Latest / Elon Musk Podcast / Tesla Q3 2023 Financial Results and Q&A Webcast (Full Audio)

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Tesla Q3 2023 Financial Results and Q&A Webcast (Full Audio) · Elon Musk Podcast

0:00
Afternoon, everyone and welcome to Tesla's third quarter 2023
0:03
Q&A webcast. My name is Martin Vieka, VPO of
0:06
Investor Relations and I'm joined today by Elon Musk, a
0:10
Bafta Neja and a number of other executives.
0:13
Our Q3 results were announced at about 3:00 PM Central Time in
0:17
the update that we published at the same link as this webcast.
0:20
During this call, we will discuss our business outlook and
0:23
make forward-looking statements. These comments are based on our
0:26
predictions and expectations as of today.
0:29
Actual events or results could differ materially due to a
0:31
number of risks and uncertainties including those
0:34
mentioned in our mostly recent filings with the SEC.
0:38
During the question and answer portion of today's call, please
0:41
limit yourself to one question and one follow up.
0:44
Please use the raise hand button to join the question queue.
0:47
But before we jump into the Q&A, Elon has some opening remarks.
0:51
Elon. Thank you, Martin.
0:54
So just a Queue 3 recap. Our last quarter was impacted by
0:57
downtime for global factory upgrades that will help us
1:00
reduce cost per vehicle as well as increase production.
1:04
We remain focused on three main objectives, which is the cost
1:08
reduction of our products, investments in artificial
1:10
intelligence and other growth projects like Optimus and
1:15
continued free cash flow generation.
1:18
Regarding vehicle cost, our team was able to reduce the cost per
1:22
vehicle further in Q3. Despite headwinds from back to
1:26
idle cost and ramp up of new factories and we believe there's
1:29
still meaningful room for improvement there.
1:34
Regarding Autopilot and AI, our vehicles now driven over half a
1:39
billion miles with FSD beta, full self driving beta and that
1:43
number is growing rapidly. We recently completed a 10,000
1:50
GPU cluster of H1 hundreds. We think probably bring it into
1:54
operation faster than anyone's ever bought.
1:57
Brought that much compute per unit time into production.
2:02
Since training is the fundamental limiting factor on
2:05
progress with full self driving and vehicle autonomy.
2:11
We're also seeing significant promise with FSD version 12.
2:17
This is the end to end AI where it's photon count in.
2:22
Controls out. Really, you can think of it as
2:26
there's a just a large bit stream coming in and A and a
2:31
tiny bit stream going out, compressing reality into a very
2:37
small set of outputs, which is actually kind of how humans
2:42
work. The vast majority of of human
2:45
data input is optics from our eyes, and so we are.
2:52
Like the car photons in controls out with neural Nets, just
2:57
neural Nets in the middle. It's very interesting to think
3:03
about that we will continue to invest significantly in AI
3:07
development as this is really the the mass game changer and I
3:15
mean success in this regard in the long term I I think.
3:21
Has the potential to make Tesla the most valuable company in the
3:24
world by far, if you have fully autonomous cars at scale and
3:32
fully autonomous humanoid robots that are truly useful.
3:38
It's not clear what the limit is regarding energy storage.
3:44
We deployed 4 GW hours of energy of storage products in Q3.
3:51
And as this business grows, the Energy vision is becoming our
3:56
highest margin business. Energy and ServiceNow contribute
4:01
over half a billion dollars to quarterly profit.
4:06
The cyber truck and a lot of people excited about the cyber
4:08
truck, I am too. I've driven the car.
4:10
It's an amazing product. I do want to emphasize that
4:14
there will be. Enormous challenges in in
4:19
breaching volume production with the cyber truck and then in
4:23
making a cyber truck cash flow positive.
4:27
This is, this is simply normal for when when you've got a
4:32
product with a lot of new technology or any any any new
4:35
vehicle brand, new vehicle program, but especially one that
4:38
is as different and advanced as the cyber truck.
4:46
You will have problems proportionate to how many new
4:49
things you're trying to solve at scale.
4:51
So I just don't emphasize that while I think this is
4:56
potentially our best product ever and I think it is our best
5:00
product ever, it is going to be require immense work to reach
5:06
volume production and be captured positive at a price
5:10
that people can afford. Often people do not understand
5:15
what is truly hard. That's why I say prototypes are
5:18
easy, production is hard. People think it's the idea or
5:22
you make a prototype, you design A car and as soon as they're
5:26
design A car is is is there just anyone can do it.
5:30
It just required taste. It just require effort to design
5:34
A prototypes. But the difficulty going from a
5:37
prototype to volume production is.
5:41
Like 10,000% harder to get to plane production than to make
5:44
the prototype in the 1st place and then it is even harder than
5:47
that to reach positive cash flow.
5:50
That is why there have not been new cars start-ups that have
5:54
been successful for 100 years far from Tesla.
6:01
So, you know, I just want to temper expectations for Cyber
6:07
Truck. It's a great product but
6:12
financially it will take I don't know a year to 18 months before
6:17
it is a significant price of cash flow contributor.
6:24
I wish there was some way to for that to be different, but that's
6:29
that's my best guess you know so it's it really the demand is is
6:39
off the charts we have over. A million people who have
6:43
reserved the car. So it's not, it's not a demand
6:46
issue, but we have to make it and we need to make it at a
6:50
price that people can afford insanely difficult things.
6:55
In conclusion, we continue to focus on ramping production
7:00
while maintaining positive cash flow and we continue to target
7:07
expect to have. Around 1.8 million vehicle
7:10
deliveries. As stated earlier this year, the
7:15
Tesla AI team is I think one of the world's best, and I think it
7:20
is actually by far the world's best when it comes to real world
7:23
AI. I'll say that again, Tesla has
7:28
the best real world AI team on Earth, period.
7:32
And it's getting better. And lastly, I wanted to thank
7:38
all of our employees who are making a lot of extra effort
7:40
during uncertain times. Thank you very much for your
7:43
hard work and the impact that you're making.
7:47
Thank you very much. Elon and our CFO, Vaibhav have
7:49
some opening remarks as well. Thanks, Martin.
7:52
Our vehicle deliveries in Q3 outpaced production and we had
7:56
yet another record quarter of profitability in our energy
7:58
business. Congratulations to the Tesla
8:01
team for their continued focus on operational excellence as we
8:04
navigate through a period of economic uncertainty, higher
8:07
interest rates and shifting consumer sentiment.
8:10
As Elon mentioned, our Q3 operational and financial
8:15
performance was impacted by planned downturns for our
8:18
factory upgrades. This was necessary to allow for
8:22
further factory improvements and production rate increases
8:25
despite such factory shutdowns. Our cost per vehicle decreased
8:29
to approximately 37,500. We saw sequential decreases in
8:34
material cost and freight. Reducing the cost of our
8:37
vehicles is our top rat on the operating expenses front.
8:41
R&D expenses continue to rise to cyber due to cyber truck
8:45
prototype builds and pilot production testing combined with
8:48
spend on AI technologies like full set driving Optimus and
8:51
Dojo. We have and will continue to
8:54
make investments in these areas and hence our capital
8:57
expenditure and R&D will continue to grow In the near
9:00
term. However, our focus is to
9:03
continue making investments through positive cash flow from
9:06
operations. This year itself, we have
9:08
generated operating cash flows of approximately 8.9 billion and
9:13
free cash flows of approximately 2.3 billion.
9:17
While other businesses are becoming more prominent on a
9:19
standalone basis with energy business leading the charge
9:22
primarily from the growth in MB departments.
9:26
Our services and other businesses on a year on year
9:29
basis also continue to show positive momentum as we benefit
9:33
from our growing fleet. As regards our pricing strategy,
9:37
in addition to what we have shared before, I want to
9:40
elaborate that most car buying happens with one or other form
9:44
of financing. And hence, we also view rising
9:48
in terms of monthly cost for the customer.
9:51
And therefore as interest costs in the US have risen
9:53
substantially, it has required us to adjust the price of our
9:56
vehicles to keep the monthly cost in parity.
10:00
We've tried to offset such adjustments via focus on
10:03
reducing cost. However, there is an inherent
10:06
lag in cost reductions, which in turn impacts margins to that
10:11
extent. We recently announced a partner
10:13
vehicle leasing program in the US.
10:15
Whereby you can get a standard in Model Y for as low as $399 a
10:20
month. In conclusion, as we navigate
10:24
through a challenging economic environment, we're focused on
10:27
reducing costs, maximizing delivery volumes and continuing
10:31
making investments in the future, in particular AI and
10:34
other next generation platform. We believe this strategy
10:40
positions as well for the long term.
10:42
Once again, I would like to thank the Tesla team for their
10:45
efforts in the last quarter. Thank you very much.
10:48
And now let's go to investor questions.
10:51
The first investor question comes from Craig.
10:54
How many Cybertruck deliveries do you anticipate for 2024?
11:00
It's difficult to make an accurate guess at this point
11:06
going back to what I said earlier that the ramp is going
11:09
to be extremely difficult. And like I said there's there's
11:16
there's no way around that. If you try to make, if we just
11:20
try to do some copycat vehicle design, of which there are
11:25
literally 200 models that are slight variations on a theme in
11:30
the in the kibosh engine world, just just distinctions without a
11:35
difference, then you know it's really not that hard.
11:39
But if you want to do something radical and innovative and and
11:43
something really special like the like the cyber truck, it is
11:48
extremely difficult because there's nothing to copy.
11:50
You have to invent not just the car, but the way to make the
11:54
car. So the the more uncharted the
11:58
territory, the less predictable the outcome.
12:02
Now I can say that if you say it will, where will things end up?
12:07
I think we'll end up with it. Roughly 1/4 million cyber trucks
12:11
a year and but I we're not, I don't think we're going to reach
12:18
that output rate next year. I I think we'll probably reach
12:24
it sometime in 2025. That's my best guess.
12:30
Thank you. The the second question is can
12:33
you provide a progress update on the 4680 cell, particularly
12:36
progress though is performance improvements and cost savings
12:39
outline on battery day. Thank you.
12:42
Sure thing Martin. 4680 cell production in Texas increased
12:47
40% quarter over quarter. Congrats to the Texas team for
12:50
producing their 20 million cell off of line one.
12:54
Texas is now our primary 4680 facility.
12:57
We're heavily focused on quality.
12:59
Scrap is down 40% quarter over quarter.
13:02
With the increased volume and yield improvements, cell costs
13:05
consistently improved month over month within the quarter,
13:07
although we have a lot more work to do to achieve our steady
13:09
state goals and that is our priority.
13:13
The Cyber Truck cell with 10% higher energy than our Model Y
13:16
cell started production on Line 2 in Texas this quarter.
13:20
We convert to building 100% cyber truck cells to simplify
13:23
and focus the factory as we ramp all four lines in phase one over
13:27
the next 3/4. Phase two of the Texas 4680
13:30
facility is currently under construction.
13:33
The additional 4 lines incorporate further capital
13:35
efficiencies over phase one and our target is for them to start
13:38
producing in late 2024. Lastly in Cato, we're retooling
13:44
to enable large scale pallet runs of our next generation cell
13:46
designs. Cato's long term goal is to be
13:48
the launchpad for new cells one generation ahead of our mass
13:51
production facilities, enabling faster iteration and smoother
13:54
ramp UPS of new designs. Thank you.
13:59
The next question from institutional investors.
14:02
Could you please provide an update on capacity expansion
14:05
plans for companies, factories in Berlin and Austin and the
14:10
opening schedule of Gigafactory in Mexico?
14:14
Berlin and Austin Factory. The current priority is actually
14:18
maximize the output from our existing lines by laser focus on
14:23
efficiency improvements. As always, maintaining a high
14:26
quality and the reducing per unit cost will be as critical as
14:30
growing the production volume. For Mexico, we're working on
14:34
infrastructure and factory design in parallel with the
14:37
engineering development of the new production that will be
14:39
manufacturing there. That's I can share from that.
14:45
In Mexico, we're laying the groundwork to begin construction
14:51
and doing all the long lead items.
14:54
But I think we want to just get a sense for the global economy
14:59
is like before we go full tilt on the Mexico factory, I'm
15:04
worried about the high interest rate environment that we're in.
15:08
It's I just can't emphasize enough that the vast majority of
15:13
people buying a car is about the monthly payment.
15:17
And as interest rates rise, the proportion of that monthly
15:22
payment, that is interest, increases naturally.
15:25
So that's if interest rates remain high or if they go even
15:32
higher, it's that much harder to for people to buy the car they
15:36
simply kind of reported. So and we are tracking I believe
15:42
at this point for Model Y to be the selling car on earth, but
15:46
not just in revenue but in unit volume if you compare that to
15:49
the other vehicles that are. You know #2 and #3 and whatnot,
15:54
they they cost much less than our car.
15:58
So you know we're just hit hitting law of large numbers
16:03
situations here. I know people want us to
16:05
advertise and we are advertising.
16:08
I think there is some, there's something to that.
16:11
There is something to be gained on the advertising fund.
16:14
I don't think it's nothing but informing people of a car that
16:20
is great that they cannot afford.
16:23
Doesn't does really help. So that's that is really the
16:29
thing that must be sold is to make the car portable or you
16:34
know, the average person cannot buy it for any amount of money
16:39
or they can't afford it, they can't afford it.
16:41
So this is a big deal. OK.
16:51
Thank you very much. The next question is when do you
16:54
expect Model 3 Highland to be available in the USI just wanted
16:57
to address that. Unfortunately, we don't answer
17:00
product related questions and timings on earnings calls.
17:03
So let's go to the next one. Current sell side consensus
17:08
assumes that Tesla will deliver 2.3 million vehicles in 2024
17:12
representing 28% growth versus 2023 guidance.
17:15
Is this growth rate achievable without any mass market launches
17:19
in 2024? And when does Tesla expect to
17:22
return to its 50% long term CAGR?
17:27
Thanks for the question. When you look at 2024, there are
17:31
a lot of moving pieces. Elon just talked about what is
17:34
happening in the macroeconomic environment.
17:37
So we're focused on growing our volumes in a very cost efficient
17:41
manner and are carefully reviewing all our options and
17:45
we'll be able to provide a much more meaningful update at our
17:48
next earnings call. Yeah, I mean the risk of stating
17:52
the obvious, it's not possible to have a compound growth rate
17:56
of 50% forever or you will exceed the mass of the known
17:59
universe. So but I think we will grow very
18:04
rapidly, much faster than any other car company on earth by
18:07
far. Thank you.
18:13
Next question is, do you have an approximate timeline in mind for
18:16
the robotaxi driven or non driven?
18:19
What excites you most about how this project is progressing?
18:25
Well Robotaxi is like necessarily non driven the I
18:34
guess I'm I'm very excited about our progress with autonomy.
18:40
The end to end nothing but Nets. I saw driving software is
18:47
amazing. It drives me all around Austin
18:53
with no interventions. So you know, it's clearly the
19:01
right move. Yeah, so it's really, really
19:09
pretty amazing. And obviously that same software
19:16
and approach world. Enable optimists to do useful
19:21
things, and enable optimists to to learn how to do things simply
19:30
by looking though you know, extremely exciting in the long
19:38
term. As I as I mentioned before, you
19:45
know given that economic output is.
19:49
Number of people times productivity.
19:53
If you no longer have a constraint on on people,
19:56
effectively you've got a humanoid robot that can do as
19:59
much as you'd like. Your your your economy is wisely
20:04
infinite or infinite. For all intents and purposes,
20:14
so. And I don't think anyone is
20:17
going to do it better than Tesla.
20:18
Not by a long shot. Bus dynamics is impressive, but
20:22
the robot lacks the brain. They're like the Wizard of Oz or
20:27
whatever. Yeah, likes the brain.
20:34
And then you also need to be able to design the humanoid
20:38
robot, you know, in such a way that it can be mass
20:41
manufactured. And then at some point the
20:44
robots will manufacture the robots.
20:47
Now obviously we need to be make sure that there's a good place
20:50
for humans in that future and we do not create some variants of
20:54
the Terminator outcome. So we're going to put a lot of
20:59
effort into localized control of the humanoid robot.
21:03
So you, you know, basically anyone will be able to shut it
21:05
off locally and you can't change that.
21:10
Even if you like. A software update can't change
21:14
that. It has to be hard coded.
21:18
Thank you. The next question is why was the
21:22
price dropped on FSD if it is getting better and Robotaxi is
21:26
expected so soon, Well, we just wanted to make it more
21:34
affordable as some of you will try it.
21:38
Yeah. I think over time, the price of
21:43
FSD will increase proportionate to its value.
21:47
So it would regard the current price as a kind of a temporary
21:51
low. Thank you.
21:57
The next question is again on FSD.
22:00
Mercedes is accepting legal liability for when it's Level 3
22:04
autonomous driving system drive PILOT is active.
22:06
Is Tesla planning to accept legal liability for FSD?
22:10
And if so, when? Well, there's a lot of people
22:14
that assume we have legal liability, judging by the
22:17
lawsuits. We're certainly not being let
22:21
that off the hook on that front. Whether we like, we'd like to or
22:24
wouldn't like to. So I mean, I think it's
22:28
important to remember for everyone that Mercedes system is
22:31
limited to two roads in Nevada and some certain cities in
22:35
California. Doesn't work in the snow or the
22:37
fog. It must have a weed car, marked
22:38
lanes only 40 mph. Our system is meant to be
22:42
holistic and drive in any conditions.
22:44
So we obviously have a much more capable approach, but with those
22:48
kind of limitations, really not very useful.
22:52
You know, I think some people understand the profundity of the
22:59
Tesla AI system. Mostly very, very, very few.
23:06
It's basically baby AGI. It has to understand reality in
23:11
order to drive. Maybe maybe AGI?
23:19
Thank you. The next question on Optimus.
23:22
Will Optimus be working on Gigafactory lines next year?
23:26
If so, how many would you guess will be deployed?
23:37
I think at this point we are not ready to discuss details of the
23:42
Optimus program, but we will make provide periodic updates
23:48
online. So as you can see, where you
23:51
know Optimus a year ago would barely walk and now I can do
23:57
yoga, so a few years from now can probably do ballet.
24:10
Sounds good. And the last question from
24:13
investors is neural net path planning represent a significant
24:16
advance in capability and safety for FSD?
24:20
What steps is Tesla taking to make this technology available
24:23
outside the US? Yeah.
24:29
Our approach has been to try to get it like the more places we
24:32
try to make it work, the harder the problem is.
24:34
So the reason we don't do it in all countries simultaneously is
24:37
that it would take much longer to get to make it work anywhere
24:40
at all. So that's why it's currently
24:46
just North America. And and also for most parts of
24:51
the world you have to get approval before deploying things
24:55
whereas in the US you can deploy things at risk or at least you
25:00
can take liability for what you deploy.
25:03
So it's whereas most countries require some sort of extensive
25:10
approval program. So we all, we only want to go
25:14
through that extensive approval program when we think it's kind
25:19
of ready for prime time in that country.
25:24
I apologize it's not out in those countries, but we keep
25:30
finding ways to make it better and it really would.
25:35
It needs to drive drive. It needs to drive such that it
25:40
exceeds the even unsupervised, significantly exceeds the
25:46
probability of injury of a human, significantly better, a
25:51
lower probability of injury than a human by far.
25:57
I think we're tracking to that point very quickly.
26:00
Obviously in the past I've been overly optimistic about this.
26:05
The reason I've been overly optimistic is that the progress
26:07
tends to sort of look like a log, a log curve which is that
26:13
you have kind of rapid initial improve improvements that if you
26:19
were to extrapolate that rapid fairly linear rate of
26:25
improvement you get to self driving very quickly.
26:31
But then the the rate of improvement curves over
26:36
logarithmically assaults to asymptote.
26:41
That's not happened several times.
26:42
I would characterize our progress in real world AI as a
26:46
series of stacked log curves. I think that is also true in
26:53
other parts of AI, like LLMS and whatnot.
26:56
Series of stacked log curves. Each log curve gets higher than
27:02
the last one. So if you keep stacking them, if
27:05
you keep stacking logs, eventually you get to FSA.
27:11
Thank you. Let's now go to analyst's
27:13
questions. The first question comes from
27:15
Will Stein from Truist. Will please go ahead and unmute
27:19
yourself. Great.
27:21
Thanks so much for taking my question and thanks for all the
27:24
updates today. We we learned earlier on the
27:28
call it, it sounds like you don't think the truck will ramp
27:32
to significant volume until its third year of production.
27:37
Should we have a similar anticipation for the ramp of the
27:42
next Gen. platform or is there any reason that we should be
27:47
maybe more optimistic or pessimistic about the ramp
27:51
profile there? Thank you.
27:54
Yeah, I I mean to be clear, it's, it's it's not really the
27:58
third year of production. It's kind of like the 18th month
28:02
of production is roughly my guess.
28:06
So it's just that they happen to, it'll happen is that the IT
28:10
starts this year, spans next year and gets to 2025 S
28:14
technically there are three calendar years in there, but
28:17
there's actually only 1818 months, not three years.
28:19
I would be very disappointed if it took us and that that would.
28:23
It would be shocking if it took us three years, but 18 months
28:27
from initial deliveries to have to reach volume and and reach
28:32
prosperity with an immense, I can't tell you how much the
28:36
blood, sweat and tears level required to achieve.
28:38
That is just staggering. I've been through it many times
28:43
and then here we go again. You know, similar.
28:51
Path for the next Gen. platform. Yeah, I mean there's like unique
28:53
complexity to cyber. Yeah, yeah, I mean Cyber Truck
28:56
is, yeah, I mean we dug our own grave with Cyber.
29:00
Cyber Truck, you know, nobody, you know, like in generally
29:03
probably every big digs work grave better than themselves.
29:06
And so you know it is, it is you know cyber truck is one of those
29:15
one of those special products that comes along only once in a
29:21
long while and special products that come along once in a long
29:26
while are just incredibly difficult to bring to market to
29:31
reach volume, to be prosperous. It's it's fundamental to the
29:36
nature of the, the newness. So now the sort of high volume,
29:45
low cost smaller vehicle is it's actually much more conventional
29:53
in terms of like the technologies we're putting into
29:55
it. We didn't have to invent how to
29:57
bend full hard stainless steel or have mega 9000 ton castings
30:01
or the largest hot stamping in the world or new.
30:05
Yeah high voltage, low voltage architectures.
30:07
It's it's it's learning from everything we've done.
30:09
So we hope it will ran faster than the, you know the
30:13
technology we also went. Through like a ruthless
30:16
simplification exercise, yeah, we did.
30:18
There's significantly less parts and yeah, you're only as slow as
30:22
part. If you have less less of those
30:24
that means you could probably be faster.
30:27
Yes, exactly. I mean that's it, it's, you know
30:32
it's all still pretty revolutionary in how we're going
30:36
to build it. It is yes it's it's a their
30:45
manufacturing approach for the the high volume small vehicle is
30:49
revolutionary don't live revolutionary quite in the same
30:54
way as a cyber truck. I think it will be quite a fast
30:58
ramp. So it as long as you're saying
31:03
we're doing everything possible to simplify that vehicle in
31:06
order to achieve a units per minutes level that is unheard of
31:15
in the auto industry. Yeah.
31:21
I mean, the simplification makes it easier to automate.
31:24
It also makes it lower cost, yeah.
31:26
If it's intrinsically lower cost, yeah.
31:31
Just to be clear is it'll be cool, but it's it's utilitarian.
31:38
It's not meant to be, you know, fill you with, you know, Owen
31:44
Magic. It's I can get you from A to B.
31:48
It'll be so beautiful. But it's A.
31:53
It's utilitarian. It's a utility.
31:56
That's not 14 inches of travel and it's suspension.
31:59
Yeah. As an example, yeah.
32:03
So I mean, the cyber truck has a lot of bells and whistles all.
32:10
Right. Thank you very much.
32:11
Let's go to Pierre Farragu from New Street Research.
32:18
Hey, can you hear me fine? Yes, yes.
32:23
Hey, I have a first like a follow up question on FSD and
32:29
pricing and adoption. So I agree with you that as FSD
32:32
improves we should see its value increasing, but I guess like the
32:37
ultimate. Values of FSD which is to be
32:41
able to handle like a robotaxi is not going to necessarily
32:47
interest everybody and you have a bit of a degraded version that
32:50
would be like a chauffeur service where the car drives by
32:53
itself but you still have to be in the car and around and then
32:56
there is like the hands on eyes on version of the service and
33:03
and I guess, you know there should be like much lower.
33:07
Of course, lower feature kind of variants of the service that
33:13
could have a very large penetration on your install base
33:16
and more expensive one that would remain at the lower
33:19
penetration level. So I'm just wondering if you're
33:21
taking that, and last but not least, like the simplest version
33:26
of FSDR available and are going to work from a technical
33:30
perspective probably before like the ultimate Robotaxi version
33:34
can work if ever. And so I'm wondering how you
33:38
take that into account in how you're thinking like the
33:40
financial contribution of FSD over time and and whether you
33:44
could evolve your pricing along that kind of tiers to increase
33:50
adoption. Yeah, I mean the fully
34:01
autonomous vehicle, I think, I think here you, you know, sort
34:05
of the economics of fully autonomous vehicle are truly
34:08
astounding in a positive way. When you look at passenger
34:14
vehicles today, they they only get about 11:50 hours of usage
34:18
per week. That's you know, if you drive an
34:21
hour and a half a day on average that's roughly 10 hours a week
34:25
out of 168 hours. And then there's also you got to
34:29
have parking and insurance, you got to take care of the car.
34:35
It's like there's a lot of overhead.
34:40
So I mean, yeah, it's like the economics of the system are just
34:51
insanely positive if given that the car, like all of the cars
34:56
we're making and have made for a while, we believe are capable of
35:00
full autonomy. So then if you if you're able to
35:05
say, you can increase the utility of that car by a factor
35:09
of five, which slowly means that you're being used for maybe 50
35:14
hours a week out of 168. So you still notice, you're
35:19
still assuming that still seems less than 1/3 of the hours of
35:22
the week are basically just doing something useful.
35:27
You've increased the value of that by by 5:00, but it still
35:31
costs the same like you have something then, then, then.
35:37
We're we're a hardware company with software margins.
35:44
Pierre, do you have a follow up? Yes, I have actually a flip on a
35:48
different topic for you. They have if that's OK, it's
35:53
about like your gross margin in the quarter.
35:55
Could you give us a sense of? Like in in how the gross margin
35:59
evolved sequentially, how much was the impact of idle costs,
36:04
how much was like the sequential benefit I imagine of production
36:08
ramping at Berlin and Austin. And then I saw like this massive
36:12
jump in energy storage, very strong positive surprise.
36:16
So if you can give us the background on that and tell us
36:19
you know how we should think about that gross margin going
36:21
forward? OK.
36:23
Thanks for that question. So in terms of you have a we
36:28
have a few different aspects of your question.
36:31
So for if I just look at from Q3 perspective, you know obviously
36:37
factory idle time had an impact, it did impact by I mean I won't
36:44
give you the exact percentage but it had decent impact for the
36:48
quarter and. You know, when you look at other
36:55
pieces which we're trying to do, we did see certain of our other
37:00
factories ramping up pretty well, right.
37:04
And they actually contributed pretty well to the margin for
37:09
this quarter. In fact, one of the factories
37:13
pretty came pretty close to in terms of per unit cost to where
37:17
we are for one of our other established factor which is
37:21
Fremont. So that was a positive in the
37:24
quarter. When it comes to energy margins,
37:28
you know Megapack deployment was the key driver there and that
37:33
product has done well. I mean on the Costco also we've
37:37
been able to do a lot there. But I do want to caution that
37:43
you know Megapack deployments are a bit lumpy.
37:46
So yes, we had a great quarter this period.
37:50
But depending upon where we are trying to deploy that product in
37:54
the in different markets, you would see periods wherein there
37:59
would be downward pressure on deployment because of us trying
38:03
to get the product to that that place where.
38:06
Product in product in transit. Yeah, yes, yeah.
38:10
OK. Thank you very much.
38:12
Let's go to Rod Lash from Wolf Research.
38:15
Rod, feel free to unmute yourself.
38:20
Thanks. Really nice to see the rate of
38:23
of vehicle cost improvement despite the downtime that you
38:26
took. You've taken now about $2000 out
38:29
of the average vehicle cost over the past year.
38:33
Can you give us maybe a sense of the rate of improvement that you
38:36
see from the changes that you alluded to, the factory changes
38:40
you alluded to? Is there a way, maybe to convey
38:44
the speed of improvement on your existing product from here?
38:49
And then related to that, can you share the timing of your
38:52
next Gen. that the lower priced product that you talked about
38:55
earlier this year? Yeah.
38:57
So just in terms of product margins, there are lots of puts
39:01
and takes when you look at this, you know there are certain
39:05
things which we control and there are certain things which
39:08
we don't control. You know, we get, we expect that
39:12
we'll get some benefits from our cost reduction efforts which are
39:15
all under way. But on the other hand, we just
39:18
finished our factory upgrades late in Q3.
39:21
Some of these factors are still in the early ramp phase in Q4.
39:26
We're still not up to where we want those factors to be.
39:28
So they'll impact in the near term.
39:31
Plus, like Elon mentioned, we're going to be ramping Cybertruck,
39:35
which is going to be another headwind which we'll be dealing
39:38
with on top of all the, you know, there's overall
39:42
uncertainty in the macroeconomic environment.
39:46
Which even makes it harder to predict precisely as to where we
39:50
land. But just this is something
39:53
which, you know, it's it's an evolving thing which we're
39:56
observing every day and reacting to it on a daily basis.
40:02
I would just say that on the cost reduction efforts like we
40:06
we are not, we're unflagging in our pursuit of additional cost
40:10
downs for 2024. We do have a a good pipeline of
40:13
of them and work on both the engineering side and the factory
40:17
operation side. And you know our intention is to
40:20
like maintain or exceed the trend that you saw.
40:24
We're trying as hard as we possibly can the timing of the
40:28
next Gen. product. Can you share that?
40:33
Not at this time. OK.
40:35
And just as a follow up, obviously price is also a driver
40:39
of demand, but if that's obviously not happening in a
40:42
vacuum and you mentioned that, I think you mentioned it at some
40:48
point during this call that you're also maybe hitting the
40:51
law of large numbers on some of your products.
40:53
Can you just share how you're thinking about price elasticity
40:58
just at this point and in this macro environment and any
41:02
thoughts along those lines? I think that there's very
41:06
significant price elasticity. I mean, to tell you, Frank, if
41:11
our car class the same as Rav 4, nobody would buy a Rav 4, or at
41:17
least they're very unlikely to. It's worth learning that a lot
41:23
of these incentives like the, you know, tax credit and
41:26
whatnot. But they're actually very
41:29
difficult for the Irish person to access because they most
41:32
people do not have 10 grand you know or even $7500 burning a
41:36
hole in their bank account. A lot of large number of people
41:41
are are living paycheck to paycheck and with with a lot of
41:46
debt they've got credit card debt mortgage debt.
41:50
So yeah, it's it's that that's that's reality for most people
41:55
it's it's so nice difficult for. People who are, you know, high
42:00
income earners, you know, and I'd say hi, it'd be like someone
42:04
who's earning over $200,000 a year to understand what life is
42:09
like for someone who is earning 50 or 60 or $70,000 a year,
42:14
which is most people. So, so that like for a lot of
42:21
people like these, these tax credits just they can't, they
42:23
can't front $7500 for. Than 18 months or or even six
42:29
months to get for the tax credit and they actually don't in some
42:33
cases even have that then I'd say $500 in taxes.
42:37
So you know it's a so it's really just the the vast regard
42:45
to people is how much money do they have to pay immediately and
42:48
how much per month. That's it.
42:50
It's been kissed off right there.
42:55
And our car is still much more expensive than a raffle when you
42:58
look at it that way. Yeah.
43:02
One other thing which I'll add, you know when when you look at,
43:05
you know, car buying in general, we're trying to get to the next
43:09
set of EV adapters, not. Even not an EV adapter, just.
43:14
Next. Who wants a great car?
43:15
Exactly. It's it's not a, you know.
43:19
So now you get these like. You know, honestly I would say
43:22
it's like somewhat correlates with the why doesn't everyone
43:25
work from home crowd. I'm like, I mean this is like
43:30
some real Marie Antoinette vibes from people that say why does
43:33
everyone work from home? Like, what about all the people
43:35
that have to come to the factory and and and full of the cars.
43:38
What about all the people that have to go to to the restaurant
43:42
and make your food and deliver your food.
43:45
It's like, what are you talking about?
43:47
You, I mean. How detached from reality does a
43:52
work from home crowd have to be while they take advantage of all
43:57
those who do who cannot work from home.
43:59
So I mean you have to say like why did I sleep in the factory
44:04
so many times? Because it mattered so.
44:18
So I I just can't emphasize about how again how important
44:22
cost is. It's it's not it's not an
44:26
optional thing for most people. It is a necessary thing we have
44:31
to make our cars more affordable so people can buy it and and and
44:35
I you know I keep harping on this interest thing but I mean
44:38
it's just it just raises the cost of the car.
44:42
I mean, we're looking at an an internal analysis which kind of
44:47
we? Like we think is, is is more or
44:50
less on track that when you look at the cost or the price
44:54
reductions we've made in say, the Model Y and you compare that
45:00
to how much people's monthly payment has risen due to
45:03
interest rates, the price of the Model Y is almost unchanged.
45:10
If you factor in the change in interest rates.
45:13
Yes, which is the other thing. That's what I'm trying to say.
45:16
The thing that matters is the monthly it's it's it's how much
45:19
money do they have to put down and do they literally have that
45:21
in their bank account or will the check balance?
45:23
And then what is the monthly payment?
45:26
And it doesn't matter how if that monthly payment is
45:28
principal, interest or whatever, It's just a a number.
45:31
And that number has to not 'cause their bank account to go
45:35
negative as it though. You know, going from near 0
45:42
interest rates to the current very high interest rates, the
45:49
actual monthly payment is basically the same.
45:53
It's just a bunch more of it is going to interest.
45:56
And there's some some incremental challenges beyond
45:58
that, which is the difficulty of getting credit at all has
46:02
increased. And so the number of people who
46:05
simply cannot get credit. Period.
46:09
Even if they've got a job and everything's solid that you
46:11
know, the the banks are, you know, a little gun shy on
46:16
handing out credit given that a bunch of them kicked the bucket
46:19
earlier this year. And there's also just fewer
46:22
options. Even if they hand out credit,
46:24
there's fewer banks together. It's like, does your banks still
46:27
exist? Yeah, well, if your bank does
46:30
not exist, you have to establish a relationship with a new bank.
46:34
And you know so. A lot of regional banks are, you
46:39
know, died and I mean even Credit Suisse, I mean jeez,
46:43
that's that was a shocker, you know, but a like 160 year old
46:48
ish Swiss institution that doesn't exist anymore, that's
46:56
mind blowing. And I think there's still quite
47:01
a few shoes, shoes to drop on the bad credit situation.
47:05
Res. I mean commercial real estate
47:07
obviously is in terrible shape. You know credit card debt has
47:15
been rising significantly. The credit card interest rates
47:19
are usurious over 20% interest rates meaning like which over
47:26
time is just becomes. I was extremely punishing.
47:32
If, because if somebody's paying 20% interest on their credit
47:34
cards, it means they cannot pay them off as you cannot pay them
47:37
off and you're still accruing interest at 20% that you had
47:42
that that's headed to a bad place.
47:47
Thank you. Let's go to next question from
47:49
George from Canaccord. Thank you for taking my
47:53
question. Just to focus on the cost per
47:57
vehicle, you know coming down in in future quarters as you
48:01
discussed. In your written remarks, I'm
48:04
curious as to what the levers of that could be.
48:07
Is it more scale, more factory utilization?
48:10
Is it material cost reductions? Are there things like giga
48:13
casting? I mean, can you just kind of
48:15
give us some data points to give us confidence that that's going
48:18
to come down over time? And if I can sneak one in,
48:20
please. There are press reports and I
48:23
know how perilous it is to believe some of these.
48:27
But they say that you've included radar as an option and
48:32
some model wise in China and I'm just here to ask if that's true
48:36
and if so why? Thank you.
48:39
We've not included radar. We we have radar as a Tesla
48:46
designed radar as an experiment in the model S&X.
48:50
That's it. We'll see whether that
48:52
experiment is worth it. But there are no plans to
48:58
integrate radar into three and Y You know, just as humans drive
49:05
well, and in fact an excellent human human driver can drive
49:08
with with amazing safety simply with their eyes, the car will
49:14
will far exceed the average human safety just with vision.
49:17
Far, far, far. Because, I mean the car is
49:20
looking at all directions at once and we don't have eyes in
49:22
the back of our head, so. And the computer never gets
49:26
tired and never gets distracted. Get drunk, hopefully.
49:33
And so radar is, you know, it's like, what really matters is how
49:43
much does it affect the probability of an accident.
49:46
And in order for the radar to be effective, you have to be able
49:50
to do radar only breaking. We get to do actions that are
49:53
that are radar only. Otherwise you get this
49:56
disambiguation problem between vision and radar.
50:01
That's why we actually turned off the radar in cars
50:03
historically that we had shipped it with all three and Y used to
50:06
have radar, but we turned it off because the radar actually
50:09
generated more noise than signal.
50:13
Now the Tesla designed radar is a high resolution radar that has
50:18
some potential to be useful. That that the jury is is still
50:22
very much out on on whether that is in fact the case.
50:29
On the cost question, I guess from the vehicle side, like you
50:31
know as Drew mentioned earlier, we are always trying to engineer
50:35
our products to be cheaper to make and more efficient to make.
50:38
That comes obviously on the engineering side as we come up
50:41
with new innovations, but as well on the supply chain side
50:44
with our partners, we work with them to automate some of their
50:47
lines, remove their. You know bottlenecks and their
50:50
high costs as well On the logistics side, getting parts of
50:54
the factory it's it's not it's it's not equally it's not like a
50:58
one thing that you you have to have to attack cost everywhere
51:02
and and we do it ruthlessly at all times.
51:04
Patience. Efficiency.
51:06
All of the all of the above. Yeah.
51:08
I mean, I would say there's a whole laundry list of things
51:11
which we are chasing. We internally call it the cost
51:14
attack where we're literally going line by line and saying.
51:18
How can we make it better? And it's a grind.
51:21
It's. A grind.
51:22
It's a game of pennies. It's like Game of Thrones, but
51:26
but pennies is. I mean, first approximation, if
51:29
you've got a $40,000 car and roughly 10,000 items in that
51:36
car, that means each thing on average cost 4 bucks.
51:40
So in order to get the cost down save by 10%, you have to get
51:45
$0.40 out of each part on average.
51:48
It is a game of pennies. We play it willingly.
51:53
Yeah. Really.
51:54
Just we've done it many, many times.
51:57
And you know, even something as simple as like a sticker, like
52:05
there's too many stickers internally in the car that
52:07
nobody ever sees There's, you know, something as simple as AQR
52:12
code. You might think, well, putting
52:14
AQR code on part. Why not just put them?
52:16
Put it on there. It's like, well, who are we
52:18
actually gonna use that QR code? That's a penny.
52:22
Yeah, exactly. And then inevitably, sometimes
52:25
the QR code doesn't go on properly or you can't read it
52:27
properly and then it stops the line.
52:30
It's more than a penny. Yeah, absolutely.
52:33
Awesome. So it's chip chipping away.
52:37
With with, with AI mean it is trying to.
52:39
It is. It does feel like digging a
52:40
tunnel with a spoon at times. Very much escaping Prism, yeah.
52:49
You know, on top of it, like we said, you know, we did some
52:53
factory upgrades, so we expect volume to go up that would also
52:57
bring some savings from higher production.
53:00
But then on the flip side. We're going to be ramping a new
53:04
product like Cybertruck, which we talked about.
53:07
So yeah, so those are the real puts and takes which we are
53:11
working for. Yeah, but there's there's not
53:15
like some accidentally, you know, some gold brick of gold
53:18
that we've left in the car unfortunately And and it's, you
53:24
know, we're trying to be very rigorous about improving the
53:27
quality and capability of the car because.
53:31
Yeah, it's like any fool can reduce the cost of a car by
53:35
making it worse and just, you know, deleting functionality and
53:40
capability. And that's that's how cool,
53:43
that's sort of the any, any fool that it's like if you want to
53:46
like lose weight and you say, well I need to lose whatever,
53:50
£15.00 right away, well, you could chop your arm off, but
53:54
then you're sitting there with one arm, you know you're still
53:56
fat, so. So it's sort of like, yeah, I
54:03
got to work at it. Yeah, you actually have to eat
54:07
it, eat less food and work, work out.
54:09
That's the actual way. And doctors effects.
54:13
Yeah, you know, super fun because food is delicious.
54:16
And I personally, I'm not a huge, but I don't love working
54:19
out. I know some people do.
54:20
I wish I did, but I don't. Unless moving the mouse consists
54:24
of working out, in which case I love moving the mouse.
54:29
All right. Let's go to Colin Langham from
54:33
Wells Fargo. Colin, Colin.
54:41
And Can you unmute yourself? Oh, sorry about that.
54:46
Do you hear me now? Yeah, that'll be it.
54:49
OK. Thanks for taking my question.
54:51
You said in the commentary that you're not going full tilt on
54:54
the plan in Mexico until there's signs that the economy is
54:57
strong. Can you continue out of 50%
55:01
kegger without that plant and where would that come from and
55:06
and any color on what you mean sort of not going full tilt,
55:08
could that plant get delayed indefinitely?
55:10
Or what are you kind of talking about?
55:13
No, we're we're definitely making the the factory in
55:16
Mexico. We feel very good about that.
55:18
We we put a lot of effort into looking at different locations
55:21
and we feel very good about that location.
55:27
And and we are going to build a factor there and it's going to
55:32
be great. The question is really just one
55:33
of timing and you know there's going to be a broken record on
55:39
the on the interest front. It's just the interest rates
55:41
have to come down like like if, if, if interest rates keep
55:45
rising, you just fundamentally reduce affordability.
55:50
It is just the same as right increasing the price of the car.
55:53
So I just don't have visibility into if you can tell me what the
55:55
interest rates are, I can tell you when you know when we should
56:01
we should build the factory, we're going to build it and I
56:04
mean I think we'll we'll we'll start the you know initial phase
56:08
of construction next year, but I I I am still somewhat scarred by
56:16
2009 when. If General Motors and Chrysler
56:21
went bankrupt, so, well, that's now 14 years ago.
56:27
It's that that asserted into my mind with a branding iron
56:33
because you know, Tesla was just hanging on by a thread during
56:39
that entire time. And with the, I mean we closed
56:43
off our financing around 2008 on at 6:00 PM December 24th,
56:48
Christmas Eve. And if we had not closed that
56:51
financing round, we we would have bounced payroll two days
56:55
after Christmas. So we we actually closed that
56:59
round on the last hour of the last day that it was possible,
57:04
stressful to say the least and then barely made it through
57:08
2009. So I'm like, I want to just I I
57:12
don't want to be going at top speed.
57:18
Into uncertainty, a lot of wars going on in the world obviously
57:24
as well. So and we have room here like in
57:32
Kinka, Texas you said where we still have it in this building,
57:35
it's not full with Cybertruck and La Y and you know there's
57:38
plenty of growth opportunities still to have inside the
57:40
building where our team already is.
57:41
We also have 2000 acres here. There's also a lunch.
57:44
We're actually only occupying a tiny corner of the land that we
57:47
have. But you know, we could, we could
57:50
technically do all the scaling necessary just here.
57:55
So I mean personnel is our biggest challenge and in that
58:03
the Greater Orson area only has generously, the Greater Orson
58:07
area only has 2 million people. So people are moving here and
58:09
they're willing to move here, but there is somewhat of a
58:13
housing crisis. They've got to live somewhere.
58:18
So yeah, so so I don't know. I mean, I'm just curious like I
58:27
just, I'm not saying things really bad.
58:29
I'm just saying they might be. And I I think like like Tesla is
58:36
an incredibly capable ship. But it is.
58:39
But if you know we need to make sure like as as if the.
58:46
The macroeconomic conditions are stormy.
58:49
You know, even if the best ship is still going to have tough
58:53
times, the weaker ships will sink.
58:54
We're not going to sink. But you know even a great ship
58:59
in a storm has has challenges. Now that storm will apply to
59:04
everyone, not just us, and not just not just the auto industry.
59:09
Apply to everyone, I think. So you know, apart from.
59:14
If necessary sort of staples like food and stuff, but you
59:22
know, so I just, I don't know if if if interest rates start
59:28
coming down, we will accelerate. All right.
59:36
Benny's Got got any any, any any guesses on this?
59:41
You know, I'd love to be less wrong.
59:44
And and I apologize if I'm if I'm perhaps more paranoid than I
59:47
should be because I'm that might also be the case because I am.
59:52
I have PTSD from 2009 big time and in 2017 through 19 were not
1:00:00
picnic either. That was very tough going.
1:00:03
So you know the auto industry is also somewhat cyclic.
1:00:09
It's because, you know, people can't hesitate to buy a new car.
1:00:15
And if there's uncertainty in the economy, so, so it's, you
1:00:22
know, our companies do very well in good economic times and they
1:00:27
have but don't do as well in, in tough economic times.
1:00:32
So it's it's just, you know, whereas if somebody's selling
1:00:35
bread, then I think you know that people still need to have
1:00:38
bread. Yeah, yeah, you need bread if we
1:00:42
need full all the time, but new car, you don't have to have
1:00:45
rights in it. Especially if there are wars
1:00:48
going on and then that impacts your sentiment.
1:00:51
Yeah, I mean, if people are reading about wars all over the
1:00:55
world, if this, you know, flying in your car tends to not be
1:01:00
front of mind. All right.
1:01:03
Unfortunately, that's all the time we have today.
1:01:05
Thank you very much for all of your good questions and we'll
1:01:08
see you again in three months.