Tesla Q1 2023 Financial Results and Q&A Webcast

Tesla Q1 2023 Financial Results and Q&A Webcast

Foreign Foreign Foreign Thank you [Applause] foreign Foreign Thank you Foreign Foreign Foreign Everyone and welcome to Tesla’s first quarter 2023 q a webcast my name is Martin vehicle VP of industrial 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 pm Central Time in the update deck we

Published at the same link as this webcast during this call we will discuss our business Outlook and make forward-looking statements these comments are based on our predictions and expectations as of today actual events or results could differ materially due to a number of risks and uncertainties including those mentioned

In our most recent filings with the SEC during the question and answer portion of today’s call please limit yourself to one question and one follow-up please use the resend button to join the question queue but before we jump into q a Elon has some opening remarks Elon

Uh thank you Martin so just a q1 recap model y became the best-selling vehicle of any kind in Europe and the best-selling non-pickup vehicle in the United States and this is in spite of a lot of challenges in production and delivery so it’s a huge credit to the Tesla team for um

Achieving these great results the it is worth pointing out that the current macro environment remains uncertain I think I’m telling anyone they anything people don’t already know especially with large purchases such as cars and while we reduce the prices considerably in early q1 it’s worth noting that our operating

Margin remains among the best in the industry we’ve taken a view that pushing for higher volumes and a larger Fleet is the right choice here versus a lower volume and a higher margin however we expect our vehicles over time will be able to generate a significant uh profit through

Uh autonomy so we do believe we’re like laying the groundwork here and then it’s better to ship a large number of cars at a lower margin and subsequently um uh Harvest that margin in the future as uh we perfect autonomy autonomy this this is an extremely important point

Let’s see regarding the Cyber truck we continue to build Alpha versions of the Cyber truck on our pilot line for testing purposes it’s a great product um and we’re completing the installation of the volume production line at Giga Texas and we’re anticipating having a a delivery event a big a great delivery

Event uh probably in Q3 as with all in your products it’ll follow an S curve of you know so production starts out slow and then accelerates um so uh the Cyber truck is no different um so it’s it’s you know there’s trans amount of demand for the product

Obviously and it is might be a fantastic product a Hall of Famer um uh but as with as with all uh new products it takes time to get the manufacturing line going and this is really a very radical product it’s not it’s not made in the way that other cars are made um

So let’s see with regard to mega pack we’re making uh great progress our energy storage deployment reached an Le four gigawatt hours and q1 so by far the strongest quarter ever and this growth was achieved thanks to the ongoing ramp at our Mega Factory in Lathrop California

There’s still somewhere to go to reach the full run rate of 40 gigawatt hours per year and then We additionally announced the start of a new Mega Factory uh in Shanghai so we were um as as we’ve expected the stationary storage growth actually will significantly exceed the vehicle growth um

Regarding autopilot and full self driving we’ve now crossed over 150 million miles driven by full self-driving beta and this number is growing exponentially we’re uh I mean this is a data advantage that really no one else has uh those who understand uh AI will understand the importance of data of training data and

How fundamental that is to achieving an incredible outcome so uh yeah so um we’re also very focused on improving our neural net training capabilities as is one of the main limiting factors of achieving pool autonomy so we’re continuing to to uh simultaneously make significant purchases of Nvidia gpus and also

Putting a lot of effort into Dojo which we believe has the potential for an order of magnitude Improvement in the cost of training um and it also Dojo also has the potential to become a sellable service that we would offer to other companies in the same way that Amazon web services uh

You know offers more web services even though it started out as as a bookstore so I I really think that yeah the dojo potential is very significant uh in conclusion we’re taking a view that we want to keep making and selling as many cars as we can

Um despite this being an uncertain macro environment this is a good time to increase our lead further and we’ll continue to invest in growth as fast as possible once again I’d like to give a huge thanks to Ulta’s employees worldwide for doing an incredible job again and um yeah super appreciated

Thank you very much and Zach has some remarks as well yeah thanks Martin I want to start by congratulating the Tesla team for record vehicle production and deliveries and I also want to congratulate our energy storage team for record volumes as well the three main points I want to make

First Automotive gross margin and operating margin reduce sequentially but as Elon mentioned these remain at healthy levels in particular Automotive gross margin was impacted by a few factors since our discussion on the last earnings call which include additional action taken in the second half of the quarter to improve vehicle pricing and one-time

Items most notably warranty adjustments on older snx vehicles as well as increased deferred revenue for certain autopilot features as we transition Technologies progress on vehicle cost reduction continued in q1 with meaningful improvements on Logistics and the beginnings of some commodity cost reductions starting to be realized per unit cost for Austin and Berlin

Improved as well driven by record volumes however these factories still provide a margin headwind and will likely continue to do so until after we reach and stabilize at our intended volumes note that q1 was our third quarter and our multi-quarter plan to move to a more regionally balanced mix of build and deliveries

As I’ve mentioned previously this results in lower delivery Zen production within a quarter due to a higher volume of cars in transit at the end of the quarter and has an Associated impact on quarter ending free cash flows this was particularly prevalent in q1 for S and X as we begin exporting cars

For international deliveries second our storage business is starting to take shape and this is exciting to see after many years of investment in focus this business is growing as a percentage of the businesses of the company’s revenue and reached its highest level yet in q1 driven by an

Increasing rate of deliveries for a mega pack products we are also making progress on storage profitability generating our highest gross profit yet in the quarter third I want to reiterate the philosophy by which you are operating the business this year our approach is to grow volumes as quickly as possible in both

Our vehicle and energy businesses we plan to continue to invest heavily into our future plans which include the Cyber truck Next Generation platform in-house cell production energy storage business and our autonomy and AI enabled products and we plan to do this while keeping the business financially healthy and industry-leading

To accomplish this we need to remain focused on cost efficiency and working capital and in particular unwinding the Strategic inventory buildup left over from the pandemic I want to conclude by thanking the Tesla team again as well as thanking our suppliers and our customers thank you very much and let’s go to

Investor questions on site.com the first one is what is the process to make Auto pricing adjustments what variables do you consider how frequently do you review pricing do you want to take that Elon or do you want me to take it so my apologies sorry as on you um uh

Yeah I think this was not something that we we can really talk about it’s just uh uh we do our best to evaluate the you know the production output macroeconomic conditions and and we make a decision but it’s yeah unless it’s something you’d like to add Zach

I think that’s right I mean as a team we review where we stand globally on a weekly basis and certainly can’t get into the details of the reasons why certain decisions are made but it is something that’s very actively managed by a subset of the leadership team

Thank you the second question is do you still believe Tesla energy will be bigger than Auto and when will you provide more formal guidance on mega pack and overall Tesla energy yes I should just uh clarify like bigger than order from the standpoint of like total um uh gigawatt hours deployed

Um so it’s possible Automotive Revenue may be higher but gigawatt hours uh I think will be uh probably higher with stationary storage if you just look at um the what’s needed to transition the world to a sustainable energy economy uh there is more stationary energy storage needed than there is mobile energy

Storage so uh and and we are seeing uh growth of uh stationary storage um well in excess of Automotive so that um is in line with expectations yeah and on the the guidance part of the question and maybe Martin we can combine this with the next question which is on guidance for margins

Um just have a single comment there you know I think we are we will get to the point where we as a company provide guidance um on the storage business I say storage is a combination of both the mega pack business and the parallel business uh relative to Total revenues of the

Company it’s still fairly small and um and and the business has a lot of volatility currently both in terms of volumes as well as financials just given the small volumes and kind of diversification of the customer a pool there but but as this business grows and Smooths out I don’t think

We’re that far away from it um you know I think including these volumes on our our day two production and deliveries release is something that we’ll start doing um and then we can talk more formally as a business about our expectations over the coming year I think it’ll be a few

More quarters before we get there thank you uh the next question as you said was already answered so let’s go to the battery question oh so just one other thing I wanted to mention on margin um you know while we’re not providing specific guidance there I mean just to

Set expectations of where we think this business will go in terms of margins you know probably generally in the ballpark of what we’ve seen historically on the vehicle business um you know we generally look to mid 20 gross margins for any program that we launch and so we’re not there yet on

This business but that’s what we’re working towards we’re hopeful to get there later this year but that’s not a promise that’s an aspiration thank you the next question is how well are 4680 cells meeting the expectations described on the battery day how long will it be until the sales meet those goals

True yeah so on battery day we established a cost down roadmap through 2026 across five areas of effort there was the cell design we discussed um Andrew Catholic materials the structural pack concept and the cell Factory itself we’ve been making progress across all these aspects since then for the cell Factory that

The Texas 4680 Factor we you know are part way through building and commissioning and installing and operating uh will be 70 lower capex per gigawatt hour than typical cell factories when fully ramped in line with what we described on battery day um and we’re continuing to further pursue densification and investment

Reduction opportunities in future Factory buildouts like in Nevada um on the cell design we’re in production with not only the first generation tablet cell we unveiled on battery day but a second more manufacturable version in Texas today on the cathode material side we have a number of activities underway per the

Battery day roadmap for lithium our Corpus Christi lithium Refinery breaks ground uh this may our goal is to start commissioning portions of the facility for the end of the year uh the refinery uses the sulfate-free spot refining process with reduced process costs no cast acid or caustic reagents lower embodied energy it

Actually produces a beneficial byproduct that can be purposed in construction materials we discussed all of these Concepts on battery day same with cathode precursor we’ve successfully just demonstrated a lower process cost zero waste water precursor process that we described on battery day at both lab and pilot scale and are on the detailed

Design phase for incorporating this technology into the front end of our Austin cathode facility on Catholic production we are 50 equipment and 75 utilities installed uh at our new cathode building in Austin uh with our goal to begin dry and wet commissioning this quarter and next quarter with the

Target to produce first material before the end of the year um structural pack we saw big improvements with pack manufacturing with the 4680 cell and the structural pack concept 50 lower capex and 66 percent smaller Factory for the same output uh in gigawatt hours per year um you know we’re we do believe

Structural is a as a concept is a good one it’s simpler we’ll continue to structurally load the cells and use the pack as the floor of the vehicle while iterating the design to closer to b-level execution of this a-level architecture in future programs zooming out for the 4680 team q1 was all

About cost and quality we made significant improvements in both areas on Texas production and cruise 50 increased 50 percent quarter over quarter through yields increased 12 percent and Cato P grade increased by 20 and three yields improved by 20 percent altogether the team accomplished a 25 reduction in cogs over the quarter and

We are on track to achieve steady state cost targets over the next 12 months um and going forward for the rest of the year the priority one is yielding cost for the 4680 program as we steadily ramp production ahead of cyber truck next year thank you very much uh the next question

Is uh what do you anticipate 2023 Automotive gross margins tax credits will be at the company’s current pricing levels yeah um I can start off on this one um you know this is a difficult environment to make a projection like this you know there’s a lot of macro uncertainty

Um there’s also headwinds and Tailwinds and um you know this is basically a question I think that’s asking about our Viewpoint how more costs will go and and within cause there’s a set of costs in which we do control the set of costs in which we’re kind of subject to

What’s going on in the macro world within the bucket of things we control you know the the most of the cost down that we’re working on is around ramping our Austin Factory stabilizing that um and then doing the cost optimization work once we get to our intended volumes

There in in a part of the cost journey in the Austin Factory is as Drew mentioned the 4680 cell which is an input into our Austin cogs and so um you know as the 4680 program improves over the course of the year on cost as Drew mentioned and then the non-cell

Portion of the factory improves and we see a pretty good trajectory in the Austin facility but a similar story exists in the Berlin Factory it does not have 4680 as an input but for that factory the journey to complete localization is still ongoing and so over the course of this

Year as volume increases um uh more localization occurs you know we do see a good path to cost reduction and the Berlin Factory as well in existing factories too we talk about this on every call so we don’t need to rehash it but you know the expectation is that every existing Factory improves

All of their key metrics and we continue to see the progress there um uh you know that there’s you know there’s also a handful of other costs in which we have influence but you know the philosophy here is that progressively going across every class bucket that we can

Um within the world that we don’t control you know the two major costs there being Logistics which fortunately is moving in our favor and I think our supply chain team has done a great job both on Logistics optimization and taking advantage of of reduced spot

Rates where they can so thank you to our supply chain team um and then there’s the Commodities world which has been a huge page point in our cost structure over the last say two years or so and we’re still kind of at the maximum of pain for Commodities in our cost structure

Um it kind of maximize it Max down in the second half of last year we did start to see in q1 a little bit of improvement we think they’ll be a little bit more Improvement in Q2 significantly yeah and and that’s that’s the piece that we expect to see more impact from

In Q2 and generally as a company we do expect commodity prices to come down and have a more meaningful impact in the second half of the year yeah so you know this is our approach how that Nets out I mean there’s just a lot of risk and

We’ll have to see how the year progresses thank you um the next question is how has Global Order intake tracked since the most recent round of price cuts I think the overall thing we can say is that orders are in excess of production thank you um and maybe the last question from

Investors can you give updated specs and pricing for cyber truck and any new features that will make it to production well I think we’ll save that for the uh cyber truck Handover which will hopefully be around the end of Q3 this year um and uh one thing I I am confident of

Saying is that it’s an incredible product um it’s a Hall of Famer I think um and a product like this only comes along once once in a long while so um it will not be disappointed at all it’s amazing great thank you very much and let’s go

To analyst questions uh we’ll start with Alex Potter from Piper Sandler uh Alex go ahead and unmute can you hear me yep yes okay perfect um so first question uh was on Lathrop um obviously that’s it’s great to see the growth there I’m just wondering when you think that facility might be closer

To full utilization um are you just sort of deliberately working your way up the s-curve there I demand obviously isn’t the limitation so what are what are the steps I guess to unlocking full utilization there um sure there’s there are some classic you know Factory ramp aspects of what’s

Going on and Lathrop we actually have uh two phases of the capex there we faced um some of the general assembly parts of the facility uh but in addition we also have ramps uh with our suppliers that we are following so both on the on the sell

Side and on the power electronic side um and we will see that unlocked um in the latter half of this year with both of those inputs so the the overall facility was phased um with the second phase of topics coming online towards the end of this year okay great and then

Um I guess my second question is uh on your ability to serve other markets out of Shanghai obviously the the facility in Berlin should be opening up your ability to I guess allocate more vehicles to Southeast Asia Australia other areas I’m just wondering what other regions you think you’re maybe not

Yet serving effectively uh what are your timelines for addressing some of those gaps in your Regional exposure thanks uh yeah that’s a good question because there are still many parts of the world that we do not uh yet served with respect to Vehicles especially

Um so we we do expect to open up new markets around the world um and while those markets are not necessarily individually um gigantic they do add up to you know if you add up a whole bunch of markets they they do collectively um some up to something significant so

It’s it’s high time that Tesla offered its cars um to the rest of the world and and that is something that we intend to do okay uh thank you very much uh let’s go to the next analyst uh George from Kenner Court uh go ahead and unmute

Hey uh thanks for taking my question I was wondering first if you could discuss uh your FSD take rates and whether you’ve seen any significant positive or negative change there and also given that you’ve reduced uh the prices for your vehicles uh do you think you need

To do that for FSD as well thanks um well I I’ll decline to answer the details on the FC take rate but the it’s a tricky it’s a tricky pricing question because the the value of a car that is autonomous is enormous um so in a way the you know the price

Right now is an option value on uh on on an autonomous vehicle um and and that that value is that you know will ultimately be very very significant and um you know it’s really really yeah I mean for those that are using the FSD beta I think you can see the the

Improvements are really quite dramatic um you know there’ll be a little bit of uh two steps forward one step back between releases um and for those trying the beta but the the trend is very clearly towards full self-driving uh towards full autonomy and um

You know as I hesitate to say this but I I think we’ll do it this year um so that’s what it looks like um yeah uh thank you maybe on the dramatic change we’ve seen in EV related commodity prices and do you think it’s a reflection of any recent over capacity

In mining and refining or is that sort of a coincident indicator on global EV demand and how do you expect those prices to kind of track over the next several quarters thank you man I wish I had a crystal ball to answer your question um

I I don’t know if we can provide a a question that would um with with that they would have any uh value really it’s I think we’re we’re in uncertain times and if somebody’s got a crystal ball they can lend me I I really like to borrow it

Um but uh you know these are these are uncertain times um you know my guess is this it’s you know economics told me whether for about a year or so um and then it will hold roughly 12 months and and then this is my guess I’m it’s just pure

Speculation uh stormy weather for about 12 months and and then provide there are not no major geopolitical wild cards that that show up um that that is things start getting sunny around spring next year the only yeah the only thing I would say on the like uh EV materials markets

They’re not all super liquid and some of them for example like less than like single digit percentage uh of the market is actually traded on the spot Market and they’re not only are they not super liquid there’s not like storage isn’t particularly facile for all of the

Materials so uh like small mismatches in supply and demand drive like large price winnings not not really real price wings but just like temporarily large price swings so it’s hard to read into this price points I don’t know if you want anything by the way we are seeing you know as

Elon mentioned quite a bit of softening in the lithium carbonate Market um this was you know six months ago we were trading at like 85 000 a ton and and today’s spot price is about 26 so so there’s been a dramatic decrease in that of course we were able to take advantage

Of low lithium pricing earlier on with fixed price contracts and we find that this is going to be another opportunity opportune moment to basically extend that uh into the later half of the decade um but you know we we at the quantities we’re procuring we’re not as impacted by

The spot Market because we have um of those contracts in place and we’re just going to be going and doing more of that the other thing that’s happening is because of the price spike a lot of the companies that are in this business are uh becoming more ambitious about finding

More Upstream resources and exploring locations in Africa as well as South America um so that’s that’s also helping the macro situation with pricing yeah um on the left hand front to emphasize the the choke point is is more much more on refining capacity than it is on on

Mining lithium is actually is very common uh throughout the world uh including in the US and and really never ever it’s just a very common um element on on Earth is lithium um so it’s much more question of where’s the refining capacity and can the refining capacity keep up that’s that’s

Really what what matters more than where it where is the uh lithium ore um it’s everywhere basically um that I I think that same question also extends to refining of the uh the the cathode and to some degree refining of the anode and this is why we’ve uh at

Tesla we’re building our you know lithium Refinery capability uh Corpus Christi and uh our cathode Refinery uh outside of Austin so it’s worth learning like I I I I I hope other companies do do the same thing we’ll have by far the most uh lithium refining capability and the most uh

A cathode refining capability in North America I think probably more than everyone else combined by a lot so can other people please do this work that would be great we don’t want to do it you know can someone please like instead of making a picture sharing app please

Refine lithium Mining and refining heavy industry come on it’s fun it’s actually fun yeah yeah exactly it’s real yeah we’re here ready to buy yeah yeah Tesla’s not doing this because we want to do it we have a lot of we have a lot of fish to fry obviously but we’re doing

It because others aren’t doing it and we wish others would do it awesome thank you very much let’s go to Emmanuel Rosner from Deutsche Bank hey Manuel hey can you hear me yeah we can yep perfect thank you so much for taking my questions uh maybe your first question

For Ilan on your pricing strategy so if you find to send you a message you’re saying uh you know Tesla feels it’s worth maximizing the volume increasing the size of the fleet um as as fast as you can because you’ll be able to monetize this over the the

Life cycle of the vehicle can you be a bit more specific around ways you would be able to monetize sort of like this existing Fleet in the future uh obviously I think autonomous seems to be a big piece of it by minus my understanding was that Robo taxi would

Probably be for the next Generation vehicle not not the existing one so I guess in which ways would you monetize it that’s right the robot taxi terminology can be a bit confusing uh because that’s sort of like a generic term for our next Generation uh vehicle

Um and we obviously are working on Next Generation Vehicles can be very compelling this is just not the time to talk about it in details product um so we we internally call it Robo taxi but but really all of the vehicles that have Hardware three which is the vast

Majority of our Fleet We Believe will achieve full autonomy so they will be robot they will be a a rope but like a model 3 or model y would be a robo taxi um a robotic taxi um so yeah that that’s to the best of my knowledge that we we believe the the

Current Hardware can achieve full autonomy understood um and then maybe a question for Zach uh back on the um Automotive growth margin so I think I guess uh a few months ago uh you know even after major price Cuts you felt pretty strongly that uh you know twenty percent Automotive gross

Margin was still you know probably a reasonable floor obviously the macro has you know gotten worse and additional price Cuts have have happened is is there anything else that has changed in terms of the Outlook is it just the macro deteriorating is it the competitive landscape anything else

That’s sort of like uh makes you think differently around you know the full year and is there is there a way therefore to uh to frame a floor yeah um you know about you know about half of them is against that previous conversation last quarter is attributed to adjustments we made in

Pricing in the second half of the quarter um I mean I guess you could argue that that lowers the floor in a sense we’ve also made pricing adjustments so far this quarter you know so that brings brings it down further um about the other half of the Miss in

Q1 was attributed to things that are not non-recurring so I mentioned these in my opening remarks it’s a warranty adjustment for cars that were previously produced but not part of the pedigree of cars we’re building now and um and some autopilot related deferrals as we make some technology

Changes here that this referral should get recognized once some of the software catches up so those two things are non-repeating so hopefully that helps answer your question yeah I mean there’s there’s really two uh macro factors that are that are tricky um uh the biggest being the the interest

Rate so if there’s a very high bed rate or interest rates are very high that um that that is when every time that the FED raises interest rates that’s that’s equivalent to increase in the price of a car um it makes the the cars less affordable

Because people are able to buy cars as a function of what they can afford on a monthly basis um so um that that’s so it’s just it almost directly equivalent to a price increase is any kind of interest rate increase um then the other factor is whenever there’s uncertainty in the economy uh

People uh will generally postpone um uh your new new big New Capital purchase is like a new car um this is a natural human reaction um so you know if if people are reading about layoffs and whatnot in the Press they’re like well they might be worried

About they might be laid off so then they’ll be naturally a little more hesitant than they would otherwise be to buy a new car now now this this is just the nature of the Auto industry that um you know it but that there is there will be a trans

Amount of pent-up demand for new cars so um but it goes through Cycles thank you uh let’s go to Ben Kayla from Baird Ben go ahead and unmute hey guys um you know what uh you know when you talk about many fish to fry you talked

About Dojo being a a product that you can sell outside of Tesla how do we how do we rank all the things you have going on and then in the economic environment I mean like heat pumps and um everything else you have going on versus um the the investing in the vehicle

Business there’s not that not the right way to look at it um I’m not sure I fully understand your question but the the you know I’d look at Dojo as like uh kind of a long shot bet but if it’s a long shot bet that pays off it’ll pay

Off in a very very big way um like potentially you know yeah potentially in a very very big way like you know um in the multi hundred billion dollar level but but the thing with like you know still put it in the long shot category but long shot with a multi

Hundred billion dollar you know potential outcome and uh so so it’s a bit worth making um but not one you can you can sort of say like oh you know take it to the bank type of thing although these days take it to the bank it’s maybe not as as

Secure as it used to be um so um and obviously with big believes in heat pumps um you know and that is on our list that you know over time is to do a really good uh heat pump for homes and in a commercial offices and stuff and we have

The technology that’s really good um but it’s it’s still it’s it’s a backbone item um you know focuses very much on on vehicles autonomy stationary storage basically solving sustainable energy and solving uh autonomy which would be uh from you know like says Solving autonomy if if we’re able to have a fleet of

Several million vehicles that with a software update uh can can be potentially worth several times their original value that’s that that will be if that happens that will be the and I think it will happen um that’ll be the biggest asset value increase in history I think

Sort of pricing a lot of pundits talk about the pie and losing share or getting share and uh but how do you guys look at pricing versus the BDS or the ice vehicles or does that not come into the equation uh sorry to ask about prices again thank you

No it’s really just like you know we’re every day we’re getting a daily real-time update of how many cars were ordered yesterday how many costs were produced yesterday we must have I if there’s a company that’s got more real-time data than than Tesla I you know I’m not sure I’m not sure

There’s any company on Earth that has better real-time data than than Tesla except maybe SpaceX starlink you know so um because like we don’t have to you know for the other car companies they will uh make the cars send them to the dealers then the dealers will sell the cars and

You know and then it takes quite a long time for them to get the data back to actually figure out how many cars are sold um whereas we know how many cars were ordered yesterday throughout the world um so so our fingers on the pulse is real time and does not have latency

Whereas the other uh car companies have a lot of latency in their data as does the government the government has a lot of latency in their data so so we’re just looking at and saying Okay um you know what what is it uh take to achieve a clearing price for our vehicle production

Um and then we make a pricing change and we see what happens immediately um and adjust course so we’re adjusting course and we’re thinking about it literally every day seven days a week um every seven days a week I look at that email and so does the rest of the

Team and we we try to make the least dumb decision that we can um you know on balance I think our decisions are pretty good um you know sometimes they’ll be you know down but on average they’re I think better than the rest of Industry yeah

Just just to add on the question about EV market share or ice um this comes up a lot I think a lot of the public debate is around this concept of EV market share you know we don’t look at it that way maybe look at it as

A measure of course it’s the car market not the EV market and actually the the mission of the company requires internal combustion engine cars to be switched over to electric vehicles so that’s what we pay attention to yeah yeah I’ve said that last time too you just we gotta you

Guys got to stop looking at it as the evbb market is how many cars are we selling just start looking at it that way you know it’s gonna you know I’ve said this for a long time we’ll look back I don’t know assuming civilization’s still around in 20 years

Um but we’ll look back on internal combustion engine Vehicles the same way we look back on external combustion engine Vehicles which like a steam engine this demands an external combustion engine vehicle and you know there’s still a few around they’re kind of quirky and you know kind of cool

Collectors items uh that’s that’s how gasoline cars will be in the future thank you and let’s go to Colin Rush from Oppenheimer Colleen go ahead go ahead and unmute please thanks so much guys can you talk a little bit about how much of the actual cost structure is variable

Um you know on these vehicles and if you could give us a range on plus or minus the the lithium cost within those contracted volumes uh that you’re seeing uh well I think I’ll I’ll really love to have a crystal ball here but we don’t have it um

Depending on what time scale you’re looking at um the most of the car is variable um so variable so and probably I if I would guess I I think we will see improved costs from suppliers um you know um yeah I think we will yeah that that is our expectation

Yeah and we’re already starting to see that uh Elon I think you mentioned before we anticipated a crash in the lithium prices and and some of that has flowed through by way of lithium carbonate reductions uh into battery cost um and the same thing will happen with lithium hydroxide the length of the

Supply chain matters also because what we’re talking about is is very far Upstream so by the time it you know makes it into the battery or it’s been a car it’ll be several months but you know beyond just the commodity pricing as Zach mentioned earlier we’re also very

Focused on other metrics that make production very efficient so for example detention and emerge uh air expedites I think our air expedites are down 90 detention and emerge is down 93 uh from the Peaks that’s that can be hundreds of thousands of dollars per vehicle so we’re sort of attacking all vectors uh

And and becoming very efficient okay um and then my follow-up is really around um stationary storage Demand on the utility scale I mean obviously there’s a gigantic queue uh for you know interconnection in the US and can you talk about you know the volume of quotation you’re seeing at this point

Around a stationary storage uh for that Renewables queue on a global basis and and how how much of that is converted into actual sales Andrew you want to take that um I mean it yeah I don’t that’s also not exactly how we we look at it really um

We’re not like yeah we’re not engaged in the interconnection queue like we’re focused on ramping mega pack as as quickly and efficiently as we can and we have you know visibility into the pipelines of you know a variety of different renewable energy and and just pure stationary storage

Developers and we also develop our own projects and we’re mostly just going we’re being selective and trying to pick the products that projects that best fit our mission and our objectives yeah there’s again this is not a protocol but we will have something I mean this we’re making

Improvements on on on many fronts including magpac so I think some of those improvements will uh improve the speed of which you can connect the mega packs to the grid thank you uh the next question is from Mark Delaney from Goldman Sachs yes good afternoon thank you for taking

A question um do you still see two million units as an upside case for volume this year and is the gating factor for reefing 1.8 million or 2 million units in 2023 still supply chain as was mentioned on your last conference call or is it more about demands at this point

Well you know if if you have a crystal ball you can learn me back to the crystal ball situation um uh these These are volatile times um from a production standpoint if things go well we’ve got a shot at two million Vehicles this year

Um but that is the upside case uh and uh we feel comfortable with 1.8 um and uh we’ll have to see how this year unfolds that’s awful thanks and then the company had spoken at the investor day and it’s for the past conference calls about uh opening up it

S vehicle charging Network can you speak to some of the feedback you’ve been getting from both Tesla owners and non-tesla owners and uh how the uh the ramp of the charging Network May uh progress from here thanks Drew you want to take it in

Um yeah so as as you may have seen we opened our first B far V4 Post in Europe and and um and our Magic Dog posts in in North America in q1 um and that is you know indicative of the direction we’re heading with you know Universal compatibility for all

Vehicles of you know no matter where the charge port is ETC uh in all major markets and we’re going to continue to roll out uh those sort of improved offerings as we build new stations um you know we’re always balancing like our ability to serve our own customers with our ability to serve

New customers when doing that um I think we’ve been able to balance it rather well for example in Europe 50 of all of our of our super Trucking stations are open to all EVS um and we’ve been able to do that without any increase in wait times at all for

Anybody so we’re going to continue to take a similar approach as we do this in North America and China over the coming quarters okay thank you very much let’s go to Road latch from Wolf research hi everybody um I just wanted to First just follow up on your comments in your letter about

Leveraging your cost position as others struggle with unit economics and also taking into account the lifetime Revenue uh actually in a way that most other automakers will never see uh just given your service Network and supercharging and other attributes can you just maybe give us a sense of how

Far you’d be willing to take this are there brackets around the uh range of initial margin that you’d be comfortable with and uh and again any any color that you might provide on the updated range of margins that you’d expect in the in the auto business

I think we may answer this question or try to answer this question a few times but it’s difficult to say what the the module will be um it depends on how on what if what the macroeconomic environment is is like you know so um you know for example if the FED were

To lower the rates uh that would be super helpful for demand um if they if they raise them that’s that’s you know that just raises the interest cost that buyers have to pay for to buy a car so it reduces affordability and then therefore reduces demand um uh

So it’s but if if you know like if we look past say this year or like could go you know sometime next year middle next year so I think things are looking really I think it likes it well you know we’ll best throw if there’s some you know major geopolitical

Wild card that that turns up but in the absence of that I think I would be very optimistic about uh your middle of next year and the next year since I just had elon’s comments um just two other points you know what what what’s really important for us this

Year in addition to just managing the day-to-day of the business but is also investing in as Elon mentions about 2024 and 2025 will look like and so you know using the cash generated from the sale of products today and reinvesting that this is very important

For us I I think that what happens to margins over the next couple of quarters only matters in the context of of what that means for our ability to reinvest into 2024 and 2025 and and we have a lot of space before that become something that we have to revisit our investment plans

And so you know we’re gonna we’re planning to keep the business healthy but I I just want to caution folks about reading too much into what happens over the near term here because we’re very focused as a company on making sure that when we exit this macroeconomic situation this company is positioned in

The best possible way yeah exactly just uh to elaborate on on that point though that Revenue the long-term lifetime Revenue that you’re targeting from each vehicle is massive so if you took that to the extreme you it would seem that you’d be comfortable with a relatively low initial margin am I but

Misinterpreting that or is that that exactly right and and just exactly right okay and the um normally in in uh in a recession when consumers feel less financially secure actually price elasticity deteriorates just based on your pulse taking of the consumer do you have a view on uh elasticity of demand uh well

Uh I can’t emphasize enough the the whole just fundamental question of affordability um for the for most people the their ability to buy a car is a function of of can they make the monthly payment or not um and you know so like I said if if

Interest rates are really high like they are right now um then um you know in in some cases people can’t get a loan at all you know so it’s it’s a and I think probably banks are are pretty uh not not leaning forward in providing loans I I expect these days so uh

You know so that’s that’s a bit but like that there there is there is a quite a powerful story here when you uh you know going back to something that was alluded to a moment ago um or mentioned a moment ago that Tesla is in a uniquely strong strategic position

Um because we’re the only ones making cars that technically we could sell for zero profit um for now and then yield actually tremendous economics in the future but no through autonomy no one else can do that I I’m not sure how many people will appreciate the profundity of what I’ve

Just said but it is extremely significant thank you let’s go to Adam Jonas from Morgan Stanley hi everybody um so first Elon good luck with tomorrow’s launch at Boca Chica break a leg we definitely we can’t have too much luck in the rocket business that’s for sure incredible

Um so now that you’ve gotten to know the Twitter architecture kind of intimately well over the past six months uh what can you tell Tesla stakeholders about how an x.com or super app could be potentially accelerative to Tesla’s business model uh well I don’t know I guess I could make it

Potentially make it easier to buy cars um so there we are regarding some out of topic here uh because this is okay all right you know I think there’s some benefit I think probably there’s some benefit yeah I get it Elon um so just as a follow-up on manufacturing I I you’re

A student of history and you’ll know that back uh in 1913 Henry Ford introduced the merving assembly line in Highland Park Michigan and the price of a Model T which would had already you know been undercutting cars around the time fell another 70 or 80 percent and hundreds of rival car

Companies went bust yeah I’m wondering if if history is repeating itself here Elon and that the recent pattern of cuts with you is way ahead of the cost curve compared to competition or is this it seems like it’s a calculated strategy not not just not just in reaction to

Competition or changing Supply demand in the market but you’re you know could we could we catalyze some darwinian forces in the EV Market well I mean we’re not trying to say take pricing actions in order to be deliberately uh to deliberately undermine competitors or anything like that we really don’t think about

Competitors that much we just look at you know do people like our cars how can we make the product better uh can they afford our cars um and uh you know the sort of the things like improving service and and whatnot um but but actually we do have this you uh

Unique strategic advantage that that we haven’t we’re making a a car that uh important autonomy pans out and we think it will um where that that asset is actually will be worth a hell of a lot more in the future than it is now so it is

Technically possible to sell it at zero profit but still have the net present value of future cash flows associated with that asset basic very significant yeah and service and charging and insurance and all these other ongoing revenue streams that other companies don’t have yeah certainly we want all EVS to succeed too

We just want to say that we’re not like some malicious attack to try to describe definitely not we’re like opening up superchargers we’ve made our patents available for free so it’s like we’re trying to be helpful here you know so um we’re not trying to we’re not out to

To destroy competitors or anything like that we’re trying to help competitors frankly um in any way that we can thank you let’s go to Dan Levi for from Barclays hi uh good good evening thank you um first question uh your ramping Supply at Austin and Berlin so I wanted to

Understand just how critical it is to further increase volume at those plants just to get the vertical integration benefits in the face of the sort of Market with some demand questions and just broadly should we generally I mean historically you’ve been operating at the pace at which your supply allows you

To produce as opposed to gauging to demand should we generally expect that you’re going to continue to produce at your whatever the Max Capacity that you’re allowed within your supply constraints regardless of what the broader economic environment is just to continue to get that volume out there

That that is yes I mean there’s there could be like obviously a macro shock that is so severe that you know people just stop buying cars for some reason um but in the absence of that um we will continue to grow uh output at a rapid clip

Great thank you and then um just on the the margins associated with Austin and Berlin you you mentioned Austin number one to have the margin drag until you reach intended volumes I don’t know if you can disclose what those volumes are then maybe you could just remind us of

What the margin profile of Austin and Berlin will look like versus Shanghai once you get uh the vertical integration benefits in place well probably won’t have to be quite as good as Shanghai is hard to you know as a very efficient cost structures um obviously our lowest cost structure in the world

Um but we do expect to be uh make significant improvements in Austin or Berlin um and continue to make improvements in Fremont as well so um we increase our localization efforts so that will then drive down uh our days on on hand requirements we’ve made 10 quarter or quarter you know uh

Improvement in days are on hand uh so we’ll continue that as a localization improves okay thank you very much and our final question comes from Philly bushwa from Jeffries um yes good evening thanks for taking the question um it’s slightly longer term I completely agree with your comments that

We should look at Tesla in terms of you know auto market share on the Ed market share but I’m just wondering as you build up the market share globally is there a limit to the direct selling business model as you practice it and should we think about going forward you

Need to look into the agency or using importers to basically develop market share more smoothly I guess globally and so in other words no is there Canada a fell by date for the Direct business model as you as you practice it today I seems to be working well so far um

We hear different feedback from customers who miss the human interaction or unhappy with the service and I’m just wondering if uh if you’re seeing some growth pains in there that would lead you to change you’re not you’re not seeing that well I mean there are since we we’re

Always going to have some Growing Pains where you know at times and it depends on which geography we’re you know we’re talking about where sometimes service is behind sales sometimes it’s ahead of sales um you know this is uh I mean Tesla’s growing I believe faster than any company in history that has

That has that makes a large complex manufactured object so um you know there’s these are you’re trying to Max it’s always difficult to match exponentials um so uh but but I think it is helpful to have the feedback loop with with a service because that means we feel the

Pain of service and and then we can uh adjust the design to make the car need less service um and I think that gives us a the the right incentive structure um like because the the best service is no service the car doesn’t break um and you know whereas if you have say

A dealer Network that is Reliant upon Service as a revenue then you arguably have a misalignment of incentives uh where they’ve you know they’re making money on service but actually we want to you know the best thing for the consumer is the car doesn’t need servicing

So yeah and and that’s fine if I can follow up have you have you worked out I mean for many of your traditional competitors a fair amount of profits for them comes from selling spare parts and servicing you don’t have that in your in your profit structure and have you have you

Walked out yeah the deficit you have compared to your peers yeah actually um I mean this one’s uh something I could work on about for a while because really people didn’t uh understand the the best short-selling argument against Tesla for the longest time was the fact that Tesla does not have an existing

Fleet and that the Auto industry the reason incumbents uh succeed and newcomers fail uh the biggest reason is that the incumbents have a large Fleet and they’re able to sell new cars at close to zero margin and then sell spare parts at a very high margin sort of you

Know razors and Blades type thing um and so the only way to actually succeed for a newcomer to succeed is to have a product that is so compelling that people are willing to pay a premium um over the incumbent product um and in the absence of electrification

And autonomy I don’t think a newcomer can succeed thank you very much everyone unfortunately that’s all the time we have uh for this quarter uh we’ll see you again in three months from now thank you Thank you

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