.
We'll see how this plays out but it's not something that we're terribly worried about.
Thank you and our next question is how is production planning going for the cyber truck.
What is the initial phase one production targets when can we expect an update on pricing and final design.
Okay.
No.
You answered earlier, we'd be unproductive.
These preparations here and Giga, Texas for cyber truck.
We're still on track to answer.
Early production in Middle of next year, we started our.
<unk>.
Our battery battery.
Just last one kind of drop my Beda.
Okay.
Thank you.
Okay, great. Thanks, Thank you.
And it's going well.
We continue ramping up through the end of next year.
In 2020 through great.
The other category.
Holzheimer next level.
Sorry, sorry, it took longer than expected, but there were a few things that gotten away like <unk>.
<unk> global supply chain shortages and patterns.
Furniture was majority of February one.
Alright, thank you.
Of course.
Tesla semi portion.
So we'll be hanging over our first production test of semis.
Two Pepsi on <unk>.
<unk> person.
There will be began ramping up production of the Tesla.
Semi which is a.
Mac slow recovery.
Heavy truck.
The house HR class eight truck no sacrifice to cargo capacity, yes, exactly very important our sacrifice Chicago pasty 500 mile range.
I'm sorry.
500 miles with the cargo.
With the current level.
Level ground, yes, Sir.
Sure.
Got it.
Excellent.
Physical point as it gives them a long range truck.
Even with heavy cargo.
And the number of times here, what's out I know you can't it's impossible to make.
But long range.
Heavy duty class eight truck.
And then on asphalt.
What are your assumptions about what our kilograms and whereas per mile.
Compared with the blank stare and then say hydrogen.
Unlike notice that's not the answer I was looking for numbers.
[laughter], let Julie.
That's not a number.
On a per table.
You're obviously running hydrogen for heavy trucking.
We're trying to make here.
And we will be ramping up semi production through next year.
Thank you everyone knows at this point.
Takes a year to ramp up production, so we expect to see significant.
We're tentatively aiming for 50000 units in 2024.
So the semi in North America.
Obviously will expand beyond North America.
And <unk> itself.
Following suit sacrifices, but they're much more than a passenger vehicles.
[laughter] 30000, heavy trucks authors nature would be worth.
Several.
Otherwise.
Thank you.
The next question is what is the progress of the 46 80 sell Ram.
What factors determine whether vehicles get 2017 versus 46 80 cells, how will that change in the next year.
Yes ramp is going well as Ivan said total output is up three extra quarter over quarter and production is tracking to exceed 1000 process per week this quarter as we said.
Our last quarter.
Our focus is now shifting from 100% ramp to cost and further expanding production capacity in North America.
As I mentioned on the 20, <unk> 70 versus <unk>.
In our factories, we really attempt to minimize factory complexity and product changeover.
So making sure we get enough new product into the channel and to learn how it is performing.
And that's that.
Sort of mix is going to shift as <unk> scales here, adding to the overall factory ramp.
Proceeds in Texas.
Right.
But basically <unk>.
Sharp fortunate steady rapid is growing exponentially.
Okay.
It's going well, we're looking at this business is going to.
B, a very major packages in future.
Tax uptick yes.
Yeah.
Thank you Sir.
Our goal is to strive towards 1000 gigawatt hours a year.
Annualized production.
Thanks, a lot.
Thanks Hassan.
Not including Splash.
Plasma would be on top of that we need to get 300 to 400 terawatt hours up.
<unk>.
So yes this was roughly.
To transition to sustainable energy our calculation.
For both stationary and vehicles.
Yes, 300 chip.
100000 gigawatt hours or three to watercolors.
So when youre like one tower it sounds like a lot.
Longtime about hours ago.
Sure.
On the Capex side.
Okay.
Bank catheter, we think probably be.
Iron.
Hum.
Most of the items.
Despite an iron can scale to very very high tonnage.
And then so.
Nicole the exact percentages of Hartford out, but it's probably at least twice as much iron catheters in the cycle.
Great.
And then there's the manganese wildfire as well.
All right Peter.
Okay.
And on that note.
Shifting aggressively North American Iron Kathryn.
Yeah.
We can talk about.
Yes.
Okay. Thank.
Thank you. The next question is on the semi truck, which we already addressed that so I'm going to skip to the next one.
Can you talk about how Tesla could adjust if we were to enter a prolonged recession, including new product prioritization investment flexibility new factory versus factory expansion with service support infrastructure productivity cost measures.
Demand stimulus stimulation of alternatives.
Well to be Frank.
We are going pellets the metal.
Hmm.
Rain or shine so we are not.
Sure.
Reducing our production in any meaningful way.
Recession or in a recession.
No.
It's the 1% point come in yes exactly.
I think the public at large realizes that towards moving towards electric vehicles and that it's foolish Jackie.
On a gasoline car at this point because the residual value of that testing costs can be spread level.
So.
So I think we wanted to get a very good spot.
Bedroom is recession proof, but it's certainly a.
Recession resilient.
Because basically.
Yes.
When people go.
<unk> made the decision to move away from gasoline cars to electric cars.
And then.
And transitioning.
Breakfasty generation to.
Sustainable do need solar and wind with the stationary battery pack to buffer that.
Power. So you have 27 power because when does it all the time and the Sundance Channel time so.
Federal system.
We we actually.
See the energy storage business stationary storage.
During more like.
No.
150% to 200% a year.
But much faster than cars.
Right.
And sorry, just to add.
Before you jump in Miami.
In fact <unk> claim.
Zinc.
Okay.
Where our cash balances, what our forecast and cash generation is where our margins are as a company.
We can withstand.
Quite a lot of downside.
Before we would have to dig into our capital plans supercharger expansion product lineup.
So.
The business has done quite well over the last handful of quarters.
And this is a real opportunity I think for the company and our platform.
And the most aggressive way as you know on inflation, yes.
Yes, we try to model out like let's say 2023.
A brutal recession here.
Even then we generate meaningful cash.
And that was once you get out of that which are a core classics.
Great. Thank you very much and let's go to the last investor.
Investor question, which is the.
Progression from Tesla first platform with US are next to the second platform with three and why that is.
50% reduction in cost of goods sold.
Yes.
Tesla third platform being released.
And what level of cost of goods sold reduction could you a cheap.
Well, we don't talk exact exact dates.
This is a.
I mean the.
A primary focus of our new vehicle developments.
Obviously, yes.
We at this point, we've done the engineering for cyber trucks and for semi and <unk>.
So <unk>.
I guess, what I, what we are working on which is.
Next generation vehicle, which will be.
About.
The costs are.
Through our platform it'll be smaller straight there.
But.
Patrol.
I think structurally become.
Specifically exceeded production all our other vehicles combined.
What.
Yes, I mean, obviously, we're going to take everything we learn from that.
<unk> three <unk>.
Retarding, some importance to that platform.
As you've said to us many times, Brian at Super one target so yes.
Biases.
But trying to get to that 50% number again.
To start with.
We're going to take two.
If thats exactly.
Loan spreads which were transparent.
But we make two cars for that matter.
Ever.
Currently takes us to make one Basel III.
Yeah effort costs, yes.
Thanks.
At loss at the past.
Factory floor space.
With twice the output.
And we do believe this can be done.
By the way.
I should mention that you wanted to.
That's probably.
But I see a path again extremely difficult.
Pivotal paas incredible execution required mass amount of hard work and some luck too.
To get to where Tesla is worth as much as Apple.
Et cetera, so combines.
I wasn't including Optimists.
Thank you <unk>.
Let's go to analyst questions Max The first question comes from Adam Jonas from Morgan Stanley .
Go ahead on mute.
Great can you hear me now.
Yes.
Elon would you consider vertically integrating into mining that's my first question.
And we will do whatever we halfway or whatever.
There were limiting factors will do.
But we do not.
Artificially constrained ourselves.
Okay.
We don't vertically integrated just for the Hell of a vertically integrating if there if there was a great supplier who's better than us or we can effectively is very good.
Or even where the economics of comparative advantage suggests that which gives us higher even if we could beat them, but we can use our resources to do something else that would be more productive than we than we wanted in that case.
Sure.
Okay.
If we have if we have to go mine.
Yes.
We will mine.
Okay. Thanks, a lot and my follow up is one terawatt hour.
Manufacturing in the United States vertically integrated.
I guess my question is what would need to change with U S. Permitting laws to allow that kind of what would be your message to this administration or next.
And do you think you could do a terawatt hour, what's the going price of that can you do that for under 100 billion box in the states.
<unk>.
Well I mean, I think the message to the government would be that there should be.
I should say, we've actually had conversations with a number of senior government leaders.
<unk>.
Winehouse Congress and whatnot.
And the suggestion that we have is that this should be an expedited permitting process for anything which is critical to a sustainable energy future.
So it doesn't make sense to put like a coal mine and.
A sustainable.
Sustainable energy battery like lithium.
Mine in the same category.
Call does not have a future with the observed and.
And by the way you can extract lithium for the fourth.
There was no disturbance.
The local environment.
So.
Okay.
Some ugly nasty client situations.
So.
So I would recommend expedited permitting.
It would be helpful.
Basically yes.
Fast track environmentally.
Sure.
<unk> has fast track things that are important for the environment.
Commodities reassured us that seems logical.
And the reception has been positive so we'll see if something happens.
Pat.
Following this earnings call, we are not ready to go into financial details of the.
What it would take to get there but.
What we are seeing is.
Practical improvements as we redesign.
The whole supply chain and all of the elements that go into.
Battery cell.
Ah.
We're seeing where we are.
We're figuring out.
Dramatic efficiencies.
And I think we will.
Net results, which would be that the.
Capital required to.
To achieve that level of output will be much less what people think.
Thank you very much so let's go to the next question from calling Langan from Wells Fargo.
Cowen go ahead and help mute.
Colin can you click on mute.
Can you hear me now, yes, we can hear you, okay, sorry about that.
Any update on full self driving I think you had said a couple of quarters ago will be available by the end of the year is that still possible is it would it still be like a level four level five that youre talking about and are there any sort of regulatory hurdles you have to think about.
As said earlier, we're expecting two beliefs full self driving software to anyone who orders the package.
<unk>.
Putting in this year.
<unk>.
As a separate matter of sue.
We won't have regulatory approval it would have regulatory approval at that time.
But.
The call will be able to take you from your home to your fuel.
Your friend's house.
Grocery store.
So that you're touching wheel.
So.
It's looking very good.
Okay.
It would mean, Mike level four level five kind of traditional definition youre talking about.
This.
Debate us like what's the what are the interventions.
While none of us are even safety interventions per mile.
I think with us.
<unk> quite ready to have no one behind the wheel.
It's just that.
If.
You almost never have to touch.
The controls controls.
So when I came to Giga, Texas.
From.
Friend's house.
I never touch electrodes over here.
And then.
There is a longer process of like a cold March of lines of like how many nines reliability do you need before.
Jacobs.
Really comfortable saying.
But the car drive with no one in it.
And.
Yes.
There's some subjectivity as how many 908.
But.
So I think we'll be pretty close to.
Ah.
Having enough lines that you would have known in the car by later this year.
And certainly with us without question.
That's why we are in my mind.
Thanks sure.
I think we'll also have enough data next year too.
Yes.
Sure regulators thoughts.
The car is safer much of an average human.
Hi.
Okay.
Got.
And just as a follow up you mentioned.
<unk> is about IRA.
Sounded like you thought you could get.
Can you get all of it because my interpretation is like the production credits battery component credits for buyers seems very likely for you guys is the sourcing part of it possible because that sounds like a pretty tough hurdle given how much has to be sourced from the U S.
Yes.
So we have a cross functional team that is looking very closely as you mentioned the sourcing threshold increases by the year.
So we're looking at all options and also getting some clarification from treasury.
It's important to say thats only a fraction of the other credits we do manufacture ourselves in the U S. We manufacture the modules.
In the U S. So that's pretty clear.
So yes, we feel confident that we will have a parts as these incentives.
As a threshold sort of embraced by the <unk>.
We will meet those thresholds.
Thank you.
First question comes from Colin Rusch from Oppenheimer. Colin. Please go ahead and on mute yourself.
Thanks, so much guys.
Laredo has been pretty impressive here and I'm curious about.
Areas, where you can.
Yes.
Invest in an incremental way, whether it's on the R&D side or on the sell side to accelerate growth or cost.
Or should we be thinking about this.
First of all stand on a go forward basis.
Significant operating leverage as we scale up from here.
Yes, I mean, our operating leverage has improved quite a bit since the lowest first quarter. Thank you.
And by a decent amount.
Our opex as a percentage of revenue I mean, our forecast is that it will keep reducing I mean, I think the way to think about it is.
Yes.
Total amount of operating expenses for slowly pick up as the company grows it's very hard to keep it flat with the rapid growth of the company, but its growing much slower.
So some amount of growth there, but the top line of the business is growing so quickly.
So.
I think there continues to be enormous opportunity to improve the overhead efficiency of the business and we're seeing it yes.
Alright, great guys I'll take that offline.
Yes.
We are in.
Yes.
For now.
Quite a quite good position of where to.
Investing in everything we can think of to possibly invest in.
And we are still generating cash.
So.
I guess it gets pretty good place to be.
How many R&D programs are running in parallel right now to us.
<unk>.
People don't even know all the R&D so per day.
There are some of them.
And so we also don't think cash is a good gauge of how much R&D you know it is like this.
Thanks.
And engineers.
They're not generic.
So it's just like if you spend.
<unk>.
$5 billion or 10 billion that will like.
That your actual R&D Atlanta's useful products ship ship will be proportionate to that it's just not true.
The theatres onto upon career of some assembly lines.
Electric east or so until we get optimistic after a system change things.
What matters is where are the most brilliant people working.
And.
<unk> remains the.
Is this basically two companies where the smartest engineers 101.
We don't have to spend billions of dollars to.
Invest in the future an event in the future engineers are also cost conscious.
Just comparing the money out the window open returning to R&D.
And we stopped looking at R&D as a catch up for that.
One Nikola Tesla is frankly with an infinite number.
Dollars above engine of Schwab.
So you could have like a.
Almost half that number.
Good engineers and.
And they will not be able to put one nicolette tells me Peter.
You can't make it up in volume.
Okay. Thank you very much let's go to the next question from George at Canaccord.
Search behavior.
Good afternoon, and thanks for taking my question I think at your annual shareholder then would you all mentioned that the prices.
Many of the materials used in your production has started to come off of oil.
Does that give you an opportunity to adjust prices globally after several increases.
Thanks.
We're looking at the prices at our input prices.
Closely obviously anyone can just Google what's the price of.
There are a few potential passive copper ore steel's going to be.
So I wanted to Google such way.
And everyone can see that the commodities look on a go forward basis.
Our.
Dropping alive.
In electric vehicles.
Things like.
Battery grade lithium also crazy expensive.
We've got a mixture of extinction.
Thanks for prices dropping and petrol prices are increasing.
Yes, yes, yes.
Quarter over quarter steel aluminum has stopped anyway.
17% to 20%.
At the same time on the on the <unk> side.
Shipping has come down tremendously, yes, like last year, the cost of a container on the spot market from Shanghai. It got as high as $20000 announced 35 $3600 reality seeing deflation on a lot of commodities with some exceptions on batteries.
Just as much more deflation that's been inflation definitely and again. This is publicly available information annual English language.
Okay. Thanks, Cathie would at archive ashes.
Try to make this point over and over again.
GFS and or if the fed is not listening.
Because I look at the rearview mirror instead of looking out the front windshield.
Okay.
Yes.
Just to add a little bit more context.
Yes.
Commodity increases were the highest in Q3 that we've seen over the last two years.
And so when indexes change it does take time for the.
The agents again.
JV, there's latent citizen I say it.
Bad decisions makes sense, if youre looking.
Sure.
So true Arabia Arabian Murray with.
But not if you look up from ratios.
Officially we got to start with you.
Yes, so elyse.
And what we know so far the peak.
The commodity side in Q3.
Hopefully change the peak hopefully starts to come down.
There is a small amount of production that we're seeing going into our Q4 cost structure.
On steel and aluminum primarily.
It's less than 10% of the total increases we've seen so far.
So we're optimistic here based upon what we're seeing on the index is for some of our cost structure that this will start to come in over time.
I just want to set expectations that theres not some windfall fast reduction in this space coming in Q4.
Maybe some as we go into next year, we'll probably see some.
Okay.
Cost reduction in 2023 average price of radiographs.
Yes.
And just as a follow up.
He along with your pending acquisition of Twitter and distinction.
And rolling and Tesla.
Much with the combined company to benefit from operating under a single Super structure if at all.
Yes.
<unk>.
Let's start maybe what the overlap is.
<unk>.
Sub zero, but it's I think we're reaching.
I'm not worried about that.
An investor.
And then engineer and manufacture in person.
Technologists.
So.
<unk>.
I actually would work and design and develop products, that's what I view, so it's not a.
Our truck portfolio investor.
Investments.
So I don't know.
I don't see an obvious sort of.
Worked with some pretty bad could get combined under one umbrella at least right now.
Okay.
So.
Yes.
I am excited about the Twitter situation with another party incredibly well.
And I think thats it.
Massive batches.
Ben.
Just sort of languished.
For a long time.
It has incredible potential.
Although obviously.
And the other investors are obviously overpaying for.
Twitter right now.
The long term potential for Twitter and my view is the order of magnitude greater those card value.
Thank you let's go through the next question from Pierre <unk> from New Street Research.
Go ahead, please on mute.
Yes can you hear me guys sorry to hear now.
Great.
I'd love to have another update on the partnership's 18.
So last time, we talked about it.
West question to ask question about Nike Scania with manufacturing in the Western a few things to get right.
Is it fair to say that now you are at scale and it's just a question of logistics chair to get here.
So that's question number one and then question number two on the kind of like innovation.
Cost reduction and efficiency improvements kind of.
Pass that you described as a battery day.
Yes.
Where are we today and how much time is it going to take two to deliver all of the potential U.
You outlined lens.
Well I'll take the second question first a battery day, we showed a timeline out to 2026 for all of the ideas we had proposed.
Shared with flip with everybody then.
Yes, I would be surprised.
I think we'll development.
Yes.
That's the rough.
You all.
It's on a quarter, it's not like a months not six months, it's the tears and.
<unk>.
We are executing on all of those different ideas pretty aggressively in parallel with the Opex stead.
Some people think isn't enough.
No Dan.
I mean, I'm not turning down.
No no yes, exactly yes.
Talents like we find often integrators, we bring them on into the company.
And people shouldn't believe where you are turning to <unk>.
It's a hard part that were solely in.
Hank.
And we still feel confident that <unk> will be yes, similar competitive battery selling well.
The whole system around it right, it's not necessarily a specific form factor is the attention to detail on how to bring costs out of the manufacturing process at our new processing steps and all the way down.
From the mine to the <unk>, yeah exactly rent steps.
And for those who don't.
I would say Youtube videos like our onsite cathode facility is coming together.
Really excited about that which is a part of the plan that we discussed on battery day, yes.
The principal thing within refinery in Corpus Christi.
So are.
We're making.
Putting our money where amounts are and all the various efforts that we discussed on battery day.
On the technical challenges and the ramp question, which was your first question on <unk>.
No ramp is ever easy even at the end when you're 80% at the end.
It's still very challenging to get to the end and that.
That sort of leaning out of yields the final cycle time.
<unk> target.
<unk>.
You mentioned logistics, it's not something that were specifically focused on I guess, but eventually it could be a problem as we're talking about hundreds of a gigawatt hours of different sites across and headsets.
But I would never sit here and say we have no challenges on our remaining but but we've made a lot of progress reducing technical risk in many areas. Our cycle times have dramatically improved yield has dramatically improved.
And just.
Just walking the line here in Texas like Martin was walking it yesterday made some comments to make.
You really see the deceleration around you.
And we've made a ton of simplifications moving from.
The Fremont factory to Texas Senate has.
It's coming into play in the speed of ramp here.
And of course, that's on that's on one line of many here in Texas. So it's not like factory to factory is it's a multiplication of both simplicity and scale. So yes, we're excited about where it's headed.
I think we are.
Once once we are fully integrated.
I think we still do see a path.
To hold a roughly $70 per kilowatt hour. So so $20 per kilowatt hour. So yes.
Before any incentive before it.
Thank you and our next question comes from Toni <unk> from Bernstein. Toni go ahead on mute yourself. Please.
Yes. Thank you I just wanted to follow up on the 46 80 cells.
And where we are seeing them deploy today so.
Are those in the Smbs that are being delivered on December 1st are we seeing and model wise, they're being produced.
Out of Boston.
Is do you anticipate 46 80 being a gating factor for cyber truck ramp later this year and how do you balance the need for 46 80 across semi cyber truck.
Potentially model and why in 2023 and I have a follow up please.
Okay.
The SMA it doesn't use 46 cities.
Yes, yes, yes.
So we are making model wise.
Yes.
Some of them otherwise.
Giga, Texas are.
Unfortunately.
And I think drew the car you drive round is Fortunately Ottawa 1000 miles.
That's pretty good.
Jeff, Yes structural tax threshold.
So.
And yes, we.
Our output purchase activity is growing exponentially.
It's worth bearing in mind that there are entire highly competitive companies that are very smart that all they do is make battery cells.
This is this is simply one.
Segment of Tesla.
Yeah. So.
Yes.
So the total can park.
They're they're iron.
There are challenges still ahead, but we have not yet surpassed no doubt.
So we don't anticipate this being any limiting factor cyber truck or anything else.
Okay. Thank you and our last question comes from William Stein from Trust.
Go ahead and on mute yourself please.
Great. Thanks for taking my question I guess I'll go at one that I asked last time, Elon, which is your expectation for the likelihood of commercial success in each of the three major AI endeavors.
FSD.
Sort of.
Imagine without a driver.
That training computer and.
And of course optimistic.
We will achieve full self driving full autonomy.
Already with that occurring is 100%.
And I think I think we will.
We're almost there.
And then of course, we are privileged regulators and get the regulatory approvals, which is outside of our control.
But.
Anyone who is drunk driving peso drop.
As opposed to a trailing beta in the car can see the rate of improvement.
We have just experienced for yourself that we are in fact getting better in fact almost are there.
And so.
So probably attributing that 100%.
The.
Optimists, probably of that being a successful product I think also extremely high.
If you have given enough time, 100%.
Dodger.
Just maybe more of a question mark around soldier can we be competitive with.
The video Gpus, even as <unk> continues to rapidly Volta Gpus.
Besides the jury's out of Ontario.
Does the team thinks they can.
Our performance barrier for new online training.
The jury's out we will probably.
And our next year.
If that's true or not but we think we're probably.
We think it.
This is the architecture of Georgia.
<unk>.
It gives the right architecture to win.
It depends on how well we execute within that architecture.
Thank you very much.
I think unfortunately is all the time that we have today. So thank you so much for your great questions and look forward to talking to you in about three months from now.
Thank you and have a good day thanks, everyone.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.