Tesla Q1 Earnings Call 2022 Transcript

Martin Viecha: (00:00) ... 2022 Q1 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. Our Q1 results were announced at about 3:00 PM Central Time in the update that we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today. Actual events and results could differ materially 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 followup. Please use the raise hand button to join the question queue. Before we jump into Q&A, Zach will have some opening remarks. Zach. Zach Kirkhorn: (00:50) Yeah. Thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the company. Despite numerous supply interruptions, including shutdowns at our Shanghai factory and nearby suppliers due to COVID, we've continued making progress and achieved our best ever vehicle deliveries. Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin, and bottom line profitability. Gap automotive gross margin reached 32.9%. And for the first time exceeded 30% when excluding regulatory credits. Higher pricing continues to positively impact our financials as we make progress delivering cars in our growing backlog. Note that for most vehicles, our delivery wait times are quite long. Thus cars delivered in Q1 generally carried pricing set in prior quarters, and at levels lower than cars being ordered today. Zach Kirkhorn: (01:48) Our per unit vehicle cost increased as well. Inflation, raw material prices, expedites and logistics costs continues to impact our cost structure. Factory shutdowns also occurred with little to no notice, hence we were unable to take action to plan those interruptions in a cost efficient manner. Additionally, we saw a slight mix shift towards more profitable vehicles, including the Model Y. We also recognized a one-time benefit of 288 million from credit revenue relating to a regulatory change in the U.S. CAFE penalty, without of which credit revenue would've declined compared to the same period last year. Zach Kirkhorn: (02:24) The energy business has continued to be impacted by macro conditions more severely than the vehicle business. Our storage products are in need of chip supply. And new import processes have impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. Op-Ex as a percentage of revenue continues to reduce, driven by higher revenue, lower stock-based comp expense and other items. As a result of our ongoing improvements in operating leverage, we achieved a record operating margin of over 19%. Note that commissioning costs for our factories are in R&D, as Berlin started production in late March, and Austin in early April. Zach Kirkhorn: (03:05) These costs will be an automotive cogs going forward, given these factories are now producing customer sellable cars. Our free cash flows have remained quite strong, yet we're impacted by working capital related to lower than planned production. Additionally we have reduced our debt excluding product financing to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2. First, we've lost about a month of build volume out of our factory in Shanghai due to COVID related shutdowns. Production is resuming at limited levels, and we're working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2. Zach Kirkhorn: (03:43) Second, as I've mentioned before, Austin and Berlin are just starting their ramps, and thus those inefficiencies will start to flow through our gross margins in Q2. Third, we do have higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year, and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers, and our new customers for a great first quarter. Martin Viecha: (04:14) Thank you very much. And Elon has some opening remarks as well. Elon Musk: (04:19) Sure. Some of my remarks will be redundant with Zach's, but it's maybe worth repeating. Q1 was once again a record quarter on many levels by reaching the highest deliveries, profit and an operating margin of 19%. This was despite a lot of chip shortages, many logistics challenges, and an overall difficult quarter. So I'd really like to congratulate the Tesla team on achieving record profitability and output despite many, many difficult headwinds. And especially the Tesla China team and our Shanghai high factory. They really had significant challenges due to the COVID shutdowns. And nonetheless have been able to output a tremendous number of high quality vehicles. And we are already back up and running with the Shanghai factory. So as Zach said, we remain confident of a 50% growth in vehicle production in 2022 versus '21. I think we actually have a reasonable shot at a 60% increase over last year. Elon Musk: (05:43) So let's see. Obviously we ... Yeah, production as people know with Giga Berlin and Giga Texas in the past few months. So we've two fantastic factories with great teams. And they are ramping rapidly. With new factories, the initial ramp always looks small, but it grows exponentially. But I have very high confidence in the teams in both factories. And we expect to ramp those initially slowly, but like I said, growing exponentially with them achieving high volume by the end of this year. Elon Musk: (06:35) So let's see. We're also working on a new vehicle that I alluded to at the Giga Texas opening, which is a dedicated robo-taxi that's highly optimized for autonomy, meaning it would not have steering wheel or pedals. And there are a number of other innovations around it that I think are quite exciting. But it's fundamentally optimized for ... It's trying to achieve the lowest fully considered cost per mile or cost per kilometer, accounting everything. And so it's, I think going to be a very powerful product. Where we aspire to reach volume production of that in 2024. So I think that really will be a massive driver of Tesla's growth. And we remain on track to reach volume production of the Cyber Truck next year. Elon Musk: (07:48) Let's see. So basically, once again, I'd like to thank the Tesla employees for their hard work. But also I'd like to thank our suppliers who've really gone the extra mile. We have an amazing supplier group. And I say a heartfelt thanks to the suppliers that have really worked day and night to ensure that tales is able to keep the factories running. And we're really at the early stage of our journey. We only crossed one million units in the past 12 months recently. And we aspire to head to 20 million units a year. So we're basically 5% along the way towards our goal. Elon Musk: (08:45) But we're growing very rapidly year over year. And remain confident of exceeding 50% annual growth for the foreseeable future for basically several of the next years. I mean ... So, yeah. And then there's of course Optimus, which I was surprised that people did not realize the magnitude of the Optimus robot program. The importance of Optimus will become apparent in the coming years. Those who are insightful or listen carefully will understand that Optimus ultimately will be worth more than the car business. Worth more than FSD. That's my firm belief. And then of course, insurance is growing well. We expect to address the part shortages that limited our progress with batteries and solar. So we expect batteries and solar to also grow well this year. And basically the future is very exciting. I've never been more optimistic or excited about the Tesla's future than I am right now. Thank you. Martin Viecha: (10:20) Thank you very much. Let's go to first investor question. And the first investor question is, "Elon has historically provided FSD timelines with not optimal accuracy. We love Elon's optimism for 2022 release, but is there any data tests I can share with investors to help them make their own conclusions on progress being made? Interventions per mile driven or any other data?" Elon Musk: (10:43) Sure. Well, with respect to full self-driving of any technology development I've ever been involved, I've never really seen more kind of false dawns, or where it seems like we're going to break through but we don't as I've seen in full self-driving. And ultimately what it comes down to is that to solve full self-driving, you actually have to solve real world artificial intelligence. Which nobody has solved. The whole road system is made for biological neural nets and eyes. And so actually, when you think about it, in order to solve full self-driving, we have to solve neural nets and cameras to a degree of a capability that is on par with, and will really exceeds humans. Elon Musk: (11:41) And I think we will achieve that this year. The best way to reach your own assessment is to join the Tesla full self-driving beta program. Where we have over a 100,000 people right now enrolled in that program. And we expect to broaden that significantly this year. So that's my recommendation is join the full self-driving beta program, and experience it for yourself. And take note of the rate of improvement with every release. And we put out a new release roughly every two weeks. And you'll see a little bit of two steps forward, one step back. But overall, the rate of improvement is incredibly quick. So that's my recommendation for reaching your own assessment is, literally try it. Martin Viecha: (12:40) Thank you. The second question is, "How much of an impact will the production shutdown in Shanghai have in Q2? What is the timeline for localizing the Model 3 in Europe, or will never ... Or will different models be prioritized in Berlin?" Elon Musk: (12:57) Well, we did lose a lot of important days of production. And there are sort of upstream supplier challenges where a lot of suppliers also lost many days of production. But Tesla Shanghai, Giga Shanghai, is coming back with a vengeance. So I think notwithstanding, with new issues that arise, I think we will see a record output per week from Giga Shanghai this quarter, albeit we are missing a couple weeks. So that means that most likely vehicle production in Q2 will be similar to Q1, maybe slightly lower. But it's also possible we may pull a rabbit out of the hat and be slightly higher. But it's [inaudible 00:13:52] roughly on par. But then Q3 and Q4 will be substantially higher. So it seems likely that we'll be able to produce over one and a half million cars this year. That's my best guess. Elon Musk: (14:15) And then Model 3, it's important for new factories to be focused, and have the least amount of complexity and variation. Which is why Giga Berlin and Giga Texas are focused on the Model Y. From the point in which you have a factory complete and you're making a small number of units to the point where it's producing high quality vehicles in volume is sort of nine to 12 months from start of production. So now hopefully we're getting better at that ramp. So maybe it's a little less. But to get to sort of the 5,000 a week level has typically taken us around 12 months from start of production. Yeah. Martin Viecha: (15:24) Thank you. The next question is, "How much raw material exposure do you have measured roughly in percentage of cost of goods sold for example in a given quarter, versus one to two years out, both direct and indirect? Separately, how do you think about price increases versus prioritizing higher mixed vehicles going forward?" Elon Musk: (15:44) Actually on the price increase front, I should mention that it may seem like maybe we're being unreasonable about increasing the prices of our vehicles, given that we had record profitability this quarter. But the wait list for our vehicles is quite long. And some of the vehicles that people will order, the wait list extends into next year. So our prices of vehicles ordered now are really anticipating a supplier and logistics cost growth that we're aware of and believe will happen over the next six to 12 months. So that's why we have the price increases today, because a car order today will arrive in some cases a year from now. So we have a very long wait list. And we're obviously not demand limited. We are production limited by ... Very much production limited Martin Viecha: (16:49) Raw material exposure? Zach Kirkhorn: (16:52) Yeah. Just to add to what Elon is saying. There's different ways to calculate raw material exposure. I think a simple way, we estimate more around 10 to 15% of our cost structure exposed to raw materials. And just to clarify a couple of things on that. So we've been experiencing increases in costs in general, but also raw materials for a number of quarters now. That pace picked up in Q1, so last quarter. And what we're seeing for Q2 is slightly higher than that as well. And as indices move, it doesn't impact us immediately or directly. In some cases we have contracts with suppliers. But then as those contracts expire, we have to renegotiate them so that there can be a lag. Zach Kirkhorn: (17:44) In some cases, our contracts do directly reflect movement in commodity prices, raw material prices. But the timing in which that Tesla pays for that has a lag associated with it as well, based on the contract. And so to Elon's point what we're trying to do here, because it's quite an unprecedented situation of raw material movement, and all of these various lags and uncertainty around renegotiating contracts is, we're trying to anticipate where things will go. And make sure the pricing that we have put in place at the time that those raw material cost increases hit us, that they align. And that the company can remain financially healthy in various scenarios as we look out over the next four quarters. Martin Viecha: (18:30) Okay. Thank you for very much. The next question is, "Why does Tesla continue to fight dealership laws on a state by state basis versus taking it federal? Separately, why isn't Tesla using an 800 volt architecture in its vehicles? What are the advantages or disadvantages?" Elon Musk: (18:45) Sure, so to [inaudible 00:18:49] standpoint, obviously we would like to have federal legislation that allows direct sales in all states. But we have not seen willingness on the part of the Congress to enact such laws that would override a variety of state laws. So unfortunately we have to fight it on a state by state basis. And Drew, do you want to answer that 800 volt question? Drew: (19:16) Yeah, sure. On the 800 volt thing. Yeah. So it's really a case by case thing. For the smaller platform vehicles like 3 and Y there's some wins and losses with 800 volts. Not everything is better. And so we look at that platform. And we're not ignoring the reality that you could go to a higher voltage, but there's nothing really encouraging us to do so on that platform. It's really about mass and power. And as you look at bigger vehicles, there are some advantages on those bigger vehicles. Elon Musk: (19:49) Yeah. [inaudible 00:19:49] would just quantify that basically, our estimate is that going for 400 to 800 volts might save a 100 bucks. Drew: (19:57) Yep. Elon Musk: (19:57) It's not really moving needleless. Drew: (19:59) And you're changing many things. Elon Musk: (20:01) Yes. Right, exactly. Drew: (20:02) And the charging infrastructure all the way through the entire vehicle system. Elon Musk: (20:04) Yes. Drew: (20:04) To get maybe a $100. Elon Musk: (20:07) Yes, exactly. So I mean, in the U.S. you've got 110 volts household power or voltage. And then in our most households, sort of 220. But really it doesn't make that much of a difference in appliances. We're pretty much as well, [inaudible 00:20:25] in Europe as they do in the U.S. So the there's some ... The advantages are small. And the cost is high. Say long term, like years from now, does make sense to probably move to an 800 volt architecture? Probably. But it really needs a very big vehicle volume to pay for all the costs of changing from 400 to 800 volts. And then, Drew, do you want to continue with the- Drew: (20:53) Oh, I was just going to say, that 800 volts, it's also kind of like a spreadsheet exercise, right? Elon Musk: (21:01) $100. Drew: (21:02) Sorry. $100 dollars is roughly like a spreadsheet exercise. That you'd have to get through the full program to the end to see that maybe it's been whittled away to 50 or less. Elon Musk: (21:12) Yeah. Drew: (21:14) On bigger vehicles where you're talking about higher power on the charging side, or higher power from the battery to the power electronics, or you need more torque. So the current requirements go up. There's a little bit more semiconductor and actual conductor savings of going to the higher voltage. And so we do consider that for semi and Cyber Truck. But for the 3/Y platform where we've got everything running and the benefit is questionably small. Elon Musk: (21:44) Yeah. And it's basically zero for Robo-Taxi. Drew: (21:47) Yeah. For Robo-Taxi, it doesn't make sense. Yeah. Elon Musk: (21:54) [inaudible 00:21:54]. No, no. Sorry. No, this ... Ignore, ignore, ignore. Drew: (22:01) Sounds good. Martin Viecha: (22:02) Okay. Let's go to the next question. Drew: (22:03) Sounds good. Martin Viecha: (22:03) Okay, let's go to the next question. Next question is how are the current 4680s performing versus expectations set during the battery day in terms of expected range increase and dollars per kilowatt hour? Elon Musk: (22:15) Yeah. Drew: (22:16) Yeah. We're working in all the areas we shared on battery day and we have consistent progress across all of those areas towards achieving the five year cost trajectory goals for the costs within our control, but we do not control all of the commodity costs, so that's an exception I need to call out. Similar to Model 3, it will take us several years to get rate and yields to the point where everything that we've discussed is achieved. Our priority was on simplicity and scale during our initial 4680 and structural battery ramps and as we attain our manufacturing goals, we will layer in new material technologies we are developing and higher range structural pack revisions. Elon Musk: (23:02) I think maybe in a nutshell, I think it probably is fair to say that 4680 and structural pack will be competitive with the best alternatives later this year and we think will exceed the best alternatives next year. Drew: (23:23) Yeah. I mean we have some good existing proofs. We've built the facility here in Texas, we know how much we spent on capital equipment in the facility, and it's more than 5x less than prior technology installation, so we're saving huge on CapEx. On utilities and personnel, we know what those loads are and how many people are needed to run what is basically a highly automized factory, and we have massive reductions in both of those. So the cost model is well understood. It's really about rate and yield, which will come in time, as Elon said, over the course of this year and next. Elon Musk: (24:00) Yeah. Martin Viecha: (24:02) Thank you. And the next question is how does Tesla plan to secure raw materials required to scale to extreme size? Elon Musk: (24:11) Yeah, so this is something we think about quite a lot, it depends on what extreme size means, so if you're looking at say 5, 10, 20 million vehicle levels, you really have to analyze the macroeconomic, just what is the tonnage of lithium that you need, of nickel, of iron phosphate, of graphite separators, electrolytes. You really need to think of just macro tonnage. And when you think about this for the world as a whole, because we want to figure out what are limiting factors for accelerating the advent of a sustainable energy future and whatever those limiting factors are, Tesla will take action on those limiting factors. So right now we think mining and refining lithium appears to be a limiting factor, and it certainly is responsible for quite a bit of cost growth in the sales. It's, I think, the single biggest cost growth item right now, percentage basis, although just for those who don't totally know this, the actual content of lithium in a lithium-ion cell is maybe around 2 or 3% of the cell. Drew: (25:49) Yeah, 5KGs a car. Elon Musk: (25:51) Yeah, exactly. It's called a lithium-ion cell, but by far the most expensive and heaviest item in the cell is the cathode. So that's the nickel or the iron phosphate. So we're looking carefully at all of the raw materials and trying to figure out how we can accelerate the total amount of raw materials needed to transition the world to sustainability. And I think we don't have enough time on this call to really go through all those details, but we're all thinking about these things and we think we'll have some exciting announcements in the months to come. Drew: (26:37) Yeah, one thing I want to call out is we're also committed to recycling at all of our cell factories. We're recycling 50 tons a week right now in Reno and ramping to 150 with all of that reclaimed material going directly back into our [inaudible 00:26:52] supply chain. So we're looking at the beginning and end of life needs here. Elon Musk: (26:57) Yeah. Lars: (26:59) And that's true, since Reno, we built the Gigafactory and we started doing that with batteries, but as we built newer factories or vehicles, for example, Giga Texas here, where we are today, [inaudible 00:27:09] all of its non-yielded or scrap aluminum from the stamping shop directly into the casting shop, we regrind any plastic that goes out. And so we're really concerned about raw materials, not just mining them and consuming them, but when we get them in the door, using all 100% of them. Elon Musk: (27:24) Yeah, Lars, that's a great point. So we're installing melt furnaces for aluminum. So for the Model Y that we build here at Giga Texas has both a front and a rear body casting. So we're casting almost two thirds of the body, then that's high pressure die cast aluminum. And so we can take both scrap from the casting machine and the gating that comes out, and just really toss that back into the aluminum melting pot. And then as Lars was saying, also take any stampings and any other aluminum scrap, and also throw that in the melting pot. And in fact, we've also figured out that we can use wheels from practically any car. Lars: (28:22) [inaudible 00:28:22] wheels. Elon Musk: (28:23) Yeah. So we're going to be recycling the cast aluminum wheels from legacy gasoline cars as well and throwing that in the melting pot for our aluminum cast body of Model Y, and also we'll be moving to the cast front/rear body in all vehicles over time. Well, actually maybe not S/X, but 3/Y. Martin Viecha: (28:58) Thank you. At what rate do you expect Berlin and Austin to ramp relative to Shanghai? Are you able to leverage learnings from Shanghai or are the processes substantially different in the new factories? Elon Musk: (29:10) Ramp production are faster than Shanghai because we have learned a lot and we have basically veteran teams that have seen the 3/Y ramp, the Y ramp especially, in multiple locations and we're obviously sharing what we've learned. And so we don't want to get complacent or entitled, but this should be a faster ramp because we have learned more and we have done a lot to simplify the production process of Model Y. That should lead us to a faster ramp in Texas and Berlin. Speaker 1: (29:54) We also have, because it's structural and casting, about 30% less robots. We expect to almost double the capacity for body, for example, reducing the number of robots, but doubling our capacity in a lot of areas. Elon Musk: (30:07) Yeah, right. The body line for the structural pack, and if you got a structural pack, and front and rear castings, the body shop size drops by over 60% relative to the standard way of making a car. Lars: (30:33) That tacks into general assembly and everything else because we have the structural battery, the floor is the battery. We put the seats on the battery and then we put that in their car, so it's actually between 10 and 15% less stations in GA because of the general assembly start as well. So really I think about this in the way that we think about cars. If you're waiting for the best Tesla, you're going to be waiting forever. If you're waiting for our best factory, you're also going to be waiting forever, because every new factory is better than the last one because we take all that learnings and we throw it into the new one. Elon Musk: (31:03) Yeah. Martin Viecha: (31:05) Thank you. Next question is at Cyber Rodeo, Elon mentioned that a futuristic driverless Robotaxi vehicle is on the roadmap. When can we expect more details on the product offering to be unveiled? Is this something that people can own or will this be only offered by Tesla as a service? Elon Musk: (31:23) So I think we don't want to jump the gun on an exciting product announcement too much. So I think we'll aim to, if we do a product event for Robotaxi next year, and get into more detail, but we are aiming for volume production in 2024. Martin Viecha: (31:49) All right. And maybe the last question from investors is what is the current run rate of 4680 sale production at Fremont and at Giga, Texas? What do you expect run rates of 4680 to be in Fremont and Giga, Texas or Berlin at the end of the year? Elon Musk: (32:07) Well, Berlin is using the 2170 nonstructural pack, so they're not concerned about 4680. They will transition to 4680 hopefully later this year, but current Berlin production [inaudible 00:32:23] require that. We also have, just as a risk mitigation, 2170 nonstructural pack capability here at Giga, Texas as well, but if things go according to plan, we will be in volume production with 4680 sometime perhaps towards the end of the third quarter and certainly in the fourth quarter. That's accurate, Drew? Drew: (32:51) Yeah, and the other thing I would add is with the China COVID shutdown and the semiconductor bottlenecks we had through Q4 and a little bit in Q1, we have sizable cell inventory at the moment and excess cells to support the 2022 volume targets you described. So that gives us the ability to be pretty deliberate in the 4680 ramp where we can maximize learning step by step, take engineering downtime to upgrade key pieces of equipment and modify the structural pack designs to improve reliability all while achieving what you just said. Elon Musk: (33:21) Yeah, 4680 output is not a risk to achieving one and a half million vehicles produced this year, but it would become a risk next year if we do not solve volume production by early 2023, but we're highly confident of doing so. Martin Viecha: (33:43) Thank you very much. Let's go to analyst questions now. The first question comes from Dan Levy from CSFB. Please go ahead and unmute yourself. Dan Levy: (33:56) Hi. Good evening. Thank you for taking the questions. First, maybe you can just talk through or address what some of the drivers of cost improvement were in the quarter. Was it just further improvements within Shanghai or in Fremont? Anything around ongoing Kaizen that you've talked about in the past, maybe you could just talk through what you benefited from in the first quarter. Zach Kirkhorn: (34:26) Sure. I mean at a high level, cars produced in Shanghai do carry a lower cost structure than cars produced in Fremont. And so as our mix of cars shift towards Shanghai, the average cost is positively impacted by that. We're also seeing some progress in manufacturing efficiencies in Fremont, particularly on the S and X side, as volume increases improves there. Expedites has been a huge story for the company. Q4, we had massive amounts of expedites. Q1 was still quite large, but we did make progress bringing that down some. Elon Musk: (35:06) To mention, kudos to the Fremont manufacturing team and our associates there, because we're achieving record output at Fremont. Zach Kirkhorn: (35:18) Yeah, the Fremont team is doing a tremendous job. Absolutely tremendous. Lars: (35:22) [crosstalk 00:35:22]. Elon Musk: (35:23) Yeah. Zach Kirkhorn: (35:31) Yeah. Drew: (35:31) It's hard to underweight the expedite situation with the crazy logistics that occurred with COVID. Zach Kirkhorn: (35:43) Yeah, and to Elon's point, the Fremont team and also the Shanghai team has been extremely dynamic with the unpredictable nature of our part arrivals and our supply chain team in particular, production planning portion of supply chain, we often get very little notice when there's part shortages coming and it's a scramble couple days before that part is supposed to arrive to figure out how to get it here. And so the amount of Herculean effort that goes in to produce a quarter like Q1 and even the quarters before that is absolutely immense. Elon Musk: (36:18) I mean it's like the saying in the military is amateurs talk about tactic, professionals talk about logistics when it comes to war. Zach Kirkhorn: (36:29) Yeah. So there were some inherent cost improvements, as I mentioned, but there's also offsets that we've talked about previously in raw materials, commodities. Outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity there and bring those costs down. Dan Levy: (36:51) Great, [crosstalk 00:36:51]. Martin Viecha: (36:52) [crosstalk 00:36:52]. Sorry, go ahead. Dan Levy: (36:52) Yes, thank you. Second question, one of the initial goals of Model 3 way back when was to have an EV that was affordable for a wide portion of the market, and we know prices are much higher now just given the supply constraints, prices are higher for all other [inaudible 00:37:10] makers. We know that there's inflation that you're battling through and some of that needs to be passed through to price of the vehicles. And you're going to be supply constrained for the foreseeable future, so it's a moot point, but given the goal long term of making EVs more widely available to the masses over time, how do you look at the progression of prices over time? Elon Musk: (37:32) We absolutely want to make EVs as affordable as possible. It's been very difficult, I mean I think inflation is at a 40 or 50 year high, and I think the official numbers actually understate the true magnitude of inflation. And that inflation appears to be likely to continue for at least the remainder of this year. When we're talking to suppliers, the suppliers are under severe cost pressure, and in some cases, we're seeing suppliers request 20 to 30% cost increases for parts from last year to the end of this year. So there's a lot of cost pressure there. That's why we raised our prices because when things were this uncertain with respect to inflation, but you know it's high, and we've got orders that go out a year or more in some cases, then we have to anticipate those cost increases. But I think especially with the Robotaxi and autonomy, I think we'll end up providing consumers with, by far, the lowest cost per mile of transport that they've ever experienced. I mean with the Robotaxi, maybe 5 to 10 times cost per mile, it's really quite substantial. Lars: (39:21) Therefore accessible to everybody. Elon Musk: (39:28) Yeah. I mean looking at some of our projections, it would appear that a Robotaxi ride will cost less than a subsidized bus ticket or subsidized subway ticket. Martin Viecha: (39:48) Thank you very much. Let's go to the next question from Rod Lache from Wolfe Research. Rod Lache: (39:56) Hi everybody. I'm trying to just parse out your comments about the inflation, and constraint supply, and battery feed stocks, and the initiatives that you are working on internally to secure these materials. It sounds like you're optimistic about Tesla's ability to solve this for Tesla, but do you see this as a constraint on EV adoption more broadly? Elon Musk: (40:26) Yeah, absolutely. What's keeping our costs down, at least in the short term, is that we have long term contracts with suppliers, but those long term contracts will obviously run out and then we'll start to see potentially significant cost increases. But looking at the world as a whole and saying okay, what does it take for Earth to transition to sustainable energy faster? The fundamental living factor is the output of the cell. Basically cell output. At what rate can lithium-ion cells increase the gigawatt hours per year? That is the fundamental limiting factor and that will move as fast as the slowest, least lucky element of the whole supply chain. Currently, we see that as being a challenge with lithium, and to be clear, it's not that there's a shortage of lithium ore in the world, lithium is present almost everywhere, it's a very common element. Elon Musk: (41:45) However, you still need to dig up the ore, dig up basically the [spodumene 00:41:54] or whatever, the clay with the lithium, and then you need to go through a whole series of refinement steps. And that's a lot of industrial equipment that's needed to go to refine lithium or to lithium that can be used as lithium hydroxide or lithium carbonate in the battery cell. So we think we're going to need to help the industry on this front, but I mean the industry is growing fast and I certainly encourage entrepreneurs out there who are looking for opportunities to get into the lithium business. The lithium margins right now are practically software margins. I mean Zach, correct me if I'm wrong, but I think we're seeing cases where the spot lithium price is 10 times higher than the cost of extraction. So we're talking 90% margins here. Can more people please get into the lithium business? Do you like minting money? Well, the lithium business is for you. Rod Lache: (43:20) Interesting. So I guess we'll stay tuned to see what happens from that. My second question is it's impressive to see just a modest increase in cost per vehicle, cost to get sold per vehicle, given what we've seen in terms of commodities actually, and from here, you have a lot of savings opportunities with 4680 cells, and the cell manufacturing changes, the anode chemistry, structural packs, giga-castings. Are you suggesting that even those may not be sufficient to offset the inflation that you're seeing and that you're going to need additional pricing as well in addition to those specific initiatives that you've- Speaker 2: (44:03) ... well, in addition to those specific initiatives that you've called out. Elon Musk: (44:06) Well, we hope we don't need to increase the pricing further. The current pricing is anticipating what we think is the probable growth in costs. And if that growth in cost does not materialize, we actually may slightly reduce prices. So we don't currently anticipate making significant price increases, but obviously we don't control the macroeconomic environment. Elon Musk: (44:37) If governments keep printing vast amounts of money, and if there are not significant increases in lithium extraction and refinement and the other raw materials such that everyone's competing for a limited amount of raw materials, then obviously that will drive prices to high levels. So if you have a crystal ball that can tell us what the future's going to be like, we'll adjust accordingly, but the current prices are for a vehicle delivered in the future, like six to 12 months from now, so this is our best guess. Drew: (45:22) But I think if you zoom out, as you said, our mission is to accelerate the transition of sustainable energy. So we are working with our existing suppliers and others to figure out how to grow all of these raw materials as quickly as possible to not slow down the transition. And whether that means we have to get directly involved in some cases or not, comes down to the counterparty and their willingness to expand at the rate we think they should be able to expand. And that's similar to what we've done with everything else. Drew: (45:53) We built a Gigafactory in Reno because it needed to be done. And so we will do what needs to be done to not slow down the transition. And affordability is a goal, because if it's unaffordable, it's going to retard the growth of what is inherently a good thing, that we can't have that as an outcome. Martin Viecha: (46:14) Thank you. The next question comes from Pierre Ferragu from New Street Research. Pierre Ferragu: (46:20) Thanks. Can you hear me well? Male: (46:23) Yeah. Pierre Ferragu: (46:24) Great. I'd like to ask you some questions about free cashflow. So first, maybe in the long run, Elon, if you look at your performance and your growth model and your growth ambitions, I did the math very quick and I see you guys sitting on four or maybe $500 billion of cash at the end of the decade. And I was wondering if it's something you have given some thought about, what that mean to you [crosstalk 00:47:04]- Elon Musk: (47:05) That might be like ... If inflation keeps going crazy, $500 billion might be like $20 billion today. I don't know. So we'll see what $500 billion buys you in a decade, but it might be a lot less. I don't know if we'll ... That seems like a lot of cash. I don't know. We'll try to do something useful with it. [inaudible 00:47:31] that's for sure. Zach Kirkhorn: (47:36) I think we have to take this one step at a time. We have investments that are happening right now to get Austin and Berlin up and running. And then as Elon mentioned, installing capacity for robotaxi production. And there's some decisions that, as Elon alluded to, just to share in the future about and what the economic model looks like for robotaxing. And so the way Elon and I have discussed this is- Elon Musk: (48:13) Sorry. Maybe just, yeah ... Yeah, everyone just mute if you're ... Zach Kirkhorn: (48:19) Yeah. So our focus is to get to the point where robotaxis are on the road, Optimus is in use, get the economic model for that dialed in, and then evaluate the size of cashflows at that point and make decisions then as to what's next. Martin Viecha: (48:41) Pierre. Do you have a follow-up question? Pierre Ferragu: (48:43) Yes. Martin Viecha: (48:46) [inaudible 00:48:46]. Male: (48:51) Let's move on. [inaudible 00:48:51]. Martin Viecha: (48:52) All right, let's go to the next one. The next question comes from Trip Chowdhry from Global Equity Research. Trip Chowdhry: (49:02) Thank you. Two questions I have. First is regarding the Cybertruck. I was wondering, in terms of number of parts, how would Cybertruck compare with a traditional pickup truck in terms of number of parts? The second question I have is on Gigafactory Nevada, Sparks. Will we have any production of vehicles in that factory, or all the future production will happen in Giga Austin? Thank you. Elon Musk: (49:39) I'm not sure if we've actually done a comparison of Cybertruck parts versus regular truck parts. I mean, Lars? Lars: (49:44) Yeah. I mean like if you want to go down ... It depends on what you count as a part. We still have cells [crosstalk 00:49:49]. Elon Musk: (49:49) That shouldn't count. Lars: (49:51) If we don't count that, the simplicity of our structure is significant versus a traditional pickup truck or any other vehicle. Like as we've talked about, their Giga castings, we save hundreds of [inaudible 00:50:06] parts there. Elon Musk: (50:06) I mean, the entire rear kind of half of the car is- Lars: (50:09) It's one part. Elon Musk: (50:10) ... is one casting. Lars: (50:11) And even so with a Cybertruck and the doors, for example, we have an exoskeleton design where the door is really thick, and it takes all the side load from impact. So we don't have the door reinforcements. We don't have the [crosstalk 00:50:22]. Lars: (50:24) So to your point, I haven't counted them, because I don't often look back at old technologies to decide how well I'm doing. I check that once in a while, but in general, architecture is always moving to reduce complexity, reduce parts, and reduce parts count. I would say ignoring the battery cells, we are probably 20 to 30% less. Martin Viecha: (50:49) Okay. Thank you. Let's go to the next- Elon Musk: (50:51) [crosstalk 00:50:51] Oh, do we expect to expand? Yeah, we do expect to expand Giga Nevada. There's a lot of room for expansion there, and we do expect to increase our output from Nevada. But by far the biggest increase in output will be from Giga Texas. Martin Viecha: (51:16) Thank you very much. The next question comes from Alex Potter from Piper Sandler. Martin Viecha: (51:28) Alex, can you hear us? Alex Potter: (51:29) Yes. Hi, Martin. Can you hear me? Martin Viecha: (51:31) Yeah. Alex Potter: (51:32) Okay, great. First question I had was the extent to which other plants, outside of China, are insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID lockdown things gets out of hand, clearly that's going to continue impacting Shanghai, but is there a point at which it could actually also impact other facilities? Elon Musk: (51:59) Yeah, if it were to continue. There are some parts that are sourced in China that apply worldwide, and that would impact production elsewhere. But all indications are that we're out ... Because Shanghai is back in production at fairly high levels already, and so our suppliers ... So we don't think this is going to be a big deal. Alex Potter: (52:30) Okay. Thanks. Second question, obviously the higher profitability you guys have been able to experience over the last couple quarters, a lot of that is reflecting sort of "real" improvements. Another part of it is because we're no longer paying you, Elon, as much as we were. And so I'm wondering, the extent to which you and the board are in the process of contemplating another one of these long-term compensation packages, which in the past, have seemed to work out quite well. Thanks. Elon Musk: (53:03) There are no discussions currently underway for incremental compensation for me. Martin Viecha: (53:11) Thank you. The next question comes from Colin Langan from Wells Fargo. Colin Langan: (53:15) Oh, great. Do you guys hear me? Martin Viecha: (53:20) Yeah. Colin Langan: (53:20) Yeah, perfect. Just a follow up. Sorry to keep going on the raw material issue on the battery side, but obviously seems pretty important. How quickly can raw material supply be built? Because my understanding, it takes many years to build that out, so are we just sort of facing ... When do you think we see a lithium shortage or a nickel shortage? And is there even enough time to build that sort of mining capacity in place? And then related, how quickly can you switch to like LFP for the nickel issue? Drew: (53:49) Yeah, I mean, LFP question. It says so in our letter, but half of our products were LFP last quarter, which shows how quickly we were able to respond to ... Well, honestly it wasn't because of a raw material shortage but just because it seemed like the right thing to do. We could change our cathode chemistry. Drew: (54:11) And there's more to be done on the cathode side, and we are actively pursuing it to give us substitution flexibility and response to market conditions between the other cathodes that are out there that can be competitive in our vehicles, of which there are many options. Drew: (54:28) I guess what I would say is specifically on the cathode side, flexibility is the way we're going to achieve this. And not all of the materials that go into cathodes are actually, first of all, hard to secure, through mining or refining, and second of all, in many cases, are very plentiful already, like huge scale. If all of the batteries in the world used those cathodes, it's less than a 1% increase in total annual output. So that's the cathode side. Drew: (55:03) I think Elon already spent a lot of time talking about lithium. It really depends on the resource. Some resources, like just getting rocks out of the ground, expanding the amount of rocks that you're getting out of the ground is maybe a little bit of paperwork and some additional blasting and trucking operations. The refining is maybe where it's a little bit more chunky to bring it online. But also the refining doesn't ... It's not like an oil refinery. It's a much, much smaller operation to refine lithium out of spodumene or liquid, like a brine or a salt pond evaporation. Drew: (55:42) So you're talking about a time scale of one to two years. It's not like we haven't been talking to all of the lithium suppliers out there for many years. They have a lot of projects already in the pipeline to come online this year and next. Drew: (55:58) Some of what's going on in the lithium market this year doesn't actually have truth to bear to them, like fundamentals of supply and demand, which is also a little frustrating. But yeah, if we look past this year or next year into 2030 when we need 15 to 20 terawatt-hours of this stuff to stay on the growth trajectory we're on, we need everybody to do more in the lithium space than they currently are. I don't know if that answers the question. Martin Viecha: (56:31) Yep. Fantastic. Thank you very much. Let's go to the last question from Mark Delaney from Goldman Sachs. Mark Delaney: (56:43) Yes, good afternoon. Thank you very much for taking a question. I was hoping you could comment on your latest thoughts about potentially opening up the charging network in the US to non-Tesla owners. Certainly really important to have a good experience for Tesla owners in terms of wait times in the charging stalls, but if Tesla's able to have enough capacity, it could be a really good way to bring other vehicle owners into the Tesla network, perhaps help Tesla to sustain its network benefits and maybe make more people likely to buy Tesla vehicles in the future. Lars: (57:17) Yeah. As Elon has said, and as we've publicly committed, yeah, we do plan to provide third-party vehicle access in all over the world, not just in Europe where our original pilot was. We are working on solutions in North America, which is a little bit more problematic with our connector being different than others, but we are moving in that direction. Elon Musk: (57:47) Yeah, I think that's ... There's more to be said on that part. Yeah, we want to do the right things with respect to the whole system. Zach Kirkhorn: (57:58) And we're going faster on adding chargers. Elon Musk: (58:00) Absolutely. Zach Kirkhorn: (58:01) With the growth of the cars that we're producing, and then anticipating what Drew is discussing, overall charger capacity is really important. And so the pace of our investment in super charging has accelerated. Elon Musk: (58:13) Absolutely. Mark Delaney: (58:15) Okay. That's helpful. For my second question, could you share any more details on Tesla Insurance, in particular, as you're rolling it out in more states? Are there any metrics you can share on what take rates have been like and how do profitability and margins on the insurance offering compare to the corporate average? Thank you. Zach Kirkhorn: (58:30) We just launched Tesla Insurance for real-time insurance in Virginia, Colorado, and Oregon earlier this week. Maybe one stat that I'll share, so Texas is our longest-standing real-time insurance market. But based upon the information that we have, Tesla is the second largest insurer of Teslas in the State of Texas. And possibly by the end of this quarter, maybe early next quarter, will be the largest insurer of Teslas. The customer reception to this has been quite positive. Zach Kirkhorn: (59:09) I was reading social media on Monday after we launched in the three new states. A lot of folks who are reporting their stories of saving quite substantial amounts of money relative to their previous insurance. And so we're quite encouraged by that. We're working as quickly as we can to get to 80% of customers having access to a Tesla Insurance product by the end of this year in the United States, at which point we'll pivot our attention to expansion outside of the US. Zach Kirkhorn: (59:38) The other thing I'll say on insurance is with these three new states, the model is different, because we are now the underwriter and we are also now holding the risk. And so with those states, we are a fully vertically integrated provider of insurance from systems and financials. With respect to the financials of the program, it's still very early. And so as the program gets more scale, happy to share more information on that. Elon Musk: (01:00:03) And one side note is that we are seeing that having real-time feedback for driving habits is actually resulting in Tesla owners driving the cars in a safer way, because they can see the ... They get real-time feedback on, okay, this is affecting my insurance rate or it isn't. And so when people can see a real-time score, I realize, oh, if I make the following changes in my driving habits, then I pay less in insurance, then they have like a real-time feedback loop for safer driving and an incentive to do so. So actually what we're seeing is it is causing people to drive their cars in a safer manner, which is also a net good. Zach Kirkhorn: (01:01:11) It's safer on average, what we see in the data, to Elon's point. And premiums are lower. We see that in the take rate data. We have extremely high retention for customers who experience the product. And I think I've talked about this in the past, but this has become a real passion program for us for these benefits. It's bigger than just the economics. We're trying to do a good thing here for our customers, save people money and make the roads a little bit safer. Elon Musk: (01:01:40) Yeah, I think it improves just overall macroeconomic efficiency. It's also a feedback loop for Tesla because we see if there is a crash, large or small, we sort of see exactly what that cost. And now we're, okay, think about how can we change the design of the car or the software in order to minimize the profitability of that accident. Because most accidents are minor, but how do we have those accidents occur less frequently, and how do we make the repair associated with that accident super fast? Aspirationally, it would be like same-day repair for a collision, which is just night and day difference compared to sometimes having to wait for a month while insurance claims are settled and figured out. Because Tesla is also doing collision repair. Zach Kirkhorn: (01:02:40) Well, yeah, the feedback loop is instant. Elon Musk: (01:02:42) Yeah. Zach Kirkhorn: (01:02:43) Right? I mean, we do claims management in house, and so we receive the notification that there's an accident. We work to prepare the estimate. And we can, with the support of our customers, use our collision centers to do the repair. And so it's full, end-to-end visibility in all of that. To Elon's point, we can then identify areas of cost inefficiency, feed those back to our engineering teams or elsewhere, software teams, actually improve the product, which lowers the cost of insurance, improves reliability of the product. So it's a full circle. Elon Musk: (01:03:17) Yeah. Basically, the customer experience is just vastly better because if there's an accident, there's no argument. We repair it immediately. And this is as compared to arguing with an insurance company, and then a claims adjuster, and then a collision repair center. This can be a nightmare basically, so we want to try to turn a nightmare into a dream with Tesla Insurance. Martin Viecha: (01:03:47) Fantastic. Thank you very much. Unfortunately, that's all the time we have for this quarter. So thank you very much for all your great questions, and we'll speak to you again in three months. Speaker 3: (01:04:00) All right, hey, everybody. Let me know if you can hear me. Sometimes there have been small audio issues here, but I just want to do a quick recap of that call, some of the big things that we heard. So I'm just going to keep an eye on the chat here until it kind of catches up, and then we can do a quick recap. Speaker 3: (01:04:20) I am feeling very good about what Tesla is doing here. It's really exciting. This is a very exciting quarter. I think there's a lot to be happy about with the financial results, which if you didn't see my reaction to that, [inaudible 01:04:32] to that in the description. You can go check that out. Looks like the audio's good. That's great. Speaker 3: (01:04:37) So yeah, I mean, financials are great. What Tesla's talking about doing here in terms of just their product roadmap, the plan for the next decade plus, it's so difficult to not be extremely excited about that. Obviously, there's a lot of execution that remains, but we have seen Tesla do an amazing job of executing on their targets so far. So yeah, it's very exciting. Speaker 3: (01:05:03) I think just from a recency bias perspective, talk about Tesla Insurance here. That's just such a good example of what Tesla does. They find things that are inefficient, and then they just somehow, despite all the things that Tesla has to juggle all the time, they do a really great job of tackling those things and finding improvements. And just thinking from, again, Elon always talks about it, thinking from a first principles perspective to solve problems and make the world better. It's awesome to see. So exciting about that. Speaker 3: (01:05:38) I think the biggest thing from the call here is, just since we already went through the financials, I think obviously Tesla's making great improvements on cost, so it's exciting. Just fundamentally, they're starting to leverage ... I mean, they've been doing that for the last two years now. But what we've been talking about, about this leverage coming through, we're really starting to see that. $5 billion in EBITDA this quarter. Tesla, no debt, that he talked about. Speaker 3: (01:06:01) ... no debt that they talked about. Pierre's question about the four or $500 billion on the balance sheet at the end of the decade. And Elon kind of laughs and says, who knows how much that's going to be worth? But I would imagine that Tesla's projections are actually a little bit higher than that, but I think Zach makes a great point. Take it one step at a time. That's how Tesla's approaching things, and when they get to that point where the robot taxi's on the road printing money or Optimus is out there, hopefully printing money as well. Speaker 3: (01:06:32) Elon always says that once, you only pay a dividend, I don't think he said explicitly stock buybacks, but he says, once you pay a dividend, it's because you're out of ways to spend money. You can kind of feel Elon's tone on that shifting a little bit, or his commentary around that. And I think that's based on what Tesla thinks is going to happen here. So point being that I do think once those things are in place and once Tesla ... At a certain point, you just can't spend that money quickly enough. Speaker 3: (01:07:08) I look forward to those questions, well, I don't, but I'm sure in some future year, we're going to see questions about what Tesla needs to do with its massive cash balance and investors really harping to get that returned. And I do think at some point that's going to happen and, Tesla will be able to continue investing in the future and also, just print money for investors too. So it's an exciting future from a product perspective, it's an exciting future from a financial perspective. Speaker 3: (01:07:34) And again, Tesla just needs to execute on that. The roadmap is quite clear. All right. So let's just look through some of the notes here. I'm going to kind of just go back to the top here and thanks for the super chats by the way. I definitely appreciate those. Hopefully the notes here are helpful. All right. So I think from the opening comments, a lot of that stuff we've kind of gone through. The regulatory credit. This was something I considered in my forecast. I probably should have just put it in there, but we had talked about this a couple times on the podcast that there had been the change in, basically the law from 2017 to 2021 that had been reversed and caused extra ... more strictness in terms of the fleet-wide efficiency metrics for automakers in the US, and probably should have anticipated that would cause some extra regulatory credit revenue for Tesla. Speaker 3: (01:08:31) Does that make sense? We can factor that out later on. Opex, it's all great. No debt. Lost about a month out of Shanghai. So Elon said something here that was very surprising. We'll have to kind of dig into spreadsheets to figure this out, but let's find Elon's comments here. He said that they're still going to be able to ... Maybe I didn't quite get it in the notes, but he said for Shanghai that even though they've been down for almost the entire month of April now, or I guess, two thirds of the month, they still think that for the quarter, they can hit similar levels of production as Q1 here. So, that would be great. Speaker 3: (01:09:13) We'll have to put that into our production tracking spreadsheet and just see what that means from a weekly production stand point. But that suggests that there's going to be significant progress. Tesla should be making production line upgrades in May. And hopefully that will result in really good production for June and then further upgrades in July, is the current information. So those things are really going to improve the production rate and sounds like that's going to make up for some of the lost volume here in April, which is really exciting because we can see that at this level Tesla's financials are very strong. Speaker 3: (01:09:47) They did mention that Berlin and Texas, although didn't have a huge impact this quarter, Zach did specifically say that probably for next quarter, that is going to cause a hit to gross margin. That doesn't necessarily mean gross margin would be down, but he seemed to emphasize that more of that would be coming next quarter. And I think a lot of that would be the start of 4680s hitting cogs as well. All right. So this is the one thing that I bolded. I don't usually bold stuff, but I just felt like I had to here because Elon talking about the dedicated robotaxi, he mentioned this on the master plan, and that was just sort of the first inclination that Tesla would be shifting from driving down on the cost curve for a consumer model, $25000 vehicle, whatever, to just going straight to this robotaxi type of a situation. Speaker 3: (01:10:34) And now Elon giving us a timeline on that saying perhaps unveiling that next year and aspire to reach volume production of that in 2024. And it's already 2022, we're already in Q2 of 2022. So that's two years, maybe two years and six months, but that's very soon. I mean the cyber truck was unveiled less time ago or more time ago than that would be from now. It's been two and a half years since the cyber truck unveiling. So I guess it would be about the same. So, we're pretty close. I mean the cyber truck unveiling to me, doesn't feel that long ago, obviously the delays make it feel a little bit longer, but we're pretty close. Speaker 3: (01:11:17) The one thing I want to add on this is that this does become then a risk for ... If you don't think Tesla can solve FSD, if you don't think they're going to actually be able to do level four type of driving in that timeframe, it presents risk to Tesla's roadmap until that is solved. And I think from an institutional investor perspective, a lot of institutional investors would probably prefer that Tesla talked about having plans for vehicles beyond the model three and the model Y that are meant for purchase by consumers. I think one of the analysts even ask, can people buy that? Speaker 3: (01:11:58) I don't think they got a clear answer on that, but over the next two, three years, this is going to be a super hot topic of debate and cause of conflict between Tesla and Wall Street until Wall Street starts to believe that oh, FSD is actually solved or very close to being solved or solvable. We definitely, we're not at that point yet where Wall Street believes that. And I think, that's totally fair. So, what's already kind of happening and you can hear it from the analysts on these calls is they're trying to figure out how to build their models for 2024, 2025 and beyond. Speaker 3: (01:12:41) And when you've got a $25000 Tesla on the roadmap, you can very easily build a model for that because you can just look at what Tesla's done with the model three and the model Y, you can make some cost assumptions and just plug that into a spreadsheet. And all of it looks great. When that product suddenly falls off and then you replace it with this dedicated robotaxi, which these analysts aren't going to model earnings for because they can't back it up because Tesla hasn't solved this problem yet, that creates a whole giant set of question marks in where Tesla is heading. Speaker 3: (01:13:12) So it's going to cause some, I don't know, tension, conflict, whatever, we're just going to keep getting question about what this looks like until it's solved, because it creates a lot of risk for Tesla to go directly to a robotaxi from where they're at. Now, personally, I think Tesla would mitigate that risk just with model three and model Y. I don't think analysts are really understanding how high Tesla's going to grow the volume for those vehicles and they can drive the prices down accordingly. Speaker 3: (01:13:40) So I think that's where Tesla's mitigating that, but even still on those vehicles, there's probably some ceiling and that ceiling is probably below 20 million. So it becomes a big question mark of how you get to 20 million if robotaxis don't happen. So probably being a little bit wordy on that topic, but hopefully that kind of makes sense. It's just going to be a constant sort of battle with Elon saying, oh, we're doing robotaxis, Wall Street's saying, how are we going to keep growing volume at 50% if you don't solve this? So still aspire head to 20 million per year, basically 5% the way there. I would say they're probably closer to a two million production right now than one million when they actually have production fully up and running. Speaker 3: (01:14:26) So, call it 10%. Optimus Elon, again, just reiterating, people don't get it. Same thing there, people get the impact that this would have. They just don't believe that Tesla's going to be able to pull this off. So same thing on that in terms of the push and pull with Wall Street. But I think, it's very easy to understand the impact that, that would have and the financial benefit that, that could have as well. Insurance growing well, FSD timelines. I wish they would've shared something on interventions per mile or something like that. Elon basically just saying, use the beta. I've been on the beta for, I don't know, six to seven to eight months. We've talked about this before, right? It's really, I think on an individual basis, it is difficult to assess progress. Speaker 3: (01:15:14) I definitely think things have improved, which is exciting. And we've talked before about how there are probably a lot of underlying factors that are improving, that we just can't quite see that Elon has visibility to and an understanding of, and that shapes his experience and his context when he is experiencing FSD beta, even if he's on the same exact version that consumers are on which most of the time he is not, he's usually using the alpha version. So, we have to consider that when we consider his comments too, on even having the same experience. Speaker 3: (01:15:56) So I guess, from my perspective, I'm relatively neutral on FSD beta progress. It has progressed, but coming into the beta, I would've hoped that it would've happened faster, but hopefully there are things behind the scenes that are actually happening at that rate that will become more apparent, especially when we get to version 11. Again, thinks they'll achieve real world AI this year. Shanghai coming back with vengeance. So yeah, most likely vehicle production Q2 will be on par with Q1. So, it wasn't clear if he meant total production like worldwide production or just Shanghai. Speaker 3: (01:16:36) It doesn't really matter though too much because Fremont wasn't super constrained. So if he means Shanghai, then Fremont should do a similar output and then worldwide would therefore be a similar, if he only means Shanghai, it ends up being the same thing. So not particularly important, but basically that means, if Shanghai can do it, then the world can do it as well, in terms of the production. It also sounded like some pretty decent updates from the supply chain in China. I think that's been one of the risks that we've had a lot of uncertainty on and I think they clarified a lot around that. It sounds like they're not super worried about that beyond just the general challenges that are happening this year. Speaker 3: (01:17:22) A lot about pricing. 800 volt architecture, that was pretty sting. I don't think we really need to recap any of that though. In general, I think there were pretty good questions on this call. Definitely some eye rollers. And I apologize for my reaction as some of those questions, particularly the one about costs and prices to consumer. Obviously robotaxis, Tesla's plan to address that. That's been clear for a decade. So not quite that long, but at least five years. Lithium, talked a lot about that. Not sure we need to go into too much detail on that. So faster ramps in Berlin and Austin. Now this is a little bit surprising because the build-out for Berlin and Austin took quite a bit longer than Shanghai. I mean, you could call it about two times the amount of time. Speaker 3: (01:18:14) Hopefully that also means that once it is actually ready to start production, it's able to ramp up more quickly. That's what they're thinking. I'm not super convinced on that yet. Just based on 4680s. Tesla's still not in volume production. They're hoping to get there in Q3, Q4, which obviously that would be great. That would be exciting. And we'll have to model that out a little bit too, but I think, my expectations are tampered a little bit just with that new technology and all the supply chain stuff. They didn't say it on this call, but the last couple of calls they've said that overall their production is constrained. So, in previous cars, they could have produced more vehicles from Fremont and Shanghai. So if it's the case, and then you've got new factories, that doesn't really change. Speaker 3: (01:18:57) So that could be a factor in limiting the production ramps of these new factories as well. They did say that they've got plenty of 2170 packs though. So, that's definitely good because that was one of the things that was maybe a concern for Berlin for the next couple of quarters is okay, with these shutdowns in China, is that going to actually impact the availability of 2170 packs, which we know they're using from China in Berlin right now, but it doesn't sound like that's the case. So, that's an exciting point. Speaker 3: (01:19:25) A little bit more on robotaxi and then, the analyst questions, which we already kind of talked about some of those things. Alex Potter's question on the CEO compensation plan. So, it doesn't sound like Elon is planning to do another compensation plan. And in my model, I don't have one forecast. I think I would certainly be supportive of one, but I think Elon is content with his level of wealth from Tesla and his share count as it stands at this point. So, he's got strong incentive to continue to make Tesla work well and be financially successful from those shares, which once the shares are vested, he needs to hold him for five years from this most recent plan. So, he's going to be sticking around for a while, just even without any other plan. Speaker 3: (01:20:34) Supercharging network, it's going well. Tesla insurance. So, I mean, we started there, but super exciting with Tesla insurance, sounds like the take rate's high. The actual improvement in driver safety, that's the biggest cost of insurance. So the fewer accidents is going to make Tesla's margins or the cost on that, same thing. Like we talk about always driving in the same direction of down. So it's good on that. I think I'm very excited about Tesla insurance and the fact that they're fully vertically integrated now, doing the underwriting, partially explains too, why they're keeping a lot of cash on hand. Speaker 3: (01:21:18) If you grow insurance to a huge scale, you're going to need ... you need some cash for that. So, all right. I think that's it. I don't know. I do appreciate these super chats. I know I missed probably quite a few of them, but exciting day. So just kind of, I guess a few last thoughts to recap, probably the major highlights here. I'll make myself a little bit bigger. Speaker 3: (01:21:47) So I'm very excited about where Tesla's at right now. It's extremely clear that they're making lot of strong progress in terms of the fundamental operation of their business with controlling their costs, even during this period of difficult supply chain challenges, logistics challenges. Zach mentioned, they're continuing to do expediting. Even with those fees for expediting, we are still seeing an all time high automotive gross margin, excluding regulatory credits of 30%. So a lot of strong fundamental progress. At the same time that's all happening, Tesla's keeping their operating expenses under control, the operating margin of 19%. Yes, that does include the regulatory credits, but even extracting that out, Tesla is by far now at this point, the most profitable, highest profitability automaker in the world. Speaker 3: (01:22:40) And as they say in their earnings deck, as they keep trying to hint at on the calls, more and more of their revenue is going to, or more and more of their profitability is going to come from software and that's going to be high margins. So there's definitely a roadmap for this to just continue to improve as Tesla scales to extreme size. The price to earnings ratio is already coming down significantly. Just a quick note, if you were watching the video from earlier, I did have one mistake in there in the Q4. Speaker 3: (01:23:09) I know I had the Q3 stuff that was linked to something else, Q4, my gap and not on gap earnings per share numbers, those were slightly inflated because in my model I had been playing around with it and I had removed the $340 million payroll tax from Q4. So, that was inflated by 30 cents. So if you are using that number, the trailing 12 months gap earnings per share is now 737, not 766, like I had said. Anyway, at the price, which doesn't look like unfortunately was refreshing here. Let me check on that. I don't know why that stopped working. Speaker 3: (01:23:41) That's supposed to just automatically refresh, but it looks Tesla's only up four and a half percent right now, which is a joke because it was down 5% on the day. So the fact that you can buy a Tesla shares cheaper today than yesterday is pretty ridiculous given these results. I mean, I shouldn't be surprised given how stupid the market has treated Tesla, is treating Tesla. It's just, it's so clear. I mean, look at Lars's response on comparing the cyber truck to other pickup trucks. He's like, oh, I didn't even think about that, because it's just so irrelevant to what Tesla's doing. It just shows how core to Tesla's thinking first principles is. They're not looking at any of that competition, quote, unquote competition because they just don't care. Speaker 3: (01:24:30) They know that their path is better and they're just trying to make that path as good as possible. So it's just an indicator of what is to come. All right. I lost my train of thought a little bit. Just major recap. So I think the financial progress that Tesla's making is excellent. The roadmap is extremely exciting, though slightly more uncertain now because of Tesla's more apparent shift into pushing all their chips in on robotaxi, which we just, we haven't seen come to fruition yet. Speaker 3: (01:25:05) So could create some good opportunities. If Tesla gets into a period where they haven't figured this out yet and growth is not quite happening because they went all in on this robotaxi and they're not going to ... I mean, maybe they would, but if they have this production plan for a couple million, a few million robotaxis and they haven't solved FSD yet, I don't know how they're going to sell those. So that's where the big question for Wall Street comes in. Hopefully six, 12 months from now, 18 months, we won't have to worry about that. Speaker 3: (01:25:42) Hopefully Elon's right in this case. It's not something I would bet on. So, well, I guess I kind of am bet on it, but the reason that I bet on it is because I think Tesla's business just even excluding those things is so strong, super clear roadmap to multi-trillion dollar valuation just from vehicles. And if Tesla can figure out anything real world AI related just adds to that. So, I guess just in summary, great financials, really strong fundamental progress. Robotaxi is super exciting, but also going to present a little bit of conflict with Wall Street. All right. So, that's where we're going to leave it then. I'm sure we'll have a little bit more discussion on this tomorrow. So make sure you are subscribed and sign up for notifications. You can also find me on Twitter at Tesla podcast and I'll see you tomorrow for the Thursday, April 21st episode of Tesla Daily. Thank you.