Q4 2022 Tesla Inc Earnings Call
Yeah.
Yes.
Speaker 1: Good afternoon, everyone, and welcome to Tesla's fourth quarter 2022 Q&A webcast. My name is Martin Viecha, VP of investor relations, and I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives.
Speaker 2: Our Q4 results were announced at about 3 p.m. central time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow up. Please use the raise hand button to join the question queue. But before we jump into Q&A, Elon has some opening remarks. Elon? Thank you, Martin. So just going through a 2222 recap, it was a fantastic year for Tesla. It was our best year ever on every level. Our team did an amazing job. It's an honor, of course, to work with such an incredibly talented group of people. So, in 2022, we delivered over 1.3M cars and achieved a 17% operating margin, the highest among any volume carmaker, I think, maybe among any carmaker. We generated $12.5B in net income and $7.5B in free cash flow. Importantly, the Tesla team achieved these records while, despite the fact that 2022 was an incredibly challenging year due to forced shutdowns, very high interest rates and many delivery challenges. So, it's worth noting that all these records were in the face of massive difficulties. So, credit to the team for achieving that.
Speaker 3: The most common question we've been getting from investors is about demand. Thus far, so I want to put that concern to rest. Thus far in January , we've seen the strongest orders year to date than ever in our history. Currently, we are seeing orders at.
Speaker 4: Almost twice the rate of production. So, I mean, that that's hard to say whether that will continue twice the production, but the orders are are high and.
Speaker 5: And we've actually raised the bottle at wide price a little bit in response to that. So, we do not, we think demand will be good despite.
Speaker 6: probably a contraction in the automotive market as a whole.
Speaker 7: So.
Speaker 8: I
Speaker 9: Basically price really matters. I think there's a vast number of people that want to buy a Tesla car, but can't afford it. And so these price changes really make a difference for the average consumer. It's sometimes.
Speaker 10: You know, for those people who are well, you know, have a lot of money, they sort of forget about how important affordability is. And it's always been our goal at Tesla to make cars that are affordable to as many people as possible. So I'm glad that we're able to do so.
Speaker 11: And yeah, so I think it's a good thing to consider.
Speaker 12: Thank you.
Speaker 13: We're also making very good progress on cost control and.
Speaker 14: We're seeing the costs of production in Berlin and Austin drop commensurate with the growth in production as you'd expect.
Speaker 15: So.
Speaker 16: Yeah.
Speaker 17: With respect to autopilot, as of now, we deployed full self-driving beta on 4th Street Street to roughly 400,000 customers in North America.
Speaker 18: This is a huge milestone for autonomy as FSD beta is the only way any consumer can actually test latest AI powered autonomy.
Speaker 19: We're currently at about 100 million miles of FSD outside of highways.
Speaker 20: And our published data shows that improvement in safety in safety.
Speaker 21: I don't know. Safety statistics. It was very clear.
Speaker 22: So we would not have released the apostabatic if the safety statistics were not excellent.
Speaker 23: Regarding batteries, production rate of 4680 cells reached a thousand cars a week at the end of last year, and we're increasing capacity for 4680 cells by another 100 gigawatt hours, as announced at Giga Nevada yesterday.
Speaker 24: Um.
Speaker 25: Our long-term goal is to get to well in excess of a thousand gigawatt hours of cells produced internally and continue to use...
Speaker 26: other cell providers. So to be clear, we will continue to use other cell providers just that the demand for lithium ion batteries is quasi-infinite and will be for quite some time.
Speaker 27: So we feel we can scale a lot faster using both suppliers and internally produced cells.
Speaker 28: We've got an amazing plan for making the 4680 cell low-cost and high energy density.
Speaker 29: So.
Speaker 30: Energy storage also sees a record growth and that is continuing to accelerate.
Speaker 31: It was worth remembering that the 3 pillars of a sustainable energy future are obviously.
Speaker 32: Electric vehicles.
solar and wind and then a third key item is stationary storage to store the energy from solar and wind because obviously the sun doesn't shine all the time and the wind doesn't flow all the time. So, if you have those three things, you can convert all of those to a fully sustainable situation.
Many times over actually, so I would like to just.
Make it clear that there is a path to a fully sustainable future for humanity and we, our goal at Tesla is to accelerate.
progress on that path as much as humanly possible.
So, yeah, so we're ramping up.
mega pack production.
And
Which we expect it to grow at a rate.
quite a bit faster than our big old output. So in conclusion, we are taking a view that we want to keep making and selling as many cars as we can. We believe we can keep pushing for strong volume growth while retaining the industry's best operating margins.
As we mentioned many times before, we want to be the best manufacturer. Really, manufacturing technology will be our
our most important long-term strength.
So, and we'll talk more about our upcoming plans at the March 1st investor day.
And lastly, I want to once again, thank all of our employees for delivering another record breaking year. Congratulations guys.
Thanks, Ilana and I think Zach has some opening remarks as well. Thanks Martin.
So Zeland mentioned 2022 was a terrific year for Tesla.
I also want to congratulate the Tesla team and also say thank you to our suppliers for your support during quite a volatile year.
On a full year basis, revenue increased over 50%, operating income doubled, free cash flows increased over 50%, and our margins remained industry leading.
Additionally, we continue to make progress on overhead efficiencies as non-GAAP OPEX as a percentage of revenue improved further.
For Q4 specifically, sequential and annual margin was impacted by ASP reductions as we were managing through COVID impacts in China, uncertainty around the consumer tax credit in the US, and a rising interest rate environment.
Note that in 2022, rising interest rates alone had effectively increased the price of our cars in the U.S. by nearly 10 percent.
Additionally, COGS per unit has increased on a year-over-year basis, driven primarily by three factors. First is raw materials and inflation, led by lithium prices, and discussed at length in previous calls. To find out more about COGS and the USGS P
Second, we are working through the early ramp inefficiencies of our Austin and Berlin and in-house cell production factories.
Third, our vehicle mix over the last year has moved more heavily towards Model Y, which carries a slight cost premium to Model 3.
Partially offsetting these impacts, we've continued to execute on Tesla controllable cost reductions in line with the progress we've made in prior years.
These improvements include our continued work to gradually move towards a regionally balanced build of vehicles.
The energy business had its strongest year yet across all metrics, led by steady improvement in both retail and commercial storage. While much work remains to grow this business and improve costs, we believe we are on a good trajectory.
As we look towards 2023, we are moving forward aggressively leveraging our strength and cost. There are three key points I wanted to make here. First, on demand, as Elon mentioned, customer interest in our products remains high.
Second, on cost reduction, we are holding steady on our plans to rapidly increase volume while improving overhead efficiency, which is the most effective method to retain strength in our operating margins.
In particular, we're accelerating improvements in our new factories in Austin, Berlin, and in-house cells, where inefficiencies are the highest. But we are attacking every other area of cost and unwinding cost increases created from multiple years of COVID-related instability.
This includes logistics, expedites, accumulation of material buffers, part premiums, productivity, and overheads, as an example. As the world transitions from an inflationary to deflationary environment, we expect a strong partnership with our suppliers on this journey as well. In that, we've priced our products with a view towards a longer-term cost structure.
to market, development of our next generation vehicle platform, expansion of our manufacturing footprint, and growth of the energy business.
We're looking forward to discussing these plans in more detail on our investor day in a month.
Thank you.
Thank you very much, Zak. Let's now go to investor questions.
The first question is, some analysts are claiming that Tesla orders net of constellations came in at a rate less than half of production in the fourth quarter. This has raised demand concerns. Can you elaborate on order trends so far this year and how they compare to current production rates?
I think we've already answered that question. Yes, exactly. The demand far exceeds production. And we actually are.
making some small price increases as a result.
Thank you. The second question is in similar vein. What is the initial reaction been to global price reductions in early 1 Q2 023, specifically in terms of ordering take levels? We've answered that one as well. So let's go to the next one. The next investor question is.
Will Tesla be able to take full advantage of advanced manufacturing production credits for battery sales tax? So three thousand seven hundred dollars per long-range Model 3 and Model Y. That's forty five dollars a kilowatt hour for autos and energy products and how much does Tesla expect to earn in the coming year from these credits?
I'll say a little bit about it, then I think Zach will have some. Long term we expect these, the value of these credits to be very significant. You can do the math if we were to get anyone your 1000 gigawatt hours a year of production or even a few hundred.
Gigawatt hours.
it's very significant.
But the credits do rely upon domestic manufacturing. And in the case of Panasonic with domestic manufacturing, we're splitting the value of the credit.
So the value credits this year will not be
Uh, gigantic, but I think it could be gigantic and we think it probably will be very significant in the future.
Yeah, just to add and input some boundaries on what we're expecting in terms of impact to Tesla for this year.
So different products we think will get different amounts of credit. You know, the regulations here are still in flux and there continues to be updates, so this is just our best understanding at the moment.
But we think on the order of $150 million to $250 million per quarter this year, and growing over the course of the year as our volumes grow.
And part of the work we're doing here, which is part of what this incentive package is trying to incentivize.
Is it Elon mentioned to move more manufacturing onshore in the United States? Which is Tesla's plans anyways.
And so I think we're pretty well positioned over the coming years to take advantage of this.
But then also, part of what the goal of this incentive package is, is to improve adoption from our customers. And so we also want to use these incentives to improve affordability as we think about what the price points are on our products going forward.
And so as we were thinking about our pricing changes in the US a couple of weeks ago that we announced, we were looking at what the credit benefit to Tesla would be.
To make sure that customers are able to to receive the benefit not only from this that we're receiving to some extent, but also on the consumer facing side, which is currently 7,500 per car of tax credit. Assuming that subject to the caps and the income caps. So we want to use this.
To to accelerate sustainable energy. Which is our mission and also the goal of this bill.
Thank you very much. The next question from investors is after recent price cuts, analysts release expectations that Tesla automotive gross margin, exclusive, excluding leasing and credits will drop below 20% and average selling price. Around 47,000 across all models.
Where do you see average selling price and gross margins after the price cuts?
Yeah, go ahead. Yeah, I'll jump in on this. So, you know, there's certainly a lot of uncertainty about how the year will unfold, but I'll share what's in our current forecast for the moment. So, you know, based on these metrics here, we believe that we'll be above both of the metrics that are stated in the question.
So 20% automotive gross margin excluding leases and red credits and then 47k ASP across all models. And so two other comments I want to make on this just tactically on sequential ASP changes from Q4 to Q1.
And just as a reminder.
you know, the ASP reduction is not as large as the reduction in configurator prices. As in Q4, we had backlogged customers that were delivering cars to at a lower price book, given that backlogs had been so long for so much of 2022. But then also there are various programs in place that we used in Q4 that lowered ASPs.
The second comment I wanted to make here is that as a management team here, we're most focused on what our operating margin is.
And so as other areas of the business become more important, particularly the energy business, which is going faster than the vehicle business.
And as we're heavily focused on operating leverage here, improving efficiency of our overheads.
We think the right metric for us to be focused on is operating margin. And so I wanted to make sure that I shared that with the investor community as well, because that is what we're primarily managing to know.
Yes, something that I think some of the smart
retail investors understand, but I think a lot of others maybe don't, is that the
Every time we sell a car, it has the ability to...
just from uploading software to have full stop driving enabled and the full stop driving is obviously getting better very rapidly.
um
That's actually a tremendous upside potential because all of those cars
With a few exceptions, I mean, only a small standard cars don't have hardware 3. So.
That means for those millions of cars where also driving
And be sold where that essentially
100% gross margin. And the value of FSC grows as the autonomous capability grows and then when it becomes fully autonomous.
That is a value increase in the fleet.
That might be the biggest asset value increase of anything in history.
Yeah.
Thank you, let's go to the next investor question. Since Elon started political influencing polls from Morning Consult and YouGov, show Tesla brand favorability declining in 2022 and division among parties and lines. Such brand damage.
That suggests that I'm reasonably popular.
It might not be popular by some people, but for the vast majority of people,
like the follow-up count speaks for itself.
I'm mostly interactive count.
social media accounts, I think maybe in the world, certainly on Twitter. And that actually predated the Twitter acquisition.
I think Twitter is actually an incredibly powerful tool for driving demand for Tesla. And I really encourage companies out there of all kinds, automotive or otherwise, to make more use of Twitter and to use their Twitter accounts in ways that are interesting and informative.
entertaining and it will help them drive sales just as it has with Tesla. So the net value of Twitter apart from you know a few people are
complaining is gigantic, obviously.
Thank you, let's go to the next question. Please provide a detailed explanation of where you are on the 4680 RAM. What are the current roadblocks and when do you expect to scale to 10,000 vehicles a year?
a week.
Thanks Martin. First, I just want to say congrats and thanks to the Tesla 4680 team for achieving 1K a week.
Q4, there's no small feat. Definitely a result of, you know, more than a couple years of hard work.
As far as where we stand in Texas, 1 of 4 lines are in production with the remaining 3 in stages of commissioning and install. Really our 2023 goal as a 4680 team is to deliver a cost effective ramp of 4680s well ahead of Cybertruck.
focus areas are dialing in and improving the quality of the high volume supplied mechanical parts and driving factory process yields up as much as possible. Between two of those things, if we had to achieve those key goals, we'll be well set up for a major 46A year in 2024.
Thank you. Next investor question is, Elon said previously that FSD hardware 4 will most likely come first in cyber truck. Is that still the current plan? Do you expect there to be an upgrade path for hardware 3 cars to hardware 4?
Yes, sidelined we will have the hard rip bore.
For 2023, Cybertruck will not be a significant.
contributor.
So, it's an incredible product. I can't wait to drive it personally. It will be the car that I drive every day. Actually, just I'm wearing the T-shirt with the smashed glass. I'm wearing the T-shirt with the smashed glass.
It's just it's just 1 of those products that only comes along once in a while and it's really special. So.
Yeah, so with respect to upgrading cars that have hardware 3, I don't think that will be needed. Hardware 3 will not be as good as hardware 4, but I'm confident that hardware 3 will so far exceed the average, the safety of the average human.
So, what we're going to force, like, well, how do we get ultimately to, you know, let's say, for argument's sake, if hardware 3 can be, say,
two or three hundred percent safer than human hardware four might be.
five or 600 percent. There will be a hard drive beyond that.
But what really matters is are we improving the average safety on the road? So…
But it is, it is.
the cost and difficulty of retrofitting hardware 3 with hardware 4 is quite significant so it would not be economically feasible to do so.
Thank you. The next question is for Zach. Zach, when do you think Tesla insurance will become big enough revenue source to warrant providing more details in the financials of the business so investors can compare it to other insurance companies?
Yeah.
I think it's probably going to take some time before this business is large enough for specific financial disclosures
But I'm happy to provide an update on where we stand in the business. So we're currently at a $300 million annual premium run rate.
as at the end of last year. We're growing 20% a quarter, so it's going faster than the growth in our vehicle business.
And in the states in which we're operating, on average 17% of the customers in those states are using a Tesla insurance product. So that number continues to take up as we spend more time in markets.
And we see most of the adoption occurring when folks take delivery of the new car as they're setting up insurance for the first time, as opposed to going back and switching when they already have insurance set up. So there's an inherent stickiness in the insurance business.
But just as a broader reminder on kind of the motivation for starting this business.
It was to improve, and still is to improve the total cost of ownership of our cars, given that we're seeing high premiums of insurance from third-party companies.
And that remains our priority here. We'll obviously run this as a healthy business.
But we want to make sure we keep our costs low and insurance stays affordable to our customers.
Yeah, and so there are 2 really important side benefits for Tesla insurance that are worth mentioning. 1 of which is not related to, which is that just by Tesla offering insurance. For our cars at a competitive rate that makes the other car insurance companies offer better rates for Tesla.
So it has a bigger effect than you think because it improves total cost ownership or insurance costs even when they don't use Tesla insurance because now
you know, that the guy goes on to the world have to compete with Tesla and cannot charge outrageous insurance for Tesla's. So it's great. So it has an amplified effect, very important. Then it is also giving us a good feedback loop into minimizing the cost of repair of Tesla's.
for all Teslas worldwide because we obviously want to minimize the cost of preparing a Tesla if it's in a collision and for Tesla insurance and previously we didn't actually have good insight into that because the other insurance companies would cover the cost.
And actually the cost in some cases were unreasonably high. So we've actually adjusted the design of the car and made changes in the software of the car to minimize the cost of repair. The best repair is no repair. Avoid the accident entirely.
which, since every Tesla comes with most advanced active safety in the world, whether or not you buy full self-driving, you still get the intelligence of full self-driving for active safety, active collision prevention.
It's giving us this really good feedback for again reducing cost total cost ownership and also just Figuring out how to get if somebody's cars in a in an accident most accidents are actually small They're like, you know broken fender or scratched the side of the car or something like that. They're not What does the vast majority of actions?
But we're actually solving how to get somebody's car repaired very quickly and efficiently and back in their hands. And like I said, those improvements actually apply then to all cars. And...
And then we're making just another key point because some of these points might be lost. So I apologize for being repetitive, but it's remarkable how small changes in design of the bumper.
and improving the logistics of providing spare parts needed for collision repair have an enormous effect on the repair costs.
So, if you're waiting for a part to get repaired and that part takes a month, now you've got a month of having to rent another car. It's extremely expensive and of course you're missing the car that you love and actually want to drive.
This is actually a very...
significant effect on total cost ownership and customer happiness.
Thank you. The next question from investors is a cyber truck production still on track for mid year.
We do expect production to start.
shortly.
maybe sometime this summer, but I always like credit downplay at the start of production because the start of production is always very slow.
But it increases exponentially, but it's always very slow at first. So, I wouldn't put too much stock in starter production. It's kind of when does volume production actually happen? That's next year.
Thank you that's right. Like, just to emphasize on that we started installation, all the production equipment here in Texas. Castings, general assembly, body shops.
Built all our beta vehicles some more coming still in the next month, but as you said, the ramp will really come 2024.
Yeah, exactly.
Thank you and the last investor question is with near infinite global demand for energy storage, where could Tesla build the next mega pack factories? How many are needed on each continent?
It's a good question. It's not something we, I think, would.
I think we'll provide an update about that in the future, but it's something we're thinking about very carefully. But really kind of like, what is the fastest path to 1000 gigawatt hours a year of production? And you'll see announcements come out later this year.
Next, that answer that question.
Thank you. Okay, and now let's go to analyst questions. The first analyst question comes from Rod Latch from Wolf Research.
And Rod, feel free to unmute your mic. I think I'm unmuted. Can you hear me? Yes, we can. Okay. Thank you. Just, uh, firstly, it sounds like your, um. 1.8M unit volume indication for this year. Is somewhat more supply constraint and demand constraint.
Then I have a follow up on on costs. Is that is that an accurate statement?
Well, okay.
You
Our internal
Production potential is actually closer to 2 million vehicles, but we.
We're saying 1.8 because
I don't know, there just always seems to be some friggin force majeure thing that happens somewhere on Earth. And, you know, we don't control what feels like earthquakes, tsunamis, wars, you know, pandemics, et cetera. So, if it's a smooth year, actually, you know, without some
Yeah, thanks for clarifying that and I'm on the cost side, the numbers that we just saw from you, as you pointed out, we're way down by the. The 4,860 ramp, the Berlin, Austin. You can have things processes, not not at rate. Can you give us. A bit of an indication.
Of the headwind that you're absorbing from those things like you did last quarter. And then lastly on on cost, do you think that we can tease out an interesting data point from where battery costs are headed from this. Announcement that you just made last night if I'm correct. It looks like.
The investment cost per kilowatt hours, less than half of what I've seen anywhere else, maybe 30 dollars a kilowatt hour. Uh, for that capacity.
I don't think I want to say the specific number, but interesting if you look at the size of the. Of giga Nevada that is allocated to make 100 gigawatt hours. Is a small fraction of the size that currently makes about 35.
Yeah, I mean, the goals we outlayed at Battery Day on reducing the investment required to deploy
Cell manufacturing, I mean, that's been a key focus of ours and the team is doing a good job hitting the marks on that focus.
Yeah, it goes back to the point I was making and I said it several years ago, I think Tesla's.
really the competitive strength that will be
By far the hardest for other companies to replicate is Tesla being just
I'm good at manufacturing and having the most advanced manufacturing technology in the world. And if you've got that sort of advanced manufacturing toolbox, you can apply it to many things. And we're applying it now to battery cells.
I should say that there
We have other products.
in development. We're not going to announce them obviously.
But they're very exciting.
And.
I think we'll go out those minds when you know when they
when we reveal them. Tesla has the most exciting product run-back of any company on earth.
by a long shot and
We'll continue to be in that position.
We got more great ideas. I mean, we know what to do with here. So, the future is very exciting. I, as I said in the last call, I, you know, there's going to be bumps along the way and and. You know, we'll probably have a pretty.
difficult reception this year probably. I hope not, but probably.
And so, you know, one can predict the short term sort of stock value because.
in a recent episode. One of those things NLM has previously shown construction construction oscillation oscillation and we live in a life that is more accessible than how working with prototypes h z s equipment equipment my Life is my image I
you know, when there's a recession and people panic in the stock market, then prices of stocks, both valued stocks can can drop sometimes to surprisingly low levels, but long term I am...
convinced that has will be the most valuable company on earth.
Thank you, and I think Zach, there was a question on cost headwind in Q4.
Thank you..
Yeah.
I mean our weighted average cost for the company
You know if you were to assume Austin and Berlin were at the cost structure of our other factories
This is on the order of 2000 to 2500 of headwinds. So I think from there you come back into margin impact of those factories as of end of.
Thank you very much and let's go to the next question from Pierre Ferragu from New Street Research. Please go ahead.
Thanks, Martin. Can you hear me well? Yes. Excellent. Actually, I'd like to follow up on the data points you just gave on cost. If I look back at the COGS per car, you guys bottomed close to $36,000 in the middle of 2021.
And then the number went up as you had to face with inflation in input costs and the ramp of Berlin and Texas. And this quarter I think we are close to 40k and we peaked maybe close to $42,000 at some point last year. And so my question from here is will the gas supply go up and raise this with Uh oh guys?
How much time do you think it takes you to get back to this kind of 36k which would mean you know Berlin and Texas and magazine would cost all that stuff is normalizing Is that like and that would be like a kind of like a 10% decline in the Cox-Perkis Is that something we can hope to see this year or is that too optimistic?
side of that and we talked about supply chain costs, expedites, logistics, attacking everything.
You know, on the raw materials and inflation side,
Where lithium is the large driver there and this was a meaningful source of cost increase for us.
we'll have to see where lithium prices go.
And you know we're not fully exposed to lithium prices, but I think in general is what we've seen from our forecast here
Cost per carb lithium in 2023 will be higher than 2022.
So, you know, that's a headwind that would have to be overcome to return back to those levels.
So I don't think we'll get there this year, but I think we'll make progress.
and we'll continue to find ways to offset these raw material costs that we don't have control over. Is there anything on that? Yeah, like on the non-cells raw material, we begin to capture benefits of indexes tapering out. But due to the length of various supply chains, it does take time.
before this is reflected in our financials. And while aluminum is down like 20% year over year, steel is about 30% down year over year. The global non-sales raw materials market continues to be influenced by geopolitical situations in Europe , high production costs due to labor costs increases in energy spikes.
and disruptions due to natural disasters like typhoon in Korea four months ago, pandemic lockdown.
So we believe that meaningful price corrections will ultimately come, but it remains uncertain exactly when. In the meantime, we continue to redesign supply chain to make it more efficient and work with our supplier partners to find more efficiencies, streamline logistics and transportation to reduce costs.
Excellent. Thank you. And I have a quick question. Sorry, did you want to go say something? I was just going to say, we're also, you know, our fleet is starting to mature, the 3Y fleet, and we're gathering a lot of data out of that fleet to understand how we can move forward.
sort of bring some margin that we didn't know we had out of the product. So over the course of 2023 on the powertrain side, we're actually going to go after sort of some materials where we're paying for more performance than we need or we have more content than we need without impacting reliability at all. And you know that will actually add up to a pretty significant cost reduction on the powertrain side over the course of 2020.
that would lead to meaningful decreases in almost all of our input costs.
So.
I would expect to see deflation in our input costs most likely.
which would then lead to better modules.
I'm just guessing here.
That would be my.
I guess.
Thank you so much. So as a quick follow up, I was thinking about FAZ and when you look at the situation today compared to a year ago, the progress has been amazing in the quality of the product, so it's roll out. And so I was wondering...
How much is this like impacting the tech rate of FSD today? So do you already see that people are getting more excited by FSD because they see it around them on 400,000 cars and they see the value of the service already? Or is that too early to really see like to expect like an uptick in the tech rate?
The trend is very strong towards.
use of FSD and as you allude to the with each incremental improvement, the enthusiasm obviously increases.
FSD and as you allude to the with each incremental improvement the enthusiasm of the increases and so
Um, I think something that.
So, a lot of people out there don't quite appreciate this that Tesla. Would I always say, like, has as much a software company as a hardware company, but Tesla is really 1 of the world's leading AI companies. This is. Kind of a big deal, but on the.
the software side and on the hardware side. You know, with the hardware 3, inference computer, still the most efficient inference computer in the world despite, you know, being at this point five years old from the design point.
and with hardware 4 coming and then hardware 5 beyond that where there are significant leaps.
The dojo computer we expect to, um, using that operationally at Tesla later this year. Um, so.
And we're seeing just a lot of world-class AI talent join the company.
And we're seeing just a lot of well-class AI talent join the company.
There's also the long term potential of optimists where we're able to use our expertise in.
electric motors and
And.
electronics, batteries, and advanced manufacturing to be able to make a humanoid robot that is actually useful and can be made at high volume with a...
With disabilities because of the.
What about AI that?
You know, we take the cars like a robot on 4 wheels and the optimist is a robot on legs, but the as we. Get closer and closer to solving real world and we don't see anyone even close to us in achieving this.
You know, the value I think you appreciate this and a few others do, but most don't know what I'm talking about. So. Um, but it's.
This is the thing that.
you know has order of magnitude potential market cap improvement for Tesla.
Thank you and the next question comes from Alex Potter from Piper Sandler.
Can you hear me good?
Yeah, okay, great. So.
Quick one on FSD. This, I guess, for Zach, obviously you unlocked some deferred revenue in the quarter that will translate presumably into higher margins on every incremental sale going forward so long as people opt in for FSD. But I was wondering if you were able to disclose the percentage of the $15,000 price.
That you're not going to be able to recognize as revenue upfront rather than deferred. Yeah, I mean, the way that we've structured, this is a full self driving packages to components. Um, there's enhanced autopilot, the price of which is listed on the website. We fully recognize that. Then there's an incremental, which is.
for the additional features that Full Soft Driving offers, and we've released a portion of that. And then there's a minority of the total package that's remaining that will be released over time as software updates are there.
And in our shareholder letter, in addition to disclosing the dollar amount of the deferred revenue release, we also included in there the dollar value of the balance of unreleased deferred revenue that will be released over time with future software updates.
Okay, great and then maybe 1 additional question here on the incremental capacity in Nevada, the 4680s that you're planning a lot of batteries obviously, and presumably it won't be putting all of those in Tesla semi. So, I guess 2 questions about that incremental capacity 1st.
Is it correct to assume that all of those 4680s are going to be more or less fungible and usable in your entire range of products? And if the answer is yes, then if you had to guess, how do you think that 100 gigawatt hours would be allocated between your various end markets?
Oh, this is a bit too much guessing at this point. Yeah. But the the
This is a bit too much guessing at this point. Yeah, but yeah.
Yeah, I mean, you're right. Not all of the 100 gigawatt hours are going to go into the semi trucks. That is correct.
I alluded to a number of future products. Those future products reduce to 4680.
Thank you. And the next question comes from George from Conoco research.
Hi everyone, thanks for taking my question. So you recently adjusted prices and that may have put many of your competitors in the back foot. In addition to that, capital markets have recently gotten a lot tougher. So with those factors in mind, I'm curious how you see the current competitive landscape changing over the next few years.
and who you see as your chief competitors five years from now.
Well, five years. Five years is a long time.
There's quite some stuff.
As with the Tesla Auto Part AI team,
Until late last night.
And just asking me, I was like, so.
Who do we think is close to Tesla with a general solution for self driving and we still. Don't even know really who would even be just in second.
So, it really seems like we're.
It really seems like we're.
Right now I don't think you could see 2nd place with telescope.
So and that is Enough.
Or at least we can't so.
That won't last forever. So in five years, I don't know.
Probably somebody's figured it out. I don't think it's any of the.
car companies that we're aware of.
I'm just guessing that someone might figure it out eventually.
So.
good March 14th, 2021 liqu passenger
I mean, beyond that, Elon, in the vehicle space, even though the market's shrinking, we're growing and EVs have doubled almost year over year. Whoever keeps up with the trend of EVs is going to be our competitor.
The Chinese are scary, we always say that.
You know, a lot of people always look at the market share, but we always look at it as how much of the total vehicle space do we have and we're just going to keep growing in that space. There's 95% for us to go get.
Yeah, and I don't want to say like, you know, I think we have a lot of respect for the car companies in China. They are the most competitive in the world. That is our experience. And the Chinese market is the most competitive.
They work the hardest and they work the smartest. So, that's a lot of respect for the train of car companies that we're competing against.
Umm....
And
So, if I were to guess, there were probably some company out of China, most likely.
You know, 2 to 2 seconds to Tesla.
But we are, the Tesla China team is winning in China.
And I think we actually are able to attract the best challenge in China.
And I think we actually are able to attract the best challenge in China. So hopefully that continues.
So, yeah, super fired up about the future.
Yeah, it's gonna be great.
Just as a follow-up, the Inflation Reduction Act has created huge tax incentives for commercial vehicles. You mentioned an incredibly interesting product pipeline. Are there maybe some plans to accelerate commercial vehicle form factors outside of the Tesla Semi to help accelerate EV adoption?
Well, I was basically saying that yes, but I'm not going to give you details because.
Nice try, nice try. Yeah, of course, of course.
So, you know, we're always looking at what is the limiting factor for new vehicles because if the. For the longest time we've been constrained on. Total sell lithium ion production output. And so people said, like, why why not bring this other car to market with that other car to market? Well, it doesn't really help if all you're doing.
Available to use lithium ion batteries.
So as we get.
So we want a new product introduction to match where the cells are available for that new product to use those cells without cannibalizing the cells of the other cars.
That's the actual limiting factor for new models, not anything else really.
Thank you, let's go to the next question. The next question comes from William Stein from Troist.
Great, thanks for taking my question. You started to answer this earlier but I like to ask this question about the AI elements of your business and ask if you could comment on progress around Dojo and Optima.
Yeah, I mean, obviously with just for so at the early stages, there are big. There are bars and any any predictions.
So, you know, it's like, I think you need to predict the long term, but hard to predict the time in between now and then.
But it's what we think Dojo will be competitive with the Nvidia H1 at the end of this year. And then hopefully.
So, pass it next year.
And the key there is, is like, I think I think is what's what's the energy usage required for. Given amount of if you're training.
a frame of video.
a frame of video.
how
What's the energy cost required to do that training?
And we think probably
We said this already actually at AI Day 2, so it's not new information. But we do see...
potential for an order of magnitude improvement.
relative to GPU, what GPUs can do for Dojo, which is obviously very specialized for
what GPUs can do for Dojo, which is obviously very specialized for
AI training, it's a hyper specialized AI training. It wouldn't be great for other things, but it should be extremely good for AI training. Just like if you do an ASIC for something that's going to be better than a CPU. This is sort of...
training. It's hyper specialized for AI trainings. It wouldn't be great for other things, but it should be extremely good for AI training. So just like if you do an ASIC for something, it's going to be better than a CPU. This is sort of, in some ways, like a giant ASIC.
And we're able to... since we're operating one of the biggest GPU classes in the world already...
and we're able to, since we're operating one of the biggest GPU classes in the world already,
we've got a good sense of how efficient the GPU clusters operate and what
in order to be competitive.
do in order to be competitive.
We think that it does have a fundamental architectural advantage because it's designed not to be a GPU is trying to do many many things for many people graphics, video games, you know
doing crypto mining, it's doing a lot of things. But I'm just doing one thing, and that is...
it's doing a lot of things. Booger is doing one thing and that is training.
And we're also optimizing the low level software to.
at a very experimental level. So it's just insanely good at.
efficient training and the communication between the Dojo modules is extremely high. So you're not going across the internet cable. So anyway, the
You know, we see a path to order of magnitude improvement in the energy efficiency for a given unit of training.
But we have to achieve that and so that when will it be achieved? It's hard to say, but we do have a path to get there.
And also an inference, like once you get something trained.
Well, if you want to have a product.
product.
That's the consequence of that training and that product may not be anything to do with cars....
the efficiency of inference is extremely important.
And we also have by far the most efficient inference computer.
FSD computer in the car.
you know, this has potential for People
products that makes it even really in automotive.
Thank you. And William, do you have a follow up?
Yeah, it sounds like the 1.8M units you expect this year is.
insecure.
Supply, not demand limited. Supply, it sounds like by the lithium batteries.
If you were to become demand limited, can you talk to us about your propensity to use price?
and your relatively high industry margins to grow units and share.
Yeah, to be clear, the 1.8M is not self supply limited. That and that, yeah.
We did address that number earlier in the call. Yeah, it's roughly
A cell supply is roughly matched with that and this is why you don't want to put it in cars. You know, we had lucky it could be more and then the rest would go into stationary storage, the power wall and mega pack. So,
a cell supply is roughly matched with that and this is what you know, 1.8 million cars, you know, if we get lucky it could be more and then the rest would go into stationary storage, the Powerwall and Mega Pack. so
Yeah, so. Okay, let's have the final question from Adam Jonas. Hi, Elon, 1st question is, is it time for Tesla to.
Significantly expand the captive Finto when you only have like, 4 and a half billion of. These receivables, it's basically nothing compared to. Other big companies and have a follow up.
Oh, Zach, maybe just press the sound button. Yeah. Yeah, I mean, the way that we've been using captive financing so far is to plug...
what we believe to be gaps in the market of existing third-party products.
And so we have a couple of offerings in Europe . We do loans for energy business, retail energy business here in the US.
We do leasing and we do a small amount of US loans that are very targeted.
And so we're using captives to support
Market gaps as I mentioned, so basically it's vehicle to support vehicle sales. Make sure customers have access.
I do think there's opportunity here to continue to grow this. We are growing it slowly here.
It is a consumer of cash, so we're being cautious on how we do that.
But you know the plumbing is in place.
you know, the plumbing is in place to do a lot more here.
And I think we'll have to see how things unfold over the course of the year and make decisions real time as to how much we ramp it up versus ramp it back.
If we see a severe recession this year, which, like I said, hopefully we don't. In severe sessions, cash is king big time. Because it's in such short supply, so we want to be cautious about.
Using cash for loans and that's the thing for cars You know So in a very strong position To get through a recession because we really don't have any debt And we've got over 20 billion dollars of cash
Which is great. The cash is earning a ridiculous return. Good return. So it's like non-trivial in the interest rate actually means the 20 billion is earning quite a good amount.
So, and I've made this point on Twitter a few times, and I'm sure a lot of people in this call understand the.
The basic value of the security is a function of the risk free rate or we'll see how risk free it really is, but the people rate. So if you've got, I think the correctly, the S and P 500 has.
long term rate return of roughly 6% and so I think that they need to be very cautious about having a fed rate that potentially exceeds 6% if you like if we see deflation, and I think we I think we are seeing deflation
then you would add the deflection number to the in quotes risk-free rate from the Fed. And that starts to exceed 6%. Now you're starting to exceed the long-term return of the S&P 500 and starts to become questionable as to why why don't just put your money...
and TU bills or savings accounts essentially instead of the S&P 500 if the S&P 500 is variable and the
TEBOL or a savings account essentially instead of in the S&P 500 if the S&P 500 is variable and the package rate is not.
This is so basically the Fed is at risk of crushing the value of all equities.
I feel quite serious.
of serious danger.
Thanks, Elon. And just a follow up. I don't want to steal thunder from March, March 1st down in Austin, but.
How close are we to that step change improvement in bomb costs where you could sell
An EV for under 25 or 30,000 bucks and actually generate a profit that I kind of real. Moving assembly line moment in manufacturing.
Again, I don't want to steal the thunder, but just if you wanted to wrap up with thoughts, that would be helpful. Thanks, Alan. I mean, I'd love to answer, you know, I…
I probably would probably be asking the same question, but we would be jumping the gun on future announcements.
Fantastic, thank you very much everyone for all your good questions and we will see you again in three months time. Thank you. Thank you. Bye. Bye.