Q2 2023 Tesla Inc Earnings Call
And nonetheless.
We managed to achieve operating margin of about 10%.
<unk>.
We continue to target $1 8 million vehicle deliveries this year.
Although we expect that to Q3.
Production will be a little bit down because we've got to summer shutdowns too.
A lot of factory upgrades so.
So just probably a slight decrease in production in Q3.
For sort of global battery upgrades.
In the long term.
Economy, we think is going to just drive volume.
Through the ceiling next level.
And.
So the future robo taxi.
Products.
Dedicated robot taxi products.
We think have got quasi infinite demand.
So.
And.
Well the way, we're going to manufacture.
The robot taxi is also itself or evolution.
<unk> or.
Our evolutionary sign made in a revolutionary way.
It will be.
By far the highest.
Units per.
Our of any vehicle production ever.
So very excited about that.
With respect to autopilot and dojo in order to both autonomy. We also need to train our neural net with data from millions of vehicles.
The more I mean, this has been proven over and over again the more training data you have the better the results.
And.
There are times, where we see basically.
In a neural net.
Basically it's sort of at 1 million training examples.
Barely works at $2 million, it's slightly works at $3 million.
Like Wow, Okay, we're seeing something for me it gets like $10 million training examples.
It becomes incredible.
So.
You did just that.
Just no substitute for a massive amount of data.
And obviously Tesla has more vehicles on the road.
That are collecting this data than all of the companies combined by I think it may.
Maybe even an order of magnitude.
So I think we might we might have 90% of all.
It's a very big number.
So.
Yes.
Success in AI endeavors, as a function of talent.
Sort of unique data and computer resources.
And we.
<unk>.
Outstanding capabilities or three arenas.
Okay.
And I really just don't know how anyone anyone can do what we're doing even if they had a software and had a computer if they did not have the.
The training data so.
Speaking of which our Doug fir training computer is designed to significantly reduce the cost of neuro and that training.
It is designed to.
It's not optimized for the kind of training that we need which is a video training.
So.
We just see that the need for neuro.
Neural net training again.
And the things.
Enormous.
So.
I think having heavy.
We expect to use both Nvidia endo Joe to be clear.
That does.
We just see a demand for really.
Hi.
<unk> training resources.
And we think we may reach in house neural net.
And that training capability.
100, <unk> by the end of next year.
So.
Sure.
To date over 300 million miles have been driven using FSD beta.
Of that 300 million mile numbers going to see them.
Small very quickly.
Right right.
It will soon be billions of miles than tens of billions of files.
And.
Steve will go from being from being as good as a human to then being vastly better than the human we see a clear path to.
Full self driving.
10 times safer than the average human driver.
<unk>.
And between autopilot Doto computer.
Our.
And furniture hardware in the car, which.
So hardware three four.
But it's really dedicated to high efficiency and price computer that's in the car.
And our Optimus robot.
It sounds like clearly at the cutting edge of.
Scott.
Alright.
With Russia.
We continue to both of these candidates are the cyber truck.
On a final production line in Austin, I'm actually here in Austin that the Giga factory.
This is the first truck that we're aware of that will have affordable.
Over six foot bed.
Got into a 20 foot garage.
So it's still.
The biggest on the outside but it's even bigger on the inside so its.
Got it.
One of the elements of good design as it should feel bigger on the inside looking outside.
And this is this is no small carpet.
We really cared about the exterior dimensions of the <unk> drop down to the last millimeter.
So she.
Justin.
Randall the Goldilocks zone, not too big not too small.
And then really maximize the utility of the volume.
And we can't wait to start delivering it later this year.
Some other highlights our global Supercharging network now stands at over 50000, roughly roughly 50000 connectors and over 5000 locations.
As I think a lot of people are aware.
The tests were starting.
Charging standard, which we made open source and is now called the North American charging standard.
We are deeply honored that Ford GM, Mercedes and many other Oems.
Have signed up to use our <unk>.
Connector and gain access to our charging network.
Yes.
We believe and helping.
All the other car companies too.
Accelerate the EV Revolution.
Just trying to do the right thing in general so that's.
Typical there.
Okay.
Then.
It's something I think <unk>.
<unk>.
Alright.
Very strongly so it's a very important point is that.
Does that.
Yes.
Just as with the.
The North American charging standard, although we're not licensed.
Licensing you were just making it available, but we are very.
Very open to licensing our pulse up driving software and hardware to other car companies.
And we are already in discussions with.
Just early discussions with a major OEM.
About using Tesla FSP.
So.
We're not trying to keep those to ourselves we're more than happy to license it to others.
And lastly are you, placing in refinery and Katherine facility are progressing well.
In conclusion, we continue to focus on making as many causes we can while maintaining healthy financials.
Artificial intelligence development is obviously entering a new era.
We're incredibly.
Excited about what's to come.
Our other businesses such as Mega Pack Supercharging service.
Not all started to become a meaningful contributor to overall profitability.
Quarter.
And then lastly, I'd just like to.
Profusely bank all of that.
Employees, who are making a lot of extra effort during uncertain times.
Very much for your hard work and the impact Youre, making.
Thank you very much Elon I think Zack has some opening remarks as well.
Yeah. Thanks Martin.
As Ilan mentioned Q2 was another record quarter of production and deliveries and so all those factors and profit for energy and services and other businesses. Congratulations again to the Tesla team on our continued progress.
As we navigate through a period of economic uncertainty rising interest rates volatility in consumer confidence and regulatory change I want to comment on our financial approach.
The single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the long term value of the business.
This include increasing spending on AI related technologies, such as full self driving optimists and Jojo.
Well as new products, such as cyber Chuck our next generation platform and the semi as evidenced by the continued growth in our R&D spend.
This also includes continuing our investments in capacity expansion not only in our vehicle factories, but also are Supercharging network service internal applications and battery processes as we continue with meaningful capital expenditures to lay the foundation for the future.
Second we continue to work towards our goals of maximizing volumes on both our vehicle and energy business, but most importantly doing so in a way that generates the capital to continue our pace of R&D and capital investments.
This requires a strong focus on per unit Cogs reductions in each of our key businesses as well as working capital improvements on raw materials work in process inventory and customer.
All of which progressed appropriately in Q2.
If we look specifically at our automotive business. Our gross margin showed a modest reduction in remains healthy despite action taken to further improve vehicle affordability early in the quarter.
We recognize we realized per unit cost improvements in nearly every category, including material cost and commodities manufacturing costs and logistics, while also continuing to rapidly increase the build rate in our Austin and Berlin factories.
Our energy business, we improved margins and gross profit driven by cost reductions and deal economics, particularly with Mega pack.
As a reminder, storage volumes are typically volatile sequentially based on the types of projects and a specific revenue recognition milestones.
As we look forward to the rest of the year I want to reiterate John's comments on Q3 volumes driven by planned downtime for factory upgrades. These.
These upgrades will also carry some amount of factory idle cost. However, we are working to minimize as much as possible.
It's also important to keep in mind, the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term.
<unk>, we continue to remain dynamic with a focus on fundamental efficiency and a long term outlook.
Gradualism patients again to everybody on a great quarter.
Thank you very much and let's go to the investor questions that the FERC.
The first question on licensing FSB, we've already answered so let's go through the second one.
The second one.
What is the status of <unk> 46 to 80 cells. How far are you from the specs you laid out on battery day. When do you expect to achieve what you laid out on battery day.
Okay.
Yes, first I'll just start with a little bit of a production update so in Texas 4600, 80 cell production increased 80% Q2 over Q1 and the team surpassed 10 million production cells produced here in Texas. So congrats to the team for that their focus on yield reduced our scrap bill by 40% quarter over quarter and that was all.
And at 25% reduction in Cogs.
Here in Texas, we're preparing to launch our sabra trucks sell which is 10% higher energy density than current production.
That was accomplished through process and mechanical design optimization as we scale cyber cell production through the end of <unk>.
The year end early next we should be in a comfortable place on cost herself.
Against our battery energy density targets. The cyber sell is our expectations on a like for like electrochemistry basis, where you have to integrate silicon or in house cathode production. Both reviewed on battery day, which do bring significant further energy density and concentrations, but that is a topic for another day.
Lastly, it is important to remember that most of what we focused on a battery day with the Tesla engineered 46, 80 production system and the improvements we strove to achieve on equipment factory density capital cost and utility cost reduction all of which we are realizing in our Texas scale up to date.
Thank you very much.
The next question is can you talk more to the upcoming Tesla energy products and how Youre thinking has evolved on the revenue model.
There's less AI capabilities, how do you see the long term mix between hardware margin and recurring software margin from auto bidder.
This segment accelerates.
Okay.
We can't comment on future product roadmap, but I can provide a coke energy Q2 update.
<unk> continues to show strong demand globally with later, if ramping successfully to meet our contracted projects in 2023 as stated last quarter <unk> margins are in a reasonable place in line with our target market.
Vehicle target margins.
The second final Assembly line at <unk> is progressing on schedule eventually doubling laser capacity ahead of our full factory ramp.
In 2024, we have several exciting large projects in construction are nearing completion, including the Kers project in Hawaii. The River project in Australia, several projects in California, and one Giga factory, Texas toward today actually.
We want to thank our customers utilities and grid operators for trusting us with these projects.
The automated question, we continue to grow at a better contracts and wholesale markets like Australia, Texas, U K and California with over six gigawatt hours under Tesla's dispatch.
Here in the U K our project performed best in the industry in Q2 automated does have software margins and as an enabler for hardware sales, but it's a relatively small contributor to revenues given how much deployment growth on the <unk> side is occurring it's important to remember that these large projects as large capital projects have lifetimes 20 years, so recurring revenues on <unk>.
Analyzed basis relative to upfront capex are small.
The residential side, we have some fun things happening, we recently surpassed <unk> 5 million power walls installed.
Just this week, we are launching charge on solar which allows Tesla power wall and vehicle customers to charge their vehicles using their excess solar and drive only on the Sunshine and it's their roof, yes.
Yesterday, we began paying customers in Texas for participating in our virtual power plant to provide credit support to ERCOT.
We expect these credits to lower our median customer has annual bill by third and to increase these credits over time as ERCOT expands market access and today, we are expanding test electric enrollment to new model three owners in Texas.
By all Texas vehicle customers over the rest of the quarter.
Unfortunately, and somewhat similar to Tesla insurance, bringing Tesla electric and DPP capabilities to our customers requires working through a fracture and regulatory environment on a jurisdiction by jurisdiction basis.
In the long run the value of residential energy software and hardware will be driven by the level of market access that utilities market operators and regulators permit.
Power walls that are eligible to provide the full stack of energy services.
Mike Picker capacity and system offerings, such as in Australia, we can more than double the value of ownership relative to a typical system today.
Thank you very much and the next question is could you quantify the benefit to Cogs per unit from the IRS battery manufacturing incentives and secondly, battery raw material declines year to date.
Alright, and can take that.
On the first part of the question for <unk> manufacturing incentives, we provided previous guidance that we expect these to be for the course of this year in the range of $150 million to $250 million per quarter.
We are staying within that boundary as we guided previously so that was the case in Q2 as well.
I will note and I think we've mentioned this before.
This includes a 50 50 sharing of credits for qualified cells.
From a long term battery partner Panasonic.
On the commodity side.
We are continuing to see improvements there as we've discussed previously.
Lithium is the most notable improvement so far.
I think I commented on this on the last call.
Because typically we see this coming about a quarter before it actually is realized in our financials.
And also just as a reminder, we're not fully exposed to the price of lithium our.
Our supply chain team has done a terrific job in partnership with another a bunch of other companies to put in place.
Some long term agreements here, but we do have some exposure that moves up and down.
We're also seeing benefits in aluminum and steel, which I think is great.
Alright, not as large as the lithium impacts, but they contribute nonetheless.
So if we add up the total impact of this in Q2 relative to prior quarter.
About the same size and magnitude as the IRS demonstrates that we also received.
Just to put this in context.
As you look at Cogs per unit sequentially from Q1 to Q2.
Two things to keep in mind there.
The first is that our FX mix.
For deliveries increased quite a bit from Q1 to Q2, so as you think about fundamental cost reductions.
It's important to adjust for that.
And then secondly, as we continue to work on reducing our Austin in Berlin costs, which we.
We did quite a bit of that from Q1 to Q2.
These factories are still slightly above model Y production cost elsewhere and in the quarter, our mix of Austin in Berlin related builds increased.
And so that's something to consider as you model out the impact from Q1 to Q2 in terms of Cogs per unit.
And I do want to ask Klara, if there's anything else on the commodity side.
Just more generally you want to add here.
You mentioned that we've actually been a little bit hedged from lithium position because it's been a long term contracts we have in place, but we have seen reduction in pricing across the board for all commodities that are specifically go into batteries such as nickel cobalt.
Graphite and.
And the reductions in pricing translate into thousands of dollars. When you look at it from a per vehicles.
We're taking advantage of extending some of those six price contracts.
Through the end of the decade assets, a playbook that will continue that kind of build that too as we look to the future.
Thank you.
Next question on the FSB.
Have you considered allowing FSP transferability as a lever to allow existing customers to upgrade to a new Tesla instead of being locked into an existing car due to the price of FSP.
Okay.
Yes. So the question we get asked a lot.
So we're excited to announce that.
For Q3, we will be allowing transfer of FSP.
This is a onetime amnesty.
So.
And as we take advantage of it in Q3, but.
Or at least place the order in Q3 with them within reasonable delivery Timeframes.
So.
Yes, yes.
<unk>.
Thank you Bobby.
Yes.
Okay.
Just a onetime thing.
Alright. The next question when will when we will.
Give more information about the cyber truck orders estimated delivery schedules pricing specifications.
Hum.
Demand is so it's so far off the hook you can't even see that book.
So that's really not an issue.
I do want to emphasize that these cyber truck.
It has a lot of new technology, and it's like a lot.
It doesn't look like.
It doesn't look like any other vehicle because it is not like any other vehicle.
So.
And the production ramp will move as fast as the slowest and leased like elements of the.
The entire.
The supply chain and internal production.
No.
I wouldn't expect I hope it smooth, we're certainly better production ramps.
We've got a lot of experience with production ramps, but.
So for us.
First order approximation is like 10000 unique parts and processes.
And Ah.
And the cyber truck and if any one of them. It will go as fast as the least lucky.
Least well executed element of the 10000 or so.
Always critical to predict.
The ramp initially but.
I think what we'll be making them in high volume next year.
We will be delivering.
The car this year.
Thank you the.
The next question is critics of Giga casting contended that process makes vehicles harder and more costly to repair essentially pushing cost onto the customer can you share. Some details about the initial repair experience with giga cast vehicles that must be why everyone's copying us.
Yeah. Thanks, everyone. This is lars.
And that's simply not true there's a misconception that traditional bodies are easy to repair, but they're made up multiple materials in multiple joining methods spot wells and revenues have to be drilled out panels and structural adhesive has to be chiseled out.
<unk> has to be removed staffing Scott blah blah blah, it's a crazy patchwork quilt and so putting that back together means time and money. Using example of replacing a rear castrale on model y.
If you do that versus like what we replaced it with some volatility. It's 10 10 times cheaper than three times faster to do it with the cost rail.
<unk> design team works with our collision repair team since we're closed loop on this.
Insurance and redesign specific parts that or make it easier and faster to repair and we have an incentive to do that because we have our own insurance and our own body shops.
We expect that we will continue to do this in toys and repair will continue to become cheaper and faster overtime and we already make this available to all body shops are a tesoro closed body shops right yes.
Closing loop on collision repair and factoring that into design is a big deal. It's crucial I don't think anyone else can do it with the ecosystem that we have so yeah. We are.
We're actually able to change the details of the casting with inserts.
And we actually do that all the time.
So because the answer is actually wear out.
Did you replace anyway. So we can actually make design changes to be answered and tweak the castings.
But the cash cost.
Costa real body or front body is lighter cheaper better noise vibration and harshness much easier to manufacture.
Andrew it's better in every way.
Why so many other car companies are copying us.
Probably.
Well it certainly put out a lot of press releases.
Yes.
I think it is.
Basically it's going to be how all cars are made in the future.
Thank you.
Next question, how many Optimus bonds have been made and when will they be able to start performing useful tasks 10 billion.
Okay.
Yes.
Yes.
Yes, I think I think we're around five or six but I think there is.
Rick can I guess.
How many are working on what phase but.
It's a sort of.
Yes.
Yes.
There is more core.
Every month.
The.
Yes.
Leveraging things leveraging thinks about the auctions, but.
We found that there are actually no suppliers that can produce the actuators.
No off the shelf.
Actuators that worked well for humanoid robot.
At any price certainly not compelling.
Yes.
So it's not a humanoid robot that can do sub debt.
Is that a human can do.
So we've actually had to design our own actuators.
Integrate.
With the power electronics.
Controller.
The sensors.
And.
Really every one of them is custom design.
So.
Okay.
And then of course, we'll be using the same.
It's hardware as the car.
So.
Got it.
And.
We are in designing these actuators are designing them for volume production.
Theyre, not just latter tighter and more capable than any other activated service debt, whereas that exist in the world.
But it's also actually.
Actual.
No.
<unk> is making with volume.
The first.
Optimist that is that we'll have all of the Tesla designed actuators sort of production candidate actuators.
Integrated and walking should be around November ish.
So.
And then we'll start ramping up after that.
In terms of when will it be able to do some useful things like workforce be trying this out in our own factories and just proving out its utility.
I think I think we will be able to do something useful.
Our factories sometime next year.
Yes, I'm pretty pretty confident of that.
<unk>.
So.
Yes.
Carlo.
I should say another cool thing about optimists as that.
Just in the U S alone there are $2 million Rpgs.
And.
I was just talking to the narrowing team and.
By combining neural link.
Implant.
And a robotic arm or leg.
For someone that has had their arms autolytic, all arms and legs amputated.
Yeah.
We believe we can give you.
Basically a cyborg bodies that is.
Incredibly capable.
$6 million man.
In real life.
The $4 $6 million.
[laughter] $60000 a month.
Just as impressive but it'll actually.
So.
That actually could be a really I think it's incredible to potentially.
Potentially help millions of people around the world.
And.
And give them.
Or more like that is.
As good maybe long term better than abolish Cohen.
Thank you the.
Next question is.
How is the order intake trended relatively to production levels during Q2, and how has that trended in the quarter to date period conceptually how does Tesla decide when is it appropriate to reduce prices or at other sales incentives to increase demand.
Yeah, I guess demand is roughly tracked production.
So.
Which is what we aim for.
<unk>.
So we look at that.
But we have really no other carmaker has.
We have real time demand and real time production.
No.
Seven days a week.
I get an email or auto generated E mail shows output from our factories.
And orders globally. So it's like a real time finger on the pulse of Earth basically.
And.
We're just we're just course according to what the.
Moving to the public is.
Buying new cars.
It's a big decision for <unk>.
The vast majority of people so.
Anytime there's economic uncertainty people will generally.
Pause on your car buying at least to see what happens.
And.
And then obviously another challenge is the interest rate environment.
As interest rates rise.
The affordability of anything bought with debt decreases.
So effectively increasing the price of the car.
So when interest rates rise dramatically, we actually have to reduce the price of the car because.
The interest payments increased the price of the car.
So.
And this is.
At least at least up until recently was I believe the sharpest interest rate rise in history.
So we have to do something about that.
And so he has got a crystal ball for the global economy I really appreciate it forget part of that Crystal ball.
Atlas.
Dan Smith [laughter] it should be known for.
So.
I mean, one thing it seems like the world economy, falling apart and the next day Everything's fine.
So what that was going on.
And to be totally Frank I.
I wish I did.
So I mean, that's why that's why I say like.
Entre I posted like just really advising.
I care a lot about that.
The sort of.
The small shareholders, especially ones that are stuck with us through thick and thin I love you guys.
So.
We can't control these macro shocks or.
The medic depressive nature of the stock market. So that's why I recommend against margin loans.
In times that are turbulent.
If times are not that turbulent actually of March alone can be a smart move within reason.
But we are in.
I would call a turbulent times.
I have very high confidence confidence in the long term value of Tesla.
Like I see it really see.
A path to attacks.
Okay.
Feedbacks.
Increase in the value of the company, maybe a 10 X.
And.
The where things go along the way.
And tribulations in the mood of the mood of the markets.
I cannot predict and so.
<unk>.
Yeah.
Okay.
The old adage of buy and hold this is Ryan.
Okay.
For investment advice, I say like identify a company whose products you love.
Steve.
Does it seem like they will continue to make good products great.
Products right.
But that stock and hope it.
That's it.
Right.
Thanks.
Sure.
The reason the company the first is to make goods and services.
Great goods and services.
They don't exist.
The reason they shouldnt.
So that's why you should buy software company that makes great selection has a great future pipeline.
Common sense actually.
Okay.
And.
And then generally if you see it.
If you've provided your confidence about what the company's products or services are.
When the market panics buy and when the market is.
Overly exuberant can sell I don't know if recommending yourself tests with it.
Yeah.
Yes.
Silos.
[laughter].
Warren Buffett actually I think has saying I'm paraphrasing him but.
A publicly traded company site.
As I mentioned living in your house and some.
Crazy Manic depressive Sky It comes and stands outside of your house and BLS property prices at you.
Yes.
And so different price every day.
<unk> is still the same house [laughter].
So.
This is the stock market.
Yes.
Credit to Warren Buffett.
Thank you, let's go to the next question with the emphasis of price cuts to drive volume growth eating into automotive gross margin can investors expect to see automotive gross margin stabilized or even rise due to efficiencies outpacing of the cuts and if so when.
Oh man.
Yeah.
Who has a crystal ball again.
Yeah.
Yes.
It's like look the short term.
Variances in.
Gross margin.
Profitability really are minor relative to the long term picture.
Autonomy.
We'll make all of these numbers look silly.
Recommend looking at Ark invest I think their analysis is.
Very good.
Yes.
I mean.
Generally.
Twit or like if by the finance.
Smart people on Twitter followed their accounts the great.
So.
Okay.
[laughter] might be where you where you'll get the best.
That's helpful.
So.
Our strong belief Tesla is epic long term investment.
And that's where and when.
Things go up and down in fact, the market panics bye.
If you if the market's a little too exuberant time, but but just generally.
Okay.
Our confidence.
We will deliver long term, but can't control short term so.
The economy is really where it's at.
Exactly.
Alright fully agree with you.
I think the only thing in the short term that matters.
Is it is what I said in my opening remarks.
As you know are regenerating and are planning to continue to invest.
And the portfolio of products and technologies.
The technical teams are investing in right now.
This is intense.
Intense in terms of investment its intense in terms of potential.
Frankly, I think it's ridiculous that we have positive free cash flow.
In a capital intensive business while investing.
Massive amounts of money in new technology.
That is super hard and vertical integration with on it and just like new products, but also yes, we actually make our ship.
Okay.
Yeah.
Great.
[laughter].
And Christian School.
And so at least from my perspective, what matters is continuing to generate the cash to invest.
That means continuing to be hyper focused on near term cost reduction.
Anything we do in near term cost reduction provides capital to reinvest.
Hyper focused on working capital management.
We've made quite a bit of progress there.
Raw materials and wed.
<unk> been very focused on accounts receivables as well.
So that we can continue to invest reinvest the cash.
This is what we're focused on yes, and so there is a set of tests that we control we have a pipeline of cost reductions.
We're getting <unk> in the commodity space right now as Ken mentioned Thats helpful.
Variability around average selling prices goes back to <unk> point.
We don't control interest rates don't control macro consumer sentiment.
But we have an obligation to be responsive to that to ensure that we're matching supply and demand and keeping things balanced.
And so this is how we're managing the next handful of quarters.
As soon as these quarters will be behind us.
They won't be part of the present value of future cash flows into the business.
And so we want to make sure we keep that deal and make sure that the long term of the business is exactly the way that we wanted to me.
Okay.
Alright, Thank you very much and now let's go to analyst questions. The first question comes from Dan Levi from Barclays, then feel free to Ah mute yourself.
Great.
Good evening. Thank you.
Wanted to start first with the with a question about you're a.
Person AI and Doug, it's pretty clear it sounds like you're accelerating your focus.
Can you maybe provide us with a sense of what the processes.
Refining our product more machines, and maybe you could give us a sense of.
When the payout starts to when you start to see the payout and what the resource outlay.
Now what can we expect on the Opex front.
All of this.
Sorry are you, saying, how much we can spend on Georgia or.
Yes, R&D outdoor Joe yes.
Okay.
Well, we're not going to be open loop on our <unk> expenditures so.
But I think we will be spending.
Certainly north of a $1 billion over the next year on it over the call to.
So through the into next year, it's well over $1 billion merger.
And.
Yeah, So I mean, we've got a.
It truly staggering amount of.
Video data.
Training on and this is another thing that looks like into in order to copy US you also need to spend billions of dollars.
On trading compute I mean, it's like.
And it's hard.
You need the data to train and computers.
I think all things needed to actually achieve this at scale to where generalized solution for economies.
This is one of the hardest problems ever.
You see a lot of AI companies doing <unk>.
And I'll say this.
So great why can't they make yourself great driving car.
Because it's harder.
That's why.
So, but I do think that said I think there are some great great AI companies out there but.
But this fundamentally.
The staggering amount of data, we've got a process discovery process somehow and custom silicon is the best way to do that.
So that's what I'll do is design series is.
Yes.
Yeah optimized for video training.
It's not optimized for all of them that's optimized for video training.
<unk>.
With with with video training.
You have.
So much high ratio of compute to memory bandwidth.
So.
Yeah.
<unk>.
Memory bandwidth choke.
Okay.
So that's our that's what I.
I mean.
But we're also we have some.
We're using a lot of Nvidia hardware will continue.
Sure.
Yes.
We'll actually take video hardware as fastest Nvidia will deliver to us.
Tremendous respect for Jensen and Nvidia.
They've done an incredible job.
And and.
Frankly, I don't know.
If it could deliver us enough.
<unk> Gpus.
Right right.
Okay.
So they got they got so many customers.
They've been kind of up to two.
But nonetheless prioritizing art.
GPU orders.
But.
Yes, just the sheer magnitude of video training.
Like I said, we're not trying to just get as good as you know and we want to get too.
Fantastic and human maybe 100 times better than humans.
Right now I believe theres something on the order of $1 million automotive tests per year.
And then if you say permanent.
Serious injuries, I think it's probably closer to $10 million per year.
And.
So it matters, if you're if you're.
Twice as good as <unk>.
As human 10 times.
<unk> has put in humans, we're assuming a 100000 deaths.
At <unk> <unk>.
Permanent injuries. So it's like okay, well would probably be 100 times better. So there's really it's a march of <unk> and we want to achieve.
That's perfect.
Safety is possible.
And.
Truly mind boggling amounts of video and computer needed for that so.
And then do you think there's other applications for photo drove it.
We are just desperately needed for video training.
Great.
Utility when I mentioned the <unk>.
And he mentioned are.
Between R&D spend and capital spend.
And this is moving quickly.
<unk>.
And so when we provided a three year outlook on a capital expense we are considering.
These expenses in that outlook.
And as that moves up and down we will continue to update our guidance in the Q.
Yes.
I wouldn't say that.
But fundamental rate limiter on the progress of full self driving is training.
If we had more training compute we would get it done faster.
So.
That's it and an assistant will help to predict how quickly we can execute on it.
Okay, great. Thank you.
Just as a follow up.
I recognize there is.
While macro uncertainty right now, but youre sticking with your.
Near term volume target, 50% CAGR.
We just think about sort of in the year ahead.
Cyber truck is going to be some contribution.
And if theres going to be some help for further <unk> penetration growth but.
To what extent are you willing to.
Sacrifice on pricing to keep that 50% volume CAGR intact.
Or.
Are you thinking differently about margins versus your prior commentary of willing to sacrifice on margins to get more share.
It sounds like getting more share it's just that.
You can think of every car that we.
So overall produce that that has.
For autonomy capability.
As.
Actually something that in the future may be worth as much as five times what it is today.
Because.
Average passion big passenger vehicle is doing like maybe 10 hours.
<unk> a week.
Sort of wondering if this is one and a half hours a day on average Thats 10 hours a week.
Yes.
If you've got <unk>.
Economists.
Okay.
That vehicles are able to operate autonomously and.
And you'd be used.
Either dedicated or autonomous or partially autonomous like like Airbnb like maybe sometimes you allow your card views by others.
Sometimes you want to use it exclusively just like Airbnb.
During airbnb with them.
A room in your house.
The values is tremendous.
So I think it's sort of it would be.
I think it makes it just makes sense to sacrifice margins in favor of making more vehicles because.
We think in the not too distant future they will.
Have a dramatic valuation increase I think the Tesla, we value increase of the point of which we can upload wholesale full self driving and it's approved by regulators.
It will be the single biggest.
The step change in asset values, maybe in history.
Thank you let's go to the next analyst question comes from Emmanuel Rosner from Deutsche Bank.
Alright, Thank you very much to.
Two questions from me as well first following up on on the autonomy. So before you start launching these dedicated robo taxi vehicles on an existing vehicles, you're improving your first the incrementally.
What is your latest targeted timing to essentially released a beta version or an ISR firsthand that would trigger a much higher take rate.
And with Tesla benefit from lowering the price of FSD.
Yes.
Well obviously.
Yes.
That's true surveyed pardon me and perhaps.
No.
Quite fairly have made fun of me my predictions about achieving.
Also driving.
Have been optimistic in the past.
The reason to be optimistic as what it tends to look like as the.
We'll make rapid progress with the new version of of FSD.
But then.
It will curb logarithmic Lee so so at first.
Logarithmic curve looks like.
So it's fairly straight upward line cycling went up.
So if you extrapolate that venue you have a great thing, but then.
It's actually a logarithmic kerbs over and then there have been a series of stacked logarithmic hubs.
Now.
Yeah.
I know I'm on the board you acquired FSP.
But I mean I.
I think.
<unk> will be better than human by the end of this year.
That's not to say were approved by regulators.
And I'm, saying then that would be.
In the U S.
We got to focus on market first.
I think we'll be better than year end by the end of this year.
I've been wrong in the past I may be wrong. This time.
And the price of FSD. So the only thing is the price of FSD is actually very low.
It's not high.
When you go back to what our singular.
The value of the car increased dramatically if it is actually autonomous.
$15000 is actually in a low price is not a high price.
And.
Now we will offer.
Reducer offer FSP as a sort of monthly subscription, although most people don't know that.
So I'd recommend like maybe trying it out as a monthly subscription so you'd have to go with the 15000 dollar thing but.
I think.
Yes, yes.
Obviously, if a car is worth several times.
Rachel price.
Okay.
$15000 is actually a low price for FSA.
Thank you and the next question comes from William Stein from Trust.
William go ahead on mute.
Great. Thank you very much for taking my question.
<unk>.
I'd like to ask about that.
Stick on this AI topic.
We've read with great interest the developments and dojo today and you've spoken about FSD.
You've also Elon you started this X dot AI come.
<unk> and.
For investors to think that there might be quite a bit of value in the AI.
Features and products of Tesla.
It might be concerning to see you.
Pursuing another endeavor, where AI focus so can you talk about how extra on AI might overlap might.
Perhaps compete with Tesla or in other ways, perhaps it enhances the value of what Tesla does thanks very much.
Yes, I think it will actually enhance the value of Tesla.
There are there really were just.
Some upswing.
Some of the world's best AI engineers, and scientists that were willing to join a startup.
But they were not willing to join a large sort of relatively established company like like Tesla. So I was like that's actually how it got started I was interviewing a few people and theyre like now we wanted to start up and that's all.
Ah can convince them to try and.
Tesla, so sounds like okay well.
Better to start up there.
That I run that then they go somewhere else.
That's kind of the Genesis of X AI.
<unk> is focused on eight sort of agi.
Yeah.
So it's.
But like I said I think there will be some.
Value that <unk> brings to Tesla.
Okay.
Also some of the best.
For the very best people in the world. They most want to work on interested interesting problems. So if you take say.
Our Geoscience group.
Really what.
Convinced that Troy comment to leave Apple, where he was very happy and well compensated.
And bolt at.
Yes.
Yeah.
Yes.
We think it's the best materials Science group in the World.
Was that he got to work at both Tesla and Spacex.
He wasn't willing to leave Apple if it was just how somebody was willing to Tesla.
Tesla and Spacex.
Sometimes you get the best out in the World, that's the kind of thing.
You need to do and that actually has been very beneficial to Tesla.
So.
If I can squeeze one more mundane question in.
I Wonder if you think you can hit the $1 8 million unit number with current pricing or do you anticipate needing to continue to lower prices because it seems like things are stabilized the trends have stabilized from the last may be more than half should we expect.
Hector.
Continued decreases or more stabilization for the rest of the year.
Sure.
We have a sort of.
We started the reform referral program, which I think will be quite effective.
As I was saying earlier.
We don't control the macroeconomic conditions. So if interest rates continue to rise that reduces the affordability of cars.
Yes, and for a lot of people are really proud about.
Barely breaking even.
Every month in fact, if you look at the rise in credit card debt. They are in fact, not breaking even every month.
Credit card debt is is looking at.
Gary.
So.
We'd really like richest don't control macro conditions.
If macro conditions are stable I think prices, what we say once they are not stable then.
We would have to lower prices.
Yes.
Okay.
Thank you, let's go to Colin Rusch from Oppenheimer.
Okay.
So much guys.
Building, Jojo and implementing with Chili's.
Complex.
Set of software can you speak to the maturity of the operating system and how much soft outsource software you're expecting to use in that system.
Yeah.
This is a customer software stack so.
But it is.
On.
Such that you can run.
At the Hyatt at a high level pie torch.
And Jack's.
So.
But then we have to customize it to actually run off.
Custom silicon.
Software stack.
As a.
A combination of open source software and that total software all the way to the bare silicon, which is the case for <unk> computer in the car.
So.
Okay. Thanks, so much that's super helpful. And then can you speak to how you're managing some of the geopolitical risks.
To your capacity expansion.
Obviously as you guys continue to grow at this rate you are going to be putting some focus on the business.
There's going to be some impacts around regional economy, and so I just want to understand how you are thinking about that in terms of some of your capex plans and how you are managing some of those relationships with with different countries and regions.
But this is a period of unusuals geopolitical risk.
So I think we're the best we can do is.
No have factories.
Many parts of the world such that if.
Things get difficult one part of the world.
We can still keep things going in the rest of world.
Thank you. The next question comes from Mark Delaney from Goldman Sachs.
Thank you very much for taking the question Tesla has been making progress reducing costs and did so again last quarter can you give an update on when you think automotive cogs per vehicle could be under the historical $36000 per vehicle level and what are the key puts and takes to get there.
I think I was asked this in the past this is very difficult to forecast.
A series of tests that we manage.
And she is a customer which we don't control.
And so particularly on the commodity side.
Labour Costco et cetera.
It's just hard to say, yes, we feel very inflationary practices like strong inflationary pressures for a while last year.
<unk>.
And now we.
Which obviously makes it very difficult to reduce Cogs and <unk>.
Now we're seeing.
Seemed to be deflationary pressures certainly deflationary.
But.
If deflation is a pressure.
But we're seeing.
Commodity prices dropped a dropping as was mentioned.
No.
As Colin mentioned a moment ago.
And.
Okay.
Or do you think I mean, basically the trend simply deflationary at the commodity level is definitely.
Is that and then there's also the unit economics improve as volumes grow let's say everything we're seeing as we're becoming a bigger and better part of a lot of suppliers economies of scale come into play as equipment depreciation that comes into play equipment that was commissioned five to seven years ago.
That is to be a part of the piece price that's completely amortized. So we will see situations or piece price comes down. It does that equipment contribution has gone away and then just we continue to have this mentality of continuous improvement in terms of labor, reducing labor improving automation.
And just continuing to get better at what we do so we have seen I think every quarter. We have seen an improvement of course, the commodity spiked up and down just in general the trend is towards being more efficient.
Yes.
Totally agree Kevin lithium prices went absolutely insane there for a while and they are recovering now cobalts.
Yes, we're still early in the ramps.
Not early in the ramp but early in the crosstown terrible Boston umbrella.
And so it takes time towards low cost at it first it's a focused on ramp.
Ramp it brings cost timeframe and then there Brennan quality cost and then once that stabilizes, we can divert bandwidth to cost reduction and so.
Also in Berlin song quantities and amount of cost reduction on a fundamental basis from Q1 to Q2, we will continue to do that work that would be helpful.
And so we're just going to keep chipping away at it.
Yes.
Big element to it.
Just thanks to logistics is normalizing which is great.
Thank you Bob.
Realization.
It's something that the team has been very focused on.
So every bit of it.
Yes.
Logistics is Thunder I appreciate it.
Yeah, So I'll say it goes like valves.
That was one of the tactics wasn't one with logistics.
And we've made tremendous improvements in cost and on trucks.
Alright.
Thanks, Brent costs.
Don.
Tom.
And to make excellent cost levels.
And our goal is to grow further.
Yeah. So when we look at our progress from Q1 into Q2 on costs and the way that we look at internally.
And then normalized for the impacts of mix shift with Austin, and Berlin being a higher percentage of our mix normalized for FX being a higher percentage of our mix in Q2 versus Q1.
The sequential cost reduction might be the largest we've had in a while.
So anything is it's great work on behalf of the Tesla team and we just got to keep it up.
Yes, Gabe came a Spanish like game of Thrones for tonnage.
Okay.
Mark do you have a follow up question I think you are muted.
Yes, yes. Thank you very much for all the details on that maybe you can put a finer point on the downtime impact that too.
You spoke about in your prepared comments in terms of production impact and then also to what extent there is a margin impact from those at a factory operators that you're planning this quarter. Thank you.
Yes.
On time.
Okay.
We don't know exactly the number of cars impacted because kind of the way that we go into downtime windows for upgrades.
We set aside a period of time, but then the team has challenged it as quickly as possible. So that we can get the factories up and running again and minimize that.
And it isn't a profound reduction.
Small I think we are getting with tuition Luis here I mean.
Looking for a level of precision that is not.
Possible too.
To answer this.
Let's move on.
I think this is unfortunately, all the time, we have for today. Okay. So we'll speak to you all in the next few months. Thank you very much. Thank you.
Okay.
Okay.
Okay.
Sure.
Yes.
[noise].