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Tesla Q2 2023 Earnings Transcript

Index	Score	Sentiment	Transcript
1	+85	Strong Positive	In Q2 we achieved record vehicle production and deliveries, and record revenue of about $25 billion in a single quarter.
2	+70	Positive	And Model Y became the bestselling vehicle of any kind globally in Q1, surpassing the likes of Corolla and Golf.
3	0	Neutral	So, it was the number one vehicle of any kind, including vehicles that are sold at a far lower price.
4	0	Neutral	This is, I think, an incredible achievement by the Tesla team, and just a huge thank you to our customers for their support.
5	0	Neutral	And this came in spite of high interest rates and a lot of macro uncertainty.
6	0	Neutral	And nonetheless, we managed to achieve operating margin of about 10%.
7	0	Neutral	We continue to target 1.8 million vehicle deliveries this year.
8	-30	Negative	Although, we expect that Q3 production will be a little bit down because we’ve got summer shutdowns to -- for a lot of factory upgrades.
9	-20	Neutral	So, just probably a slight decrease in production in Q3 for sort of global factory upgrades.
10	0	Neutral	In the long-term, autonomy we think is going to just drive volume through the ceiling next level.
11	0	Neutral	And our sort of future robotaxi products -- dedicated robotaxi products we think have like quasi-infinite demand.
12	0	Neutral	The way we’re going to manufacture robotaxi is, is also itself a revolution.
13	0	Neutral	So, it’s revolutionary design made in a revolutionary way.
14	0	Neutral	It’ll be by far the highest units per hour of any vehicle production ever.
15	0	Neutral	So, very excited about that.
16	+20	Neutral	With respect to Autopilot and Dojo, in order to build autonomy, we also need to train our neural net with data from millions of vehicles.
17	0	Neutral	The more -- I mean, this has been proven over and over again.
18	0	Neutral	The more training data you have, the better the results.
19	0	Neutral	And, I mean, there are times where we see basically -- in a neural net, basically it’s sort of at 1 million training examples, it barely works; at 2 million, it slightly works; at 3 million, it’s like wow, okay, we’re seeing something, but then you get like 10 million training examples, it’s like -- it becomes incredible.
20	0	Neutral	So, there’s just no substitute for a massive amount of data.
21	0	Neutral	And obviously, Tesla has more vehicles on the road that are collecting this data than all of the companies combined by, I think, maybe even an order of magnitude.
22	0	Neutral	So, I think we might have 90% of all -- or a very big number.
23	0	Neutral	So, the success in AI endeavors is a function of talent, sort of unique data and computing resources.
24	0	Neutral	And we have outstanding capabilities in all three arenas.
25	0	Neutral	And I really just don’t know how anyone could do what we’re doing, even if they had our software and had our computer, if they did not have the training data.
26	+30	Positive	So, speaking of which, our Dojo training computer is designed to significantly reduce the cost of neural net training.
27	0	Neutral	It is designed to -- it’s somewhat optimized for the kind of training that we need, which is a video training.
28	0	Neutral	So, we just see that the need for neural net training -- again, talking -- speaking of quasi-infinite things, is just enormous.
29	0	Neutral	So, I think having -- we expect to use both, NVIDIA and Dojo, to be clear.
30	0	Neutral	But there’s -- we just see demand for really vast training resources.
31	0	Neutral	And we think we may reach in-house neural net training capability of a 100 exaflops by the end of next year.
32	+20	Neutral	So, to date, over 300 million miles have been driven using FSD beta.
33	0	Neutral	That 300 million mile number is going to seem small very quickly.
34	0	Neutral	It’ll soon be billions of miles, then tens of billions of miles.
35	0	Neutral	And FSD will go from being as good as a human to then being vastly better than a human.
36	0	Neutral	We see a clear path to full self-driving being 10 times safer than the average human driver, so.
37	0	Neutral	And between Autopilot, Dojo computer, our inference hardware in the car, which we call sort of Hardware 3, 4, but it’s really dedicated.
38	0	Neutral	It’s a high efficiency inference computer that’s in the car and our Optimus robot, Tesla’s clearly at the cutting edge of AI development.
39	+25	Positive	With regard to our Cybertruck, we continue to build our release candidates of the Cybertruck on our final production line in Austin.
40	0	Neutral	I’m actually here in Austin at the Gigafactory.
41	+5	Neutral	This is the first truck that we’re aware of that will have four doors over a six foot bed and will fit into a 20-foot garage.
42	0	Neutral	So, it’s sort of biggest on the outside, but it’s even bigger on the inside.
43	0	Neutral	So it’s -- I think that’s a -- one of the elements of good design is it should feel bigger on the inside than it looks on the outside.
44	0	Neutral	And this is no small car, but we really cared about the exterior dimensions of the Cybertruck down to the last millimeter.
45	0	Neutral	So just -- we try to get right in the middle of the Goldilocks zone, not too big, not too small and then really maximize the utility of the volume.
46	0	Neutral	And we can’t wait to start delivering it later this year.
47	0	Neutral	Some other highlights.
48	+10	Neutral	Our global Supercharging network now stands at over 50,000 -- roughly 50,000 connectors and over 5,000 locations.
49	0	Neutral	As I think a lot of people are aware, the Tesla Charging Standard, which we made open source and it’s now called the North American Charging Standard.
50	+50	Positive	We’re deeply honored that Ford, GM, Mercedes and many other OEMs have signed up to use our connector and gain access to our charging network.
51	0	Neutral	We strongly believe in helping other car companies to accelerate the EV revolution and just trying to do the right thing in general.
52	0	Neutral	So, that’s the goal there.
53	+60	Positive	Then something I think, I want emphasize, like very strongly, this is a very important point is that Tesla -- just as with the North American Charging Standard, although we’re not license -- in that case not licensing, we’re just making it available, but we are very open to licensing our full self-driving software and hardware to other car companies.
54	+10	Neutral	And we are already in discussions with -- early discussions with major OEM about using Tesla FSD.
55	0	Neutral	So, we’re not trying to keep this to ourselves.
56	0	Neutral	We’re more than happy to license it to others.
57	+30	Positive	And lastly, our new lithium refinery and cathode facility are progressing well.
58	+10	Neutral	In conclusion, we continue to focus on making as many cars as we can, while maintaining healthy financials.
59	+50	Positive	Our artificial intelligence development is obviously entering a new era and we’re incredibly excited about what’s to come.
60	+60	Positive	Our other businesses such as Megapack, Supercharging service and whatnot, all started to become a meaningful contributor to overall profitability this quarter.
61	+5	Neutral	And then lastly, I’d just like to profusely thank all of our employees who are making a lot of extra effort during uncertain times.
62	0	Neutral	Thank you very much for your hard work and the impact you’re making.
63	0	Neutral	Martin Viecha: Thank you very much, Elon.
64	0	Neutral	And I think Zach has some opening remarks as well.
65	0	Neutral	Zachary Kirkhorn: Yes.
66	0	Neutral	Thanks Martin.
67	+70	Positive	As Elon mentioned, Q2 was another record quarter of production and deliveries, as well as records in profit for our energy and services and other businesses.
68	0	Neutral	Congratulations again to the Tesla team on the continued progress.
69	0	Neutral	As we navigate through a period of economic uncertainty, rising interest rates, volatility in consumer confidence and regulatory change, I want to comment on our financial approach.
70	+15	Neutral	First, the single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the long-term value of the business.
71	+20	Neutral	This includes increasing spending on AI related technologies such as full self-driving, Optimus and Dojo, as well as new products such as Cybertruck, our next generation platform and the Semi, as evidenced by the continued growth in our R&D spend.
72	+15	Neutral	This also includes continuing our investments in capacity expansion, not only in our vehicle factories, but also our Supercharging network, service, internal applications, and battery processes, as we continue with meaningful capital expenditures to lay this foundation for the future.
73	+35	Positive	Second, we continue to work towards our goals of maximizing volumes on both, our vehicle and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments.
74	+25	Positive	This requires a strong focus on per unit COGS reductions in each of our key businesses, as well as working capital improvements on raw materials, work in process inventory and customer AR, all of which progressed appropriately in Q2.
75	+20	Neutral	If we look specifically at our automotive business, our gross margin showed a modest reduction and remained healthy, despite action taken to further improve vehicle affordability early in the quarter.
76	+70	Positive	We recognized – we realized per unit cost improvements in nearly every category, including material cost and commodities, manufacturing costs and logistics, while also continuing to rapidly increase the build rate in our Austin and Berlin factories.
77	+60	Positive	For our energy business, we improved margins and gross profit driven by cost reductions and deal economics, particularly with Megapack.
78	0	Neutral	As a reminder, storage volumes are typically volatile sequentially based on the types of projects and their specific revenue recognition milestones.
79	-10	Neutral	As we look forward to the rest of the year, I want to reiterate Elon’s comments on Q3 volumes driven by planned downtimes for factory upgrades.
80	-15	Neutral	These upgrades will also carry some amount of factory idle cost.
81	0	Neutral	However, we are working to minimize as much as possible.
82	0	Neutral	It’s also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term.
83	0	Neutral	Regardless, we continue to remain dynamic with a focus on fundamental efficiency and a long-term outlook.
84	0	Neutral	Congratulations again to everybody on a great quarter.
85	0	Neutral	A - Martin Viecha : Thank you very much, Zach.
86	0	Neutral	And let’s go to investor questions.
87	0	Neutral	The first question on licensing FSD we’ve already answered.
88	0	Neutral	So, let’s go to the second one.
89	0	Neutral	The second question is, what is the status of 4680 cells?
90	0	Neutral	How far are you from the specs you laid out on Battery Day?
91	0	Neutral	When do you expect to achieve what you laid out on Battery Day?
92	0	Neutral	Unidentified Company Representative: Yes.
93	0	Neutral	First, I’ll just start with a little bit of a production update.
94	+75	Strong Positive	So, in Texas, 4680 cell production increased 80% Q2 over Q1, and the team surpassed 10 million production cells produced here in Texas.
95	0	Neutral	So, congrats to the team for that.
96	+75	Strong Positive	Their focus on yield reduced our scrap bill by 40% quarter-over-quarter, and that resulted in a 25% reduction in cell COGS.
97	+65	Positive	Here in Texas, we’re preparing to launch our Cybertruck cell, which is 10% higher energy density than current production.
98	0	Neutral	That was accomplished through process and mechanical design optimization.
99	+40	Positive	As we scale Cyber cell production through the end of the year and early next, we should be in a comfortable place on cost per cell.
100	0	Neutral	Against our battery energy density targets, the Cyber cell is at our expectations on a like-for-like electrochemistry basis.
101	+30	Positive	We’re yet to integrate silicon or in-house cathode production, both reviewed on Battery Day, which do bring significant further energy density and cost improvements, but that is a topic for another day.
102	+40	Positive	Lastly, it is important to remember that most of what we focused on a Battery Day was the Tesla-engineered 4680 production system and the improvements we strove to achieve on equipment, factory density, capital cost and utility cost reduction, all of which we are realizing in our Texas scale up to date.
103	0	Neutral	Martin Viecha: Thank you very much.
104	0	Neutral	The next question is, can you talk more to the upcoming Tesla Energy products and how your thinking has evolved on the revenue model?
105	0	Neutral	Given Tesla’s AI capabilities, how do you see the long-term mix between hardware margin and recurring software margin from Autobidder as this segment accelerates?
106	0	Neutral	Unidentified Company Representative: We can’t comment on future product road map, but I can provide a quick energy Q2 update.
107	+40	Positive	Megapack continues to show strong demand globally with Lathrop ramping successfully to meet our contracted projects in 2023.
108	0	Neutral	As stated last quarter, Megapack margins are in a reasonable place, in line with our target – vehicle target margins.
109	+30	Positive	The second final assembly line at Lathrop is progressing on schedule, eventually doubling Lathrop capacity ahead of our full factory ramp in 2024.
110	+30	Positive	We have several exciting large projects in construction or nearing completion, including the KES project in Hawaii, the Riverina project in Australia, several products in California and one here at Gigafactory, Texas that we’ll tour today, actually.
111	0	Neutral	We want to thank our customers, utilities and grid operators for trusting us with these projects.
112	+55	Positive	On the Autobidder question, we continue to grow Autobidder contracts in wholesale markets like Australia, Texas, UK and California with over 6 gigawatt hours under Tesla’s dispatch next year.
113	+40	Positive	In the UK, our projects performed best in the industry in Q2.
114	+20	Neutral	Autobidder does have software margins and is an enabler for hardware sales, but it’s a relatively small contributor to revenues, given how much deployment growth on the Megapack hardware side is occurring.
115	+40	Positive	It’s important to remember that these large projects – these large capital projects have lifetimes of 20 years of recurring revenues on an annualized basis relative to upfront CapEx are small.
116	0	Neutral	On the residential side, we have some fun things happening.
117	+25	Positive	We recently surpassed 0.5 million Powerwalls installed.
118	+20	Neutral	Just this week, we are launching Charge on Solar, which allows Tesla Powerwall and vehicle customers to charge their vehicles using their excess solar and drive only on the sunshine that hits their roof.
119	0	Neutral	Yesterday, we began paying customers in Texas for participating in our virtual power plant to provide grid support to ERCOT.
120	+75	Strong Positive	We expect these credits to lower our median customer’s annual bill by a third and to increase these credits over time as ERCOT expands market access.
121	+25	Positive	And today, we are expanding Tesla electric enrollment to new Model 3 owners in Texas, followed by all Texas vehicle customers over the rest of the quarter.
122	-30	Negative	Unfortunately and somewhat similar to Tesla Insurance, bringing Tesla electric and BPP capabilities to our customers requires working through a fractured regulatory environment on a jurisdiction-by-jurisdiction basis.
123	0	Neutral	In the long run, the value of residential energy software and hardware will be driven by the level of market access that utilities, market operators and regulators permit.
124	+60	Positive	For Powerwall that’s eligible to provide the full stack of energy services, like peaker capacity and system buffering, such as in Australia, we can more than double the value of ownership relative to a typical system today.
125	0	Neutral	Martin Viecha: Thank you very much.
126	0	Neutral	The next question is, could you quantify the benefits to COGS per unit from the IRA battery manufacturing incentives; and secondly, battery raw material declines year-to-date?
127	0	Neutral	Zachary Kirkhorn: All right.
128	0	Neutral	I can take that.
129	0	Neutral	On the first part of the question for IRA manufacturing incentives, we provided previous guidance that we expect these to be for the course of this year in the range of $150 million to $250 million per quarter.
130	0	Neutral	We are staying within that boundary as we guided previously, so that was the case in Q2 as well.
131	0	Neutral	I will note, and I think we’ve mentioned this before, that this includes a 50-50 sharing of credits for qualified cells from our long-term battery partner, Panasonic.
132	0	Neutral	On the commodity side, we are continuing to see improvements there, as we’ve discussed previously.
133	0	Neutral	Lithium is the most notable improvement so far.
134	0	Neutral	I think I commented on this on the last call, because typically, we see this coming about a quarter before it actually is realized in our financials.
135	0	Neutral	And also just as a reminder, we’re not fully exposed to the price of lithium.
136	+10	Neutral	Our supply chain team has done a terrific job in partnership with another – a bunch of other companies to put in place some long-term agreements here, but we do have some exposure that moves up and down.
137	0	Neutral	We’re also seeing benefits in aluminum and steel, which I think is great.
138	0	Neutral	Not as large as the lithium impacts, but they contribute nonetheless.
139	0	Neutral	So, if we add up the total impact of this in Q2 relative to prior quarter, it’s about the same size and magnitude as the IRA benefits that we also received.
140	0	Neutral	Just to put this in context, as you look at COGS per unit sequentially from Q1 to Q2, I think there’s two things to keep in mind there.
141	+1	Neutral	The first is that our SX mix for deliveries increased quite a bit from Q1 to Q2.
142	0	Neutral	So, as you think about fundamental cost reductions, it’s important to adjust for that.
143	-10	Neutral	And then secondly, as we continue to work on reducing our Austin and Berlin cost, which we did quite a bit of that from Q1 to Q2, these factories are still slightly above Model Y production costs elsewhere.
144	0	Neutral	And in the quarter, our mix of Austin and Berlin related builds increased.
145	0	Neutral	And so, that’s something to consider as you model out the impact on – from Q1 to Q2 in terms of COGS per unit.
146	0	Neutral	I do want to ask Karn if there’s anything else on the commodity side or just more generally, you want to add here?
147	0	Neutral	Karn Budhiraj: Yes.
148	0	Neutral	As you mentioned, Zach, we’ve naturally been a little bit hedged from the lithium position because of the long-term contracts we have in place.
149	+60	Positive	But we have seen reduction in pricing across the board for all commodities that specifically go into batteries such as nickel, cobalt and graphite.
150	-25	Negative	And the reductions in pricing translate into thousands of dollars when you look at it from a per-vehicle impact.
151	+65	Positive	We’re taking advantage of the historically low commodity pricing and certainly [Indiscernible] to kind of extend some of those fixed price contracts through the end of the decade.
152	0	Neutral	So it’s a playbook that we’ll continue to kind of go back to as we look to the future.
153	0	Neutral	Martin Viecha: Thank you.
154	0	Neutral	The next question on FSD.
155	0	Neutral	Have you considered allowing FSD transferability as a lever to allow existing customers to upgrade to a new Tesla instead of being locked into an existing car due to the price of FSD?
156	0	Neutral	Elon Musk: Yes.
157	0	Neutral	This is a question we get asked a lot.
158	0	Neutral	So, we’re excited to announce that for Q3, we will be allowing transfer of FSD.
159	0	Neutral	This is a onetime amnesty.
160	0	Neutral	So, it needs to be -- you need to take advantage of it in Q3, but -- or at least place the order in Q3 within reasonable delivery time frames.
161	0	Neutral	So yes, I hope this makes people happy.
162	0	Neutral	This is a onetime thing.
163	0	Neutral	Martin Viecha: Right.
164	0	Neutral	The next question, when will we give more information about the Cybertruck orders, estimated delivery schedules, pricing and specifications?
165	+50	Positive	Elon Musk: Demand is so far off the hook, you can’t even see the hook.
166	0	Neutral	So, that’s really not an issue.
167	0	Neutral	I do want to emphasize that the Cybertruck has a lot of new technology in it, like a lot.
168	0	Neutral	It doesn’t look like -- it doesn’t look like any other vehicle because it is not like any other vehicle.
169	0	Neutral	So -- and the production ramp will move as fast as the slowest and least likely elements of the entire supply chain and internal production.
170	0	Neutral	So, I wouldn’t expect -- I hope it’s smooth.
171	0	Neutral	We’re certainly better at production ramps that -- we’ve got a lot of experience with the production ramps.
172	0	Neutral	But first order approximation, there’s like 10,000 unique parts and processes in the Cybertruck.
173	0	Neutral	And if any one of -- it will go as fast as the least lucky, least well-executed element of the 10,000.
174	0	Neutral	So, it’s always difficult to predict the ramp initially, but I think we’ll be making them in high volume next year, and we will be delivering the car this year.
175	0	Neutral	Martin Viecha: Thank you.
176	-50	Negative	The next question is critics of Gigacasting contended that process makes vehicles harder and more costly to repair, essentially pushing costs on to the customer.
177	0	Neutral	Can you share some details about the initial repair experience with Gigacast vehicles?
178	0	Neutral	Elon Musk: That must be why everyone’s copying us.
179	0	Neutral	Lars Moravy: Thanks, Elon.
180	0	Neutral	This is Lars.
181	0	Neutral	I mean, that’s like simply not true.
182	0	Neutral	There’s a misconception that traditional bodies are easy to repair, but they are made up of multiple materials and multiple joining methods.
183	0	Neutral	Spot welds and rivets have to be drilled out.
184	0	Neutral	Panels and structural adhesives have to be chiseled out.
185	0	Neutral	Dried adhesive has to be removed, stains, cut, blah, blah, blah.
186	0	Neutral	Elon Musk: It’s a crazy patch of a quilt.
187	0	Neutral	Lars Moravy: Yes.
188	0	Neutral	And so putting that back together means time and money.
189	+45	Positive	Using an example of replacing a rear cast rail in the Model Y, to do that versus like what we replaced it with from Model 3, it’s 10 times cheaper and 3 times faster to do it with the cast rail.
190	+10	Neutral	Design team works with our collision repair team since we’re a closed loop on this with insurance, and we design specific parts that make it easier and faster to repair.
191	+20	Neutral	And we have an incentive to do that because we have our own insurance and our own body shops.
192	+20	Neutral	We expect that we’ll continue to do this, and collision repair will continue to become cheaper and faster over time.
193	0	Neutral	And we already make this available to all body shops or our Tesla-approved body shop training.
194	+5	Neutral	Elon Musk: Yes, closing loop on collision repair and factoring that into design is a big deal.
195	0	Neutral	Lars Moravy: Crucial.
196	0	Neutral	I don’t think anyone else can do it with that ecosystem that we have, so.
197	0	Neutral	Elon Musk: Yes.
198	0	Neutral	And we are actually able to change the details of the casting with inserts, and we actually do that all the time, so -- because the inserts actually wear out and need to be replaced anyway.
199	0	Neutral	So we can actually make design changes to the inserts and tweak the castings.
200	+20	Neutral	But the cast --basically cast rear body or front body is lighter, cheaper, better noise vibration, harshness, much easier to manufacture.
201	0	Neutral	It’s better in every way.
202	0	Neutral	And that’s why so many other car companies are copying us.
203	0	Neutral	Lars Moravy: Probably.
204	0	Neutral	Elon Musk: Well, they certainly put out a lot of press releases about it.
205	0	Neutral	I think it’s basically going to be how all cars are made in the future.
206	0	Neutral	Martin Viecha: Thank you.
207	0	Neutral	Next question, how many Optimus bots have been made?
208	0	Neutral	And when will they be able to start performing useful tasks?
209	0	Neutral	Elon Musk: 10 million.
210	0	Neutral	Yes.
211	0	Neutral	I think we’re around 5 or 6 bots.
212	0	Neutral	I think -- there’s -- we were -- look, 10, I guess.
213	0	Neutral	Depends on what -- how many are working and what phase.
214	0	Neutral	But it’s sort of -- yes, there’s more every month.
215	0	Neutral	There’s a lot of interesting things about the Optimus bot.
216	-75	Strong Negative	We found that there are actually no suppliers that can produce the actuators.
217	0	Neutral	There are no off-the-shelf actuators that work well for humanoid robot at any price.
218	0	Neutral	Unidentified Company Representative: Certainly not compelling.
219	0	Neutral	Elon Musk: Yes.
220	0	Neutral	There’s not a humanoid robot that can do something -- the things that human could do.
221	0	Neutral	So, we’ve actually had to design our own actuators that integrate the motor or the power electronics, the controller, the sensors.
222	0	Neutral	And really, every one of them is custom designed.
223	0	Neutral	And then, of course, we’ll be using the same inference hardware as the car.
224	+10	Neutral	But we are, in designing these actuators, designing them for volume production.
225	0	Neutral	So, they’re not just lighter, tighter and more capable than any other actuators wherever that exists in the world, but it’s also actually manufacturable.
226	0	Neutral	So, we should be able to make them in volume.
227	+10	Neutral	The first Optimus that is -- that will have all of the Tesla designed actuators, sort of production candidate actuators integrated and walking should be around November-ish.
228	0	Neutral	And then, we’ll start ramping up after that.
229	0	Neutral	In terms of when we’ll be able to do some useful things, like we’ll first be trying this out in our own factories and just proving out its utility, but I think we’ll be able to have it do something useful in our factories sometime next year.
230	0	Neutral	I would be -- yes, I’m pretty confident of that.
231	0	Neutral	So yes, it’s going well.
232	0	Neutral	I should say another cool thing about Optimus is that there’s -- just in the U.S. alone, there are 2 million amputees.
233	0	Neutral	And I was just talking to the Neuralink team.
234	0	Neutral	And by combining a Neuralink implant and a robotic arm or leg for someone that has had their arm or leg or arms and legs amputated, we believe we can give basically a cyber body that is incredibly capable, $6 million man in real life, before don’t want to cost $6 million.
235	0	Neutral	$60,000 man.
236	0	Neutral	This sounds impressive, but it will actually -- so that actually could be a really -- I think, would be incredible to potentially help people around the world and give them a robot arm or like that is as good, maybe long term better than a biological one.
237	0	Neutral	Martin Viecha: Thank you.
238	0	Neutral	The next question is, how has the order intake trended relatively to production levels during Q2?
239	0	Neutral	And how has it trended in the quarter-to-date period?
240	0	Neutral	Conceptually, how does Tesla decide when is it appropriate to reduce prices or at other sales incentives to increase demand?
241	0	Neutral	Elon Musk: Yes.
242	0	Neutral	I guess, demand has roughly tracked production.
243	0	Neutral	So -- which is what we aim for is -- we look at -- it’s something that we have that really -- I think no other carmaker has -- is that we have real-time demand and real-time production, like so seven days a week.
244	0	Neutral	I get an e-mail -- order generated e-mail, chose output from all factories and orders globally.
245	0	Neutral	So it’s like a real-time finger on the pulse of earth basically.
246	0	Neutral	And we adjust course according to what the mood of the public is.
247	0	Neutral	Buying a new car is a big decision for vast majority of people.
248	-50	Negative	So, any time there’s economic uncertainty, people generally pause on new car buying at least to see what happens.
249	0	Neutral	And then obviously, another challenge is the interest rate environment.
250	-50	Negative	As interest rates rise, the affordability of anything bought with debt decreases, so effectively increasing the price of the car.
251	-60	Negative	So when interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car.
252	-60	Negative	And this is -- at least up until recently, it was, I believe, the sharpest interest rate rise in history.
253	0	Neutral	So, we had to do something about that.
254	0	Neutral	If somebody’s got a crystal ball for the global economy, I really appreciate it, if I could borrow that crystal ball.
255	0	Neutral	Unidentified Company Representative: DM us.
256	0	Neutral	Elon Musk: Yes, exactly, DM me.
257	0	Neutral	It should be not on Twitter.
258	0	Neutral	So, I mean, one day, it seems like the world economy is falling apart and the next day, everything is fine.
259	0	Neutral	I don’t know what’s going on.
260	0	Neutral	It’d be totally fine.
261	0	Neutral	I wish I did.
262	0	Neutral	So, I mean that’s why I say like I was on Twitter, I posted like just really advising because I care a lot about the sort of small shareholders, especially ones that have stuck with us through thick and thin.
263	0	Neutral	I love you, guys.
264	-30	Negative	And so, we can’t control these macro shocks or the thematic depressive nature of the stock market.
265	0	Neutral	So, that’s why I recommend against margin loans in times that are turbulent.
266	0	Neutral	If times are not that turbulent, actually margin loan can be a smart move within reason.
267	-25	Negative	But we’re in, I would call it, turbulent times.
268	0	Neutral	Like I have very high confidence in the long-term value of Tesla.
269	0	Neutral	Like I see it -- I really see a path to a 10x -- call it a 5x increase in the value of the company, maybe a 10x.
270	0	Neutral	And -- but where things go along the way, the trials and tribulations and the mood of the markets, one cannot predict.
271	0	Neutral	And so, the old adage of buy and hold is right.
272	0	Neutral	For an investment advice, I’d say like identifying a company as products you love.
273	0	Neutral	See if they -- does it seem like they’ll continue to make good products or great products?
274	0	Neutral	Buy that stock and hold it.
275	0	Neutral	That’s it.
276	0	Neutral	You’ll win.
277	0	Neutral	The reason companies exist is to make goods and services, ideally great goods and services.
278	0	Neutral	They don’t exist for any other reason.
279	0	Neutral	They shouldn’t.
280	0	Neutral	So, that’s why you should buy stock of a company that makes good products and has a great future pipeline.
281	0	Neutral	It’s common sense, actually.
282	0	Neutral	And then generally, if you see -- if you provide your confidence about what that company’s products or services are, when the market panics, buy; and when the market is overly exuberant, you can sell.
283	0	Neutral	I’m not recommending you to Tesla, but yes, buy low, sell high.
284	0	Neutral	Warren Buffett actually, I think has a saying -- I’m paraphrasing him, but a publicly traded company is like imagine living in your house and some crazy manic-depressive guy comes and stands outside your house and yells property prices at you, and it’s a different price every day.
285	0	Neutral	But the house is still the same house.
286	0	Neutral	So, this is a stock market.
287	0	Neutral	Credit that to Warren Buffett.
288	0	Neutral	Martin Viecha: Thank you.
289	0	Neutral	Let’s go to the next question.
290	0	Neutral	With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts?
291	0	Neutral	And if so, when?
292	0	Neutral	Elon Musk: Where’s that crystal ball, again?
293	0	Neutral	If I may, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture.
294	0	Neutral	Autonomy will make all of these numbers look silly.
295	0	Neutral	I’d recommend looking at ARK Invest.
296	0	Neutral	I think their analysis is very good.
297	0	Neutral	It’s the best.
298	0	Neutral	And generally, Fintwit or the finance, Smart Finance people on Twitter, follow their accounts.
299	0	Neutral	They’re great.
300	0	Neutral	So that’s in my opinion where you’ll get the best info.
301	0	Neutral	So, I strongly believe Tesla is a big long-term investment.
302	0	Neutral	And don’t sweat when things go up and down.
303	0	Neutral	In fact, if the market panics, buy; if the market is a little too exuberant, sell at the time.
304	0	Neutral	But just generally, like -- I feel -- I’m confident we’ll deliver over long term, but can’t control short term.
305	0	Neutral	So -- and the autonomy is really where it’s at.
306	0	Neutral	I mean, Zachary?
307	0	Neutral	Zachary Kirkhorn: I fully agree with you.
308	0	Neutral	I mean, I think the only thing in the short term that matters is what I said in my opening remarks, which is are we generating enough money to continue to invest.
309	0	Neutral	And the portfolio of products and technologies that the technical teams are investing in right now, this is intense.
310	0	Neutral	It’s intense in terms of investment; it’s intense in terms of potential.
311	+75	Strong Positive	Elon Musk: Frankly, I think it’s ridiculous that we have positive free cash flow in a capital-intensive business, while investing massive amounts of money in new technology.
312	0	Neutral	That is super hard.
313	0	Neutral	Unidentified Company Representative: And vertical integration.
314	0	Neutral	It’s not even just like new products, but also... Elon Musk: Yes.
315	0	Neutral	We actually make our share... Zachary Kirkhorn: And so, at least from my perspective, what matters is continuing to generate the cash to invest.
316	+10	Neutral	That means continuing to be hyper focused on near-term cost reduction.
317	0	Neutral	Is everything we do in near-term cost reduction provides capital to reinvest?
318	+35	Positive	Hyper-focused on working capital management, which we’ve made quite a bit of progress there on the raw materials and with -- a set of that we’ve been very focused on accounts receivables as well to ensure that we can continue to reinvest the cash.
319	0	Neutral	This is what we’re focused on.
320	0	Neutral	And so, there’s a set of this that we control.
321	+20	Neutral	We have a pipeline of cost reductions.
322	+20	Neutral	We are getting tailwinds in the commodity space right now, as Karn mentioned, that’s helpful.
323	0	Neutral	Variability around average selling prices goes back to Elon’s point.
324	0	Neutral	We don’t control interest rates.
325	0	Neutral	We don’t control macro consumer sentiment.
326	0	Neutral	But we have an obligation to be responsive to that to ensure that we’re matching supply and demand and keeping things balanced.
327	0	Neutral	And so, this is how we’re managing the next handful of quarters.
328	0	Neutral	Soon enough, these quarters will be behind us.
329	0	Neutral	They won’t be part of the present value of future cash flows of the business.
330	0	Neutral	And so, we want to make sure we keep that view and make sure that the long term business is exactly the way that we want it to be.
331	0	Neutral	Martin Viecha: All right.
332	0	Neutral	Thank you very much.
333	0	Neutral	Now let’s go to analyst questions.
334	0	Neutral	The first question comes from Dan Levy from Barclays.
335	0	Neutral	Dan Levy: I wanted to start first with a question about your efforts in AI and Dojo.
336	0	Neutral	It’s pretty clear it sounds like you’re accelerating your focus.
337	0	Neutral	Can you maybe provide us with a sense of what the process is of refining a product?
338	0	Neutral	Is it more machines?
339	0	Neutral	And maybe you could give us a sense of when the payout starts to -- when you start to see the payout and what the resource outlay is, what should we expect on the OpEx front as a result of this?
340	0	Neutral	Elon Musk: Sorry.
341	0	Neutral	Are you saying how much are we going to spend on Dojo or…?
342	0	Neutral	Dan Levy: Yes.
343	0	Neutral	Elon Musk: R&D on Dojo?
344	0	Neutral	Dan Levy: Yes.
345	0	Neutral	Elon Musk: Well, we’re not going to be open loop on our Dojo expenditures.
346	-20	Neutral	So -- but I mean, I think we will be spending something north of $1 billion over the next year on -- through the next year, it’s well over $1 billion in Dojo.
347	0	Neutral	And yes, so I mean we’ve got a truly staggering amount of video data to do training on.
348	+20	Neutral	And this is another thing -- in order to copy us, you also need to spend billions of dollars on training compute.
349	0	Neutral	I mean, it’s like -- and it’s also hard to -- you need the data and you need the training computer.
350	0	Neutral	It’s like -- think, well, things needed to actually achieve this at scale toward generalized solution for autonomy, it’s -- this is one of the highest problems ever.
351	0	Neutral	You see a lot of AI companies doing LLMs and whatnot.
352	0	Neutral	I would say if they’re so great, why can’t they make a self-driving car?
353	0	Neutral	Because it’s harder.
354	0	Neutral	That’s why.
355	0	Neutral	So -- but I do think -- I think there’s some great AI companies out there.
356	0	Neutral	But just fundamentally, the staggering amount of data we’ve got to process, it’s got to be processed somehow.
357	0	Neutral	And custom silicon is the best way to do that.
358	0	Neutral	So that’s what Dojo is designed to do is optimize for video training.
359	0	Neutral	It’s not optimized for LLMs.
360	0	Neutral	It’s optimized for video training.
361	0	Neutral	With video training, you have a much higher ratio of compute-to-memory bandwidth, so -- whereas LLMs tends to be memory bandwidth choked.
362	0	Neutral	So that’s it.
363	0	Neutral	I mean -- but like I said, we’re also -- we have some -- we’re using a lot of NVIDIA hardware.
364	0	Neutral	We’ll continue to -- we’ll actually take NVIDIA hardware as fast as NVIDIA will deliver it to us.
365	0	Neutral	Tremendous respect for Jensen and NVIDIA.
366	0	Neutral	They’ve done an incredible job.
367	0	Neutral	And frankly, I don’t know if they could deliver us enough GPUs, we might not need Dojo, but they can’t.
368	0	Neutral	So they’ve got so many customers.
369	0	Neutral	They’ve been kind enough to nonetheless, prioritize some of our GPU orders.
370	0	Neutral	But yes, the sheer magnitude of video training -- because like I said, we’re not trying to just get as good as human.
371	0	Neutral	We want to get to 10 times better than human, maybe 100 times better than human.
372	0	Neutral	Right now, I believe there’s something on the order of 1 million automotive deaths per year.
373	0	Neutral	And then if you say permanent serious injuries, I think it’s probably closer to 10 million per year.
374	0	Neutral	And -- so it matters if you’re twice as good as human, 10 times -- like 10 times better than human would still mean 100,000 deaths and 1 million severe permanent injuries.
375	0	Neutral	So, it’s like, okay, we would rather be 100 times better.
376	0	Neutral	So there’s really -- it’s a march of 9s, and we want to achieve as perfect safety as possible.
377	0	Neutral	And that’s truly mind-boggling amounts of video and computer needed for that.
378	+15	Neutral	And then, I do think there’s other applications for Dojo, but we just desperately need it for video training.
379	0	Neutral	Zachary Kirkhorn: Just to add to what Elon mentioned.
380	0	Neutral	So, the numbers that he mentioned are between R&D spend and capital spend.
381	0	Neutral	And this is moving quickly.
382	0	Neutral	And so, we provide a three-year outlook on our capital expense.
383	0	Neutral	We are considering these expenses in that outlook.
384	0	Neutral	And as that moves up and down, we’ll continue to update our guidance in the Q. Elon Musk: Yes.
385	0	Neutral	I want to say, the fundamental rate limiter on the progress of full self-driving is training.
386	0	Neutral	That’s -- if we had more training compute, we would get it done faster.
387	0	Neutral	So that’s it.
388	0	Neutral	Zachary Kirkhorn: And it’s just difficult to predict how quickly we can execute on it.
389	0	Neutral	Dan Levy: Great.
390	0	Neutral	Thank you.
391	+20	Neutral	Just as a follow-up, I recognize there’s incredible macro uncertainty right now, but you’re sticking with your near term, your volume target of 50% CAGR.
392	0	Neutral	As we just think about sort of in the year ahead, Cybertruck is going to be some contribution.
393	0	Neutral	There’s going to be some help from further EV penetration growth.
394	0	Neutral	But to what extent are you willing to sacrifice on pricing to keep that 50% volume CAGR intact, or are you thinking differently about margins versus your prior commentary of willing to sacrifice on margins to get more share?
395	0	Neutral	Elon Musk: It’s not about getting more share.
396	0	Neutral	It’s just that you can think of every car that we sell or produce that has full autonomy capability as actually something that in the future may be worth as much as 5 times what it is today.
397	0	Neutral	Because average -- vehicle is doing like maybe 10 hours of driving a week.
398	0	Neutral	If sort of -- if this says 1.5 hours a day on average, that’s 10 hours a week-ish.
399	0	Neutral	If you’ve got on autonomous -- if the vehicle is able to operate autonomously and use either dedicated autonomous or partially autonomous like Airbnb, like maybe sometimes you allow your car to be used by others.
400	0	Neutral	Sometimes you want to use it exclusively just like Airbnb -- doing Airbnb with a room in your house.
401	0	Neutral	The value is just tremendous.
402	+10	Neutral	So, I think it’s sort of, it would be -- I think it -- it does make sense to sacrifice margins in favor of making more vehicles because we think in the not too distant future, they will have a dramatic valuation increase.
403	0	Neutral	I think the Tesla fleet value increase at the point which we can upload full self-driving and is approved by regulators will be the single biggest step change in asset value maybe in history.
404	0	Neutral	Martin Viecha: Thank you.
405	0	Neutral	Let’s go to the next analyst.
406	0	Neutral	The question comes from Emmanuel Rosner from Deutsche Bank.
407	0	Neutral	Emmanuel Rosner: Two questions from me as well.
408	0	Neutral	First, following up on the autonomy.
409	0	Neutral	So before you start launching these dedicated robotaxi vehicles, on existing vehicles, you’re improving FSD incrementally.
410	0	Neutral	What is your latest targeted timing to essentially release a non-beta version or an eyes-off version that would trigger much higher take rates?
411	0	Neutral	And would Tesla benefit from lowering the price of FSD?
412	-20	Neutral	Elon Musk: Well, obviously, as people have sort of made fun of me and perhaps quite fairly have made fun of me, my predictions about achieving full self-driving have been optimistic in the past.
413	0	Neutral	The reason I’ve been optimistic is -- it tends to look like is the -- we’ll make rapid progress with a new version of FSD, but then it will curve over logarithmically.
414	0	Neutral	So first, logarithmic curve looks like just sort of fairly straight upward line, diagonally up.
415	0	Neutral	And so, if you extrapolate that, then you have a great thing.
416	0	Neutral	But then because it’s actually logarithmic, it curves over, and then there have been a series of stacked logarithmic curves.
417	0	Neutral	Now, I’m the boy who cried FSD, but I think we’ll be better than human by the end of this year.
418	-50	Negative	That’s not to say we’re approved by regulators.
419	0	Neutral	And I’m saying that would be in the U.S. because we’ve got to focus on one market first.
420	0	Neutral	But I think we’ll be better than human by the end of this year.
421	0	Neutral	I’ve been wrong in the past, I may be wrong this time.
422	0	Neutral	And the price of FSD -- so the great thing is the price of FSD is actually very low, it’s not high.
423	0	Neutral	When you go back to what I said earlier, the value of the car increases dramatically if it is actually autonomous.
424	0	Neutral	$15,000 is actually a low price, not a high price.
425	0	Neutral	And we will offer -- and we -- I think we do sort of offer FSD as a sort of monthly subscription, although most people don’t know that.
426	-20	Neutral	So, I’d recommend like maybe trying it out as a monthly subscription so you don’t have to go with the $15,000 thing.
427	0	Neutral	But I think yes, yes -- obviously, if the car is worth several times its original price, $15,000 is actually a low price for FSD.
428	0	Neutral	Martin Viecha: And the next question comes from William Stein from Truist.
429	0	Neutral	William Stein: I’d like to ask about -- to stick on this AI topic.
430	0	Neutral	We’ve read with great interest the developments in Dojo today, and you’ve spoken about FSD, but you’ve also -- Elon, you started this x.ai company.
431	-20	Neutral	And for investors that think that there might be quite a bit of value in the AI features and products of Tesla, it might be concerning to see you pursuing another endeavor where AI is the focus.
432	0	Neutral	So can you talk about how x.ai might overlap, might perhaps compete with Tesla or in other ways, perhaps it enhances the value of what Tesla does?
433	0	Neutral	Elon Musk: Yes.
434	0	Neutral	I think it’ll actually enhance the value of Tesla.
435	0	Neutral	There were just some of the world’s best AI engineers and scientists that were willing to join a startup, but they were not willing to join a large sort of relatively established company like Tesla.
436	0	Neutral	So, it was like -- that’s actually how it got started.
437	0	Neutral	I was interviewing a few people and they’re like, no, we want to do a startup.
438	0	Neutral	I was like, and that’s well -- I couldn’t convince them to join Tesla.
439	0	Neutral	So -- so it’s like, okay, well, better to start up that I run than go work somewhere else.
440	0	Neutral	That’s kind of the genesis of xAI.
441	0	Neutral	And xAI is focused on sort of AGI.
442	0	Neutral	Yes.
443	0	Neutral	So it’s -- like I said, I think there will be some value that xAI brings to Tesla.
444	0	Neutral	Also some of the best -- for the very best people in the world, they really just want to work on interesting problem.
445	0	Neutral	So if you take, say, a material science group, really what convinced Charlie Colman to leave Apple, where he was very happy and well compensated, and both at -- in both -- where we think is the best material science group in the world, was that he got to work at both Tesla and SpaceX.
446	0	Neutral	He wasn’t willing to leave Apple if it was just Tesla, but he’s willing to do it if it is Tesla and SpaceX.
447	0	Neutral	So sometimes you get the best talent in the world if that’s the kind of thing you need to do.
448	0	Neutral	And that actually has been very beneficial to Tesla.
449	0	Neutral	William Stein: If I could squeeze one more mundane question in.
450	0	Neutral	I wonder if you think you can hit the 1.8 million unit number with current pricing, or do you anticipate needing to continue to lower prices because it seems like they’ve stabilized.
451	0	Neutral	The trends have stabilized in the last maybe 1.5 months.
452	0	Neutral	Should we expect sort of continued decreases or more stabilization for the rest of the year?
453	0	Neutral	Elon Musk: Sure.
454	+25	Positive	We have sort of -- we started the referral program, which I think will be quite effective.
455	0	Neutral	As Zach was saying earlier, we don’t control the macroeconomic conditions.
456	-50	Negative	So, if interest rates continue to rise, that reduces the affordability of cars.
457	0	Neutral	And for a lot of people, they’re really -- they’re just really breaking even every month.
458	-70	Negative	In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month.
459	-50	Negative	Credit card debt is looking scary.
460	0	Neutral	So, we just don’t control the market conditions.
461	0	Neutral	If market condition is stable, I think prices will be stable.
462	-50	Negative	If they’re not stable, then we would have lower prices.
463	0	Neutral	Yes.
464	0	Neutral	Martin Viecha: Thank you.
465	0	Neutral	Let’s go to Colin Rusch from Oppenheimer.
466	0	Neutral	Colin Rusch: As you’re building out Dojo and implementing what truly is going to be a highly complex set of software, can you speak to the maturity of the operating system and how much outsourced software you’re expecting to use in that system?
467	0	Neutral	Elon Musk: This is a custom software stack, so.
468	0	Neutral	But it is designed such that you can run at a high level, PyTorch and JAX.
469	0	Neutral	But then we have to customize it to actually run on a custom silicon.
470	0	Neutral	So, the software stack is a combination of open source software and then Tesla software all the way to the bare silicon, which is the case for the inference computer in the car.
471	0	Neutral	Colin Rusch: Okay.
472	0	Neutral	Thanks so much.
473	0	Neutral	That’s super helpful.
474	0	Neutral	And then can you speak to how you’re managing some of the geopolitical risks relative to your capacity expansion?
475	0	Neutral	Obviously, as you guys continue to grow at this rate, you’re going to be putting some folks out of business.
476	0	Neutral	And there’s going to be some impacts around regional economy.
477	0	Neutral	So, I just want to understand how you’re thinking about that in terms of some of your CapEx plans and how you’re managing some of those relationships with different countries and regions.
478	0	Neutral	Elon Musk: Well, this is a period of unusual geopolitical risk.
479	+30	Positive	So, I think we’re -- the best we can do is have factories in many parts of the world such that if things get difficult in one part of the world, we can still keep things going in the rest of the world.
480	0	Neutral	Martin Viecha: Thank you.
481	0	Neutral	The next question comes from Mark Delaney from Goldman Sachs.
482	+70	Positive	Mark Delaney: Tesla has been making progress reducing costs and did so again last quarter.
483	+36	Positive	Can you give an update on when you think automotive COGS per vehicle could be under the historical $36,000 per vehicle level?
484	0	Neutral	And what are the key puts and takes to get there?
485	0	Neutral	Zachary Kirkhorn: This is -- I think I was asked this in the past.
486	0	Neutral	This is very difficult to forecast.
487	0	Neutral	There’s a series of costs that we manage, the series of costs which we don’t control.
488	0	Neutral	And so particularly on the commodity side, where labor costs go, et cetera, it’s just hard to say.
489	0	Neutral	Elon Musk: Yes.
490	-10	Neutral	And we saw very inflationary -- like strong inflationary pressures for a while last year.
491	-50	Negative	And now -- which obviously makes it very difficult to reduce COGS.
492	0	Neutral	And now we’re seeing what seems to be deflationary pressures, certainly deflationary -- deflation isn’t pressure.
493	0	Neutral	But we’re seeing commodity prices dropping as was mentioned, as Karn mentioned a moment ago.
494	0	Neutral	I mean, I don’t know, what do you think?
495	0	Neutral	I mean, basically, the trends seem to be deflationary at the commodity level.
496	0	Neutral	Karn Budhiraj: Definitely.
497	0	Neutral	There’s that.
498	+50	Positive	And then there’s also the unit economics improve as volumes grow.
499	0	Neutral	That’s the other thing we’re seeing.
500	+25	Positive	As we’re becoming a bigger and better part of a lot of suppliers, the economies of scale come into play.
501	-15	Neutral	There’s equipment depreciation that comes into play, equipment that was commissioned 5 to 7 years ago.
502	0	Neutral	That used to be a part of the piece price.
503	0	Neutral	That’s completely amortized.
504	0	Neutral	So, we’ll see situation where piece price comes down because that equipment contribution has gone away.
505	+15	Neutral	And then just we continue to have this mentality of continuous improvement in terms of labor, reducing labor, improving automation, and just continue to get better at what we do.
506	0	Neutral	So we have seen -- I think every quarter, we have seen an improvement.
507	0	Neutral	Of course, the commodities spiked up and down.
508	0	Neutral	Just in general, the trend is towards being more efficient.
509	0	Neutral	Zachary Kirkhorn: Yes, I’m totally agreeing.
510	0	Neutral	Elon Musk: Yes, lithium prices were absolutely insane there for a while.
511	0	Neutral	Zachary Kirkhorn: Yes.
512	0	Neutral	And they’re recovering now.
513	0	Neutral	Karn Budhiraj: Cobalt -- the way it used to be.
514	0	Neutral	Zachary Kirkhorn: Yes.
515	0	Neutral	And we’re still early in the ramp -- well, not early in the ramp, but early in the cost down curve of Austin and Berlin.
516	0	Neutral	And so, it takes time to work the cost out it.
517	-10	Neutral	First, it’s a focus on ramp -- ramp, it brings cost down... Elon Musk: And quality costs… Zachary Kirkhorn: Yes.
518	0	Neutral	And then once that stabilizes, we can divert bandwidth to cost reduction.
519	+40	Positive	And so Austin and Berlin saw quite a decent amount of cost reduction on a fundamental basis from Q1 to Q2.
520	0	Neutral	We’ll continue to do that work that will be helpful.
521	0	Neutral	And so we’re just going to keep chipping away at it.
522	0	Neutral	Unidentified Company Representative: Packaging is a big element to that.
523	+10	Neutral	Elon Musk: Yes, logistics… Zachary Kirkhorn: Logistics is normalizing, which is great.
524	0	Neutral	Unidentified Company Representative: [Indiscernible] utilization, something that the team has been very focused on.
525	0	Neutral	So, every bit of it.
526	0	Neutral	Zachary Kirkhorn: Yes, and it’s hard... Elon Musk: Logistics is underappreciated.
527	0	Neutral	Yes, so sold saying goes like valves and with tactics as one with logistics.
528	0	Neutral	Unidentified Company Representative: Yes.
529	+50	Positive	And we’ve made tremendous improvements in cost in all fronts on expired costs.
530	+20	Neutral	We have done pre-pandemic expired cost levels now, and our goal is to go further down.
531	0	Neutral	Zachary Kirkhorn: Yes.
532	+25	Positive	So when we look at our progress from Q1 to Q2 on cost, the way that we look at internally, normalized for the impacts of mix shift with Austin and Berlin being a higher percentage of our mix, normalized for S and X being a higher percentage of our mix in Q2 versus Q1, the sequential cost reduction, it might be the largest we’ve had in a while.
533	0	Neutral	So, I think it’s great work on behalf of the Tesla team, and we just got to keep it up.
534	0	Neutral	Elon Musk: Yes, it’s a game of pennies.
535	0	Neutral	It’s a Game of Thrones with pennies.
536	0	Neutral	Martin Viecha: Mark, do you have a follow-up question?
537	0	Neutral	I think you’re muted.
538	0	Neutral	Mark Delaney: Yes.
539	0	Neutral	Thank you very much for all the details on that.
540	0	Neutral	Maybe you could put a finer point on the downtime impact that you spoke about in your prepared comments in terms of production impact and then also to what extent there’s a margin impact from those factory upgrades that you’re planning this quarter?
541	0	Neutral	Zachary Kirkhorn: Yes.
542	0	Neutral	The downtime -- we don’t know exactly the number of cars impacted because kind of the way that we go into downtime windows for upgrades is we set aside a period of time, but then the team is challenged to go as quickly as possible so that we can get the factories up and running again and minimize that.
543	0	Neutral	It’s not profound reduction.
544	0	Neutral	Hopefully, it’s small.
545	0	Neutral	Elon Musk: I think we’re getting too much into the weeds here.
546	0	Neutral	I mean, like we’re asking for a level of precision that is not possible to answer.
547	0	Neutral	So, let’s move on.
548	0	Neutral	Martin Viecha: Yes.
549	0	Neutral	I think this is unfortunately all the time we have for today.
550	0	Neutral	So, we’ll speak to you all in the next three months.
551	0	Neutral	Thank you very much.
552	0	Neutral	Elon Musk: Thank you.

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Tesla Q2 2023 Earnings Transcript

Index	Score	Sentiment	Transcript
1	+85	Strong Positive	In Q2 we achieved record vehicle production and deliveries, and record revenue of about $25 billion in a single quarter.
2	+70	Positive	And Model Y became the bestselling vehicle of any kind globally in Q1, surpassing the likes of Corolla and Golf.
3	0	Neutral	So, it was the number one vehicle of any kind, including vehicles that are sold at a far lower price.
4	0	Neutral	This is, I think, an incredible achievement by the Tesla team, and just a huge thank you to our customers for their support.
5	0	Neutral	And this came in spite of high interest rates and a lot of macro uncertainty.
6	0	Neutral	And nonetheless, we managed to achieve operating margin of about 10%.
7	0	Neutral	We continue to target 1.8 million vehicle deliveries this year.
8	-30	Negative	Although, we expect that Q3 production will be a little bit down because we’ve got summer shutdowns to -- for a lot of factory upgrades.
9	-20	Neutral	So, just probably a slight decrease in production in Q3 for sort of global factory upgrades.
10	0	Neutral	In the long-term, autonomy we think is going to just drive volume through the ceiling next level.
11	0	Neutral	And our sort of future robotaxi products -- dedicated robotaxi products we think have like quasi-infinite demand.
12	0	Neutral	The way we’re going to manufacture robotaxi is, is also itself a revolution.
13	0	Neutral	So, it’s revolutionary design made in a revolutionary way.
14	0	Neutral	It’ll be by far the highest units per hour of any vehicle production ever.
15	0	Neutral	So, very excited about that.
16	+20	Neutral	With respect to Autopilot and Dojo, in order to build autonomy, we also need to train our neural net with data from millions of vehicles.
17	0	Neutral	The more -- I mean, this has been proven over and over again.
18	0	Neutral	The more training data you have, the better the results.
19	0	Neutral	And, I mean, there are times where we see basically -- in a neural net, basically it’s sort of at 1 million training examples, it barely works; at 2 million, it slightly works; at 3 million, it’s like wow, okay, we’re seeing something, but then you get like 10 million training examples, it’s like -- it becomes incredible.
20	0	Neutral	So, there’s just no substitute for a massive amount of data.
21	0	Neutral	And obviously, Tesla has more vehicles on the road that are collecting this data than all of the companies combined by, I think, maybe even an order of magnitude.
22	0	Neutral	So, I think we might have 90% of all -- or a very big number.
23	0	Neutral	So, the success in AI endeavors is a function of talent, sort of unique data and computing resources.
24	0	Neutral	And we have outstanding capabilities in all three arenas.
25	0	Neutral	And I really just don’t know how anyone could do what we’re doing, even if they had our software and had our computer, if they did not have the training data.
26	+30	Positive	So, speaking of which, our Dojo training computer is designed to significantly reduce the cost of neural net training.
27	0	Neutral	It is designed to -- it’s somewhat optimized for the kind of training that we need, which is a video training.
28	0	Neutral	So, we just see that the need for neural net training -- again, talking -- speaking of quasi-infinite things, is just enormous.
29	0	Neutral	So, I think having -- we expect to use both, NVIDIA and Dojo, to be clear.
30	0	Neutral	But there’s -- we just see demand for really vast training resources.
31	0	Neutral	And we think we may reach in-house neural net training capability of a 100 exaflops by the end of next year.
32	+20	Neutral	So, to date, over 300 million miles have been driven using FSD beta.
33	0	Neutral	That 300 million mile number is going to seem small very quickly.
34	0	Neutral	It’ll soon be billions of miles, then tens of billions of miles.
35	0	Neutral	And FSD will go from being as good as a human to then being vastly better than a human.
36	0	Neutral	We see a clear path to full self-driving being 10 times safer than the average human driver, so.
37	0	Neutral	And between Autopilot, Dojo computer, our inference hardware in the car, which we call sort of Hardware 3, 4, but it’s really dedicated.
38	0	Neutral	It’s a high efficiency inference computer that’s in the car and our Optimus robot, Tesla’s clearly at the cutting edge of AI development.
39	+25	Positive	With regard to our Cybertruck, we continue to build our release candidates of the Cybertruck on our final production line in Austin.
40	0	Neutral	I’m actually here in Austin at the Gigafactory.
41	+5	Neutral	This is the first truck that we’re aware of that will have four doors over a six foot bed and will fit into a 20-foot garage.
42	0	Neutral	So, it’s sort of biggest on the outside, but it’s even bigger on the inside.
43	0	Neutral	So it’s -- I think that’s a -- one of the elements of good design is it should feel bigger on the inside than it looks on the outside.
44	0	Neutral	And this is no small car, but we really cared about the exterior dimensions of the Cybertruck down to the last millimeter.
45	0	Neutral	So just -- we try to get right in the middle of the Goldilocks zone, not too big, not too small and then really maximize the utility of the volume.
46	0	Neutral	And we can’t wait to start delivering it later this year.
47	0	Neutral	Some other highlights.
48	+10	Neutral	Our global Supercharging network now stands at over 50,000 -- roughly 50,000 connectors and over 5,000 locations.
49	0	Neutral	As I think a lot of people are aware, the Tesla Charging Standard, which we made open source and it’s now called the North American Charging Standard.
50	+50	Positive	We’re deeply honored that Ford, GM, Mercedes and many other OEMs have signed up to use our connector and gain access to our charging network.
51	0	Neutral	We strongly believe in helping other car companies to accelerate the EV revolution and just trying to do the right thing in general.
52	0	Neutral	So, that’s the goal there.
53	+60	Positive	Then something I think, I want emphasize, like very strongly, this is a very important point is that Tesla -- just as with the North American Charging Standard, although we’re not license -- in that case not licensing, we’re just making it available, but we are very open to licensing our full self-driving software and hardware to other car companies.
54	+10	Neutral	And we are already in discussions with -- early discussions with major OEM about using Tesla FSD.
55	0	Neutral	So, we’re not trying to keep this to ourselves.
56	0	Neutral	We’re more than happy to license it to others.
57	+30	Positive	And lastly, our new lithium refinery and cathode facility are progressing well.
58	+10	Neutral	In conclusion, we continue to focus on making as many cars as we can, while maintaining healthy financials.
59	+50	Positive	Our artificial intelligence development is obviously entering a new era and we’re incredibly excited about what’s to come.
60	+60	Positive	Our other businesses such as Megapack, Supercharging service and whatnot, all started to become a meaningful contributor to overall profitability this quarter.
61	+5	Neutral	And then lastly, I’d just like to profusely thank all of our employees who are making a lot of extra effort during uncertain times.
62	0	Neutral	Thank you very much for your hard work and the impact you’re making.
63	0	Neutral	Martin Viecha: Thank you very much, Elon.
64	0	Neutral	And I think Zach has some opening remarks as well.
65	0	Neutral	Zachary Kirkhorn: Yes.
66	0	Neutral	Thanks Martin.
67	+70	Positive	As Elon mentioned, Q2 was another record quarter of production and deliveries, as well as records in profit for our energy and services and other businesses.
68	0	Neutral	Congratulations again to the Tesla team on the continued progress.
69	0	Neutral	As we navigate through a period of economic uncertainty, rising interest rates, volatility in consumer confidence and regulatory change, I want to comment on our financial approach.
70	+15	Neutral	First, the single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the long-term value of the business.
71	+20	Neutral	This includes increasing spending on AI related technologies such as full self-driving, Optimus and Dojo, as well as new products such as Cybertruck, our next generation platform and the Semi, as evidenced by the continued growth in our R&D spend.
72	+15	Neutral	This also includes continuing our investments in capacity expansion, not only in our vehicle factories, but also our Supercharging network, service, internal applications, and battery processes, as we continue with meaningful capital expenditures to lay this foundation for the future.
73	+35	Positive	Second, we continue to work towards our goals of maximizing volumes on both, our vehicle and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments.
74	+25	Positive	This requires a strong focus on per unit COGS reductions in each of our key businesses, as well as working capital improvements on raw materials, work in process inventory and customer AR, all of which progressed appropriately in Q2.
75	+20	Neutral	If we look specifically at our automotive business, our gross margin showed a modest reduction and remained healthy, despite action taken to further improve vehicle affordability early in the quarter.
76	+70	Positive	We recognized – we realized per unit cost improvements in nearly every category, including material cost and commodities, manufacturing costs and logistics, while also continuing to rapidly increase the build rate in our Austin and Berlin factories.
77	+60	Positive	For our energy business, we improved margins and gross profit driven by cost reductions and deal economics, particularly with Megapack.
78	0	Neutral	As a reminder, storage volumes are typically volatile sequentially based on the types of projects and their specific revenue recognition milestones.
79	-10	Neutral	As we look forward to the rest of the year, I want to reiterate Elon’s comments on Q3 volumes driven by planned downtimes for factory upgrades.
80	-15	Neutral	These upgrades will also carry some amount of factory idle cost.
81	0	Neutral	However, we are working to minimize as much as possible.
82	0	Neutral	It’s also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term.
83	0	Neutral	Regardless, we continue to remain dynamic with a focus on fundamental efficiency and a long-term outlook.
84	0	Neutral	Congratulations again to everybody on a great quarter.
85	0	Neutral	A - Martin Viecha : Thank you very much, Zach.
86	0	Neutral	And let’s go to investor questions.
87	0	Neutral	The first question on licensing FSD we’ve already answered.
88	0	Neutral	So, let’s go to the second one.
89	0	Neutral	The second question is, what is the status of 4680 cells?
90	0	Neutral	How far are you from the specs you laid out on Battery Day?
91	0	Neutral	When do you expect to achieve what you laid out on Battery Day?
92	0	Neutral	Unidentified Company Representative: Yes.
93	0	Neutral	First, I’ll just start with a little bit of a production update.
94	+75	Strong Positive	So, in Texas, 4680 cell production increased 80% Q2 over Q1, and the team surpassed 10 million production cells produced here in Texas.
95	0	Neutral	So, congrats to the team for that.
96	+75	Strong Positive	Their focus on yield reduced our scrap bill by 40% quarter-over-quarter, and that resulted in a 25% reduction in cell COGS.
97	+65	Positive	Here in Texas, we’re preparing to launch our Cybertruck cell, which is 10% higher energy density than current production.
98	0	Neutral	That was accomplished through process and mechanical design optimization.
99	+40	Positive	As we scale Cyber cell production through the end of the year and early next, we should be in a comfortable place on cost per cell.
100	0	Neutral	Against our battery energy density targets, the Cyber cell is at our expectations on a like-for-like electrochemistry basis.
101	+30	Positive	We’re yet to integrate silicon or in-house cathode production, both reviewed on Battery Day, which do bring significant further energy density and cost improvements, but that is a topic for another day.
102	+40	Positive	Lastly, it is important to remember that most of what we focused on a Battery Day was the Tesla-engineered 4680 production system and the improvements we strove to achieve on equipment, factory density, capital cost and utility cost reduction, all of which we are realizing in our Texas scale up to date.
103	0	Neutral	Martin Viecha: Thank you very much.
104	0	Neutral	The next question is, can you talk more to the upcoming Tesla Energy products and how your thinking has evolved on the revenue model?
105	0	Neutral	Given Tesla’s AI capabilities, how do you see the long-term mix between hardware margin and recurring software margin from Autobidder as this segment accelerates?
106	0	Neutral	Unidentified Company Representative: We can’t comment on future product road map, but I can provide a quick energy Q2 update.
107	+40	Positive	Megapack continues to show strong demand globally with Lathrop ramping successfully to meet our contracted projects in 2023.
108	0	Neutral	As stated last quarter, Megapack margins are in a reasonable place, in line with our target – vehicle target margins.
109	+30	Positive	The second final assembly line at Lathrop is progressing on schedule, eventually doubling Lathrop capacity ahead of our full factory ramp in 2024.
110	+30	Positive	We have several exciting large projects in construction or nearing completion, including the KES project in Hawaii, the Riverina project in Australia, several products in California and one here at Gigafactory, Texas that we’ll tour today, actually.
111	0	Neutral	We want to thank our customers, utilities and grid operators for trusting us with these projects.
112	+55	Positive	On the Autobidder question, we continue to grow Autobidder contracts in wholesale markets like Australia, Texas, UK and California with over 6 gigawatt hours under Tesla’s dispatch next year.
113	+40	Positive	In the UK, our projects performed best in the industry in Q2.
114	+20	Neutral	Autobidder does have software margins and is an enabler for hardware sales, but it’s a relatively small contributor to revenues, given how much deployment growth on the Megapack hardware side is occurring.
115	+40	Positive	It’s important to remember that these large projects – these large capital projects have lifetimes of 20 years of recurring revenues on an annualized basis relative to upfront CapEx are small.
116	0	Neutral	On the residential side, we have some fun things happening.
117	+25	Positive	We recently surpassed 0.5 million Powerwalls installed.
118	+20	Neutral	Just this week, we are launching Charge on Solar, which allows Tesla Powerwall and vehicle customers to charge their vehicles using their excess solar and drive only on the sunshine that hits their roof.
119	0	Neutral	Yesterday, we began paying customers in Texas for participating in our virtual power plant to provide grid support to ERCOT.
120	+75	Strong Positive	We expect these credits to lower our median customer’s annual bill by a third and to increase these credits over time as ERCOT expands market access.
121	+25	Positive	And today, we are expanding Tesla electric enrollment to new Model 3 owners in Texas, followed by all Texas vehicle customers over the rest of the quarter.
122	-30	Negative	Unfortunately and somewhat similar to Tesla Insurance, bringing Tesla electric and BPP capabilities to our customers requires working through a fractured regulatory environment on a jurisdiction-by-jurisdiction basis.
123	0	Neutral	In the long run, the value of residential energy software and hardware will be driven by the level of market access that utilities, market operators and regulators permit.
124	+60	Positive	For Powerwall that’s eligible to provide the full stack of energy services, like peaker capacity and system buffering, such as in Australia, we can more than double the value of ownership relative to a typical system today.
125	0	Neutral	Martin Viecha: Thank you very much.
126	0	Neutral	The next question is, could you quantify the benefits to COGS per unit from the IRA battery manufacturing incentives; and secondly, battery raw material declines year-to-date?
127	0	Neutral	Zachary Kirkhorn: All right.
128	0	Neutral	I can take that.
129	0	Neutral	On the first part of the question for IRA manufacturing incentives, we provided previous guidance that we expect these to be for the course of this year in the range of $150 million to $250 million per quarter.
130	0	Neutral	We are staying within that boundary as we guided previously, so that was the case in Q2 as well.
131	0	Neutral	I will note, and I think we’ve mentioned this before, that this includes a 50-50 sharing of credits for qualified cells from our long-term battery partner, Panasonic.
132	0	Neutral	On the commodity side, we are continuing to see improvements there, as we’ve discussed previously.
133	0	Neutral	Lithium is the most notable improvement so far.
134	0	Neutral	I think I commented on this on the last call, because typically, we see this coming about a quarter before it actually is realized in our financials.
135	0	Neutral	And also just as a reminder, we’re not fully exposed to the price of lithium.
136	+10	Neutral	Our supply chain team has done a terrific job in partnership with another – a bunch of other companies to put in place some long-term agreements here, but we do have some exposure that moves up and down.
137	0	Neutral	We’re also seeing benefits in aluminum and steel, which I think is great.
138	0	Neutral	Not as large as the lithium impacts, but they contribute nonetheless.
139	0	Neutral	So, if we add up the total impact of this in Q2 relative to prior quarter, it’s about the same size and magnitude as the IRA benefits that we also received.
140	0	Neutral	Just to put this in context, as you look at COGS per unit sequentially from Q1 to Q2, I think there’s two things to keep in mind there.
141	+1	Neutral	The first is that our SX mix for deliveries increased quite a bit from Q1 to Q2.
142	0	Neutral	So, as you think about fundamental cost reductions, it’s important to adjust for that.
143	-10	Neutral	And then secondly, as we continue to work on reducing our Austin and Berlin cost, which we did quite a bit of that from Q1 to Q2, these factories are still slightly above Model Y production costs elsewhere.
144	0	Neutral	And in the quarter, our mix of Austin and Berlin related builds increased.
145	0	Neutral	And so, that’s something to consider as you model out the impact on – from Q1 to Q2 in terms of COGS per unit.
146	0	Neutral	I do want to ask Karn if there’s anything else on the commodity side or just more generally, you want to add here?
147	0	Neutral	Karn Budhiraj: Yes.
148	0	Neutral	As you mentioned, Zach, we’ve naturally been a little bit hedged from the lithium position because of the long-term contracts we have in place.
149	+60	Positive	But we have seen reduction in pricing across the board for all commodities that specifically go into batteries such as nickel, cobalt and graphite.
150	-25	Negative	And the reductions in pricing translate into thousands of dollars when you look at it from a per-vehicle impact.
151	+65	Positive	We’re taking advantage of the historically low commodity pricing and certainly [Indiscernible] to kind of extend some of those fixed price contracts through the end of the decade.
152	0	Neutral	So it’s a playbook that we’ll continue to kind of go back to as we look to the future.
153	0	Neutral	Martin Viecha: Thank you.
154	0	Neutral	The next question on FSD.
155	0	Neutral	Have you considered allowing FSD transferability as a lever to allow existing customers to upgrade to a new Tesla instead of being locked into an existing car due to the price of FSD?
156	0	Neutral	Elon Musk: Yes.
157	0	Neutral	This is a question we get asked a lot.
158	0	Neutral	So, we’re excited to announce that for Q3, we will be allowing transfer of FSD.
159	0	Neutral	This is a onetime amnesty.
160	0	Neutral	So, it needs to be -- you need to take advantage of it in Q3, but -- or at least place the order in Q3 within reasonable delivery time frames.
161	0	Neutral	So yes, I hope this makes people happy.
162	0	Neutral	This is a onetime thing.
163	0	Neutral	Martin Viecha: Right.
164	0	Neutral	The next question, when will we give more information about the Cybertruck orders, estimated delivery schedules, pricing and specifications?
165	+50	Positive	Elon Musk: Demand is so far off the hook, you can’t even see the hook.
166	0	Neutral	So, that’s really not an issue.
167	0	Neutral	I do want to emphasize that the Cybertruck has a lot of new technology in it, like a lot.
168	0	Neutral	It doesn’t look like -- it doesn’t look like any other vehicle because it is not like any other vehicle.
169	0	Neutral	So -- and the production ramp will move as fast as the slowest and least likely elements of the entire supply chain and internal production.
170	0	Neutral	So, I wouldn’t expect -- I hope it’s smooth.
171	0	Neutral	We’re certainly better at production ramps that -- we’ve got a lot of experience with the production ramps.
172	0	Neutral	But first order approximation, there’s like 10,000 unique parts and processes in the Cybertruck.
173	0	Neutral	And if any one of -- it will go as fast as the least lucky, least well-executed element of the 10,000.
174	0	Neutral	So, it’s always difficult to predict the ramp initially, but I think we’ll be making them in high volume next year, and we will be delivering the car this year.
175	0	Neutral	Martin Viecha: Thank you.
176	-50	Negative	The next question is critics of Gigacasting contended that process makes vehicles harder and more costly to repair, essentially pushing costs on to the customer.
177	0	Neutral	Can you share some details about the initial repair experience with Gigacast vehicles?
178	0	Neutral	Elon Musk: That must be why everyone’s copying us.
179	0	Neutral	Lars Moravy: Thanks, Elon.
180	0	Neutral	This is Lars.
181	0	Neutral	I mean, that’s like simply not true.
182	0	Neutral	There’s a misconception that traditional bodies are easy to repair, but they are made up of multiple materials and multiple joining methods.
183	0	Neutral	Spot welds and rivets have to be drilled out.
184	0	Neutral	Panels and structural adhesives have to be chiseled out.
185	0	Neutral	Dried adhesive has to be removed, stains, cut, blah, blah, blah.
186	0	Neutral	Elon Musk: It’s a crazy patch of a quilt.
187	0	Neutral	Lars Moravy: Yes.
188	0	Neutral	And so putting that back together means time and money.
189	+45	Positive	Using an example of replacing a rear cast rail in the Model Y, to do that versus like what we replaced it with from Model 3, it’s 10 times cheaper and 3 times faster to do it with the cast rail.
190	+10	Neutral	Design team works with our collision repair team since we’re a closed loop on this with insurance, and we design specific parts that make it easier and faster to repair.
191	+20	Neutral	And we have an incentive to do that because we have our own insurance and our own body shops.
192	+20	Neutral	We expect that we’ll continue to do this, and collision repair will continue to become cheaper and faster over time.
193	0	Neutral	And we already make this available to all body shops or our Tesla-approved body shop training.
194	+5	Neutral	Elon Musk: Yes, closing loop on collision repair and factoring that into design is a big deal.
195	0	Neutral	Lars Moravy: Crucial.
196	0	Neutral	I don’t think anyone else can do it with that ecosystem that we have, so.
197	0	Neutral	Elon Musk: Yes.
198	0	Neutral	And we are actually able to change the details of the casting with inserts, and we actually do that all the time, so -- because the inserts actually wear out and need to be replaced anyway.
199	0	Neutral	So we can actually make design changes to the inserts and tweak the castings.
200	+20	Neutral	But the cast --basically cast rear body or front body is lighter, cheaper, better noise vibration, harshness, much easier to manufacture.
201	0	Neutral	It’s better in every way.
202	0	Neutral	And that’s why so many other car companies are copying us.
203	0	Neutral	Lars Moravy: Probably.
204	0	Neutral	Elon Musk: Well, they certainly put out a lot of press releases about it.
205	0	Neutral	I think it’s basically going to be how all cars are made in the future.
206	0	Neutral	Martin Viecha: Thank you.
207	0	Neutral	Next question, how many Optimus bots have been made?
208	0	Neutral	And when will they be able to start performing useful tasks?
209	0	Neutral	Elon Musk: 10 million.
210	0	Neutral	Yes.
211	0	Neutral	I think we’re around 5 or 6 bots.
212	0	Neutral	I think -- there’s -- we were -- look, 10, I guess.
213	0	Neutral	Depends on what -- how many are working and what phase.
214	0	Neutral	But it’s sort of -- yes, there’s more every month.
215	0	Neutral	There’s a lot of interesting things about the Optimus bot.
216	-75	Strong Negative	We found that there are actually no suppliers that can produce the actuators.
217	0	Neutral	There are no off-the-shelf actuators that work well for humanoid robot at any price.
218	0	Neutral	Unidentified Company Representative: Certainly not compelling.
219	0	Neutral	Elon Musk: Yes.
220	0	Neutral	There’s not a humanoid robot that can do something -- the things that human could do.
221	0	Neutral	So, we’ve actually had to design our own actuators that integrate the motor or the power electronics, the controller, the sensors.
222	0	Neutral	And really, every one of them is custom designed.
223	0	Neutral	And then, of course, we’ll be using the same inference hardware as the car.
224	+10	Neutral	But we are, in designing these actuators, designing them for volume production.
225	0	Neutral	So, they’re not just lighter, tighter and more capable than any other actuators wherever that exists in the world, but it’s also actually manufacturable.
226	0	Neutral	So, we should be able to make them in volume.
227	+10	Neutral	The first Optimus that is -- that will have all of the Tesla designed actuators, sort of production candidate actuators integrated and walking should be around November-ish.
228	0	Neutral	And then, we’ll start ramping up after that.
229	0	Neutral	In terms of when we’ll be able to do some useful things, like we’ll first be trying this out in our own factories and just proving out its utility, but I think we’ll be able to have it do something useful in our factories sometime next year.
230	0	Neutral	I would be -- yes, I’m pretty confident of that.
231	0	Neutral	So yes, it’s going well.
232	0	Neutral	I should say another cool thing about Optimus is that there’s -- just in the U.S. alone, there are 2 million amputees.
233	0	Neutral	And I was just talking to the Neuralink team.
234	0	Neutral	And by combining a Neuralink implant and a robotic arm or leg for someone that has had their arm or leg or arms and legs amputated, we believe we can give basically a cyber body that is incredibly capable, $6 million man in real life, before don’t want to cost $6 million.
235	0	Neutral	$60,000 man.
236	0	Neutral	This sounds impressive, but it will actually -- so that actually could be a really -- I think, would be incredible to potentially help people around the world and give them a robot arm or like that is as good, maybe long term better than a biological one.
237	0	Neutral	Martin Viecha: Thank you.
238	0	Neutral	The next question is, how has the order intake trended relatively to production levels during Q2?
239	0	Neutral	And how has it trended in the quarter-to-date period?
240	0	Neutral	Conceptually, how does Tesla decide when is it appropriate to reduce prices or at other sales incentives to increase demand?
241	0	Neutral	Elon Musk: Yes.
242	0	Neutral	I guess, demand has roughly tracked production.
243	0	Neutral	So -- which is what we aim for is -- we look at -- it’s something that we have that really -- I think no other carmaker has -- is that we have real-time demand and real-time production, like so seven days a week.
244	0	Neutral	I get an e-mail -- order generated e-mail, chose output from all factories and orders globally.
245	0	Neutral	So it’s like a real-time finger on the pulse of earth basically.
246	0	Neutral	And we adjust course according to what the mood of the public is.
247	0	Neutral	Buying a new car is a big decision for vast majority of people.
248	-50	Negative	So, any time there’s economic uncertainty, people generally pause on new car buying at least to see what happens.
249	0	Neutral	And then obviously, another challenge is the interest rate environment.
250	-50	Negative	As interest rates rise, the affordability of anything bought with debt decreases, so effectively increasing the price of the car.
251	-60	Negative	So when interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car.
252	-60	Negative	And this is -- at least up until recently, it was, I believe, the sharpest interest rate rise in history.
253	0	Neutral	So, we had to do something about that.
254	0	Neutral	If somebody’s got a crystal ball for the global economy, I really appreciate it, if I could borrow that crystal ball.
255	0	Neutral	Unidentified Company Representative: DM us.
256	0	Neutral	Elon Musk: Yes, exactly, DM me.
257	0	Neutral	It should be not on Twitter.
258	0	Neutral	So, I mean, one day, it seems like the world economy is falling apart and the next day, everything is fine.
259	0	Neutral	I don’t know what’s going on.
260	0	Neutral	It’d be totally fine.
261	0	Neutral	I wish I did.
262	0	Neutral	So, I mean that’s why I say like I was on Twitter, I posted like just really advising because I care a lot about the sort of small shareholders, especially ones that have stuck with us through thick and thin.
263	0	Neutral	I love you, guys.
264	-30	Negative	And so, we can’t control these macro shocks or the thematic depressive nature of the stock market.
265	0	Neutral	So, that’s why I recommend against margin loans in times that are turbulent.
266	0	Neutral	If times are not that turbulent, actually margin loan can be a smart move within reason.
267	-25	Negative	But we’re in, I would call it, turbulent times.
268	0	Neutral	Like I have very high confidence in the long-term value of Tesla.
269	0	Neutral	Like I see it -- I really see a path to a 10x -- call it a 5x increase in the value of the company, maybe a 10x.
270	0	Neutral	And -- but where things go along the way, the trials and tribulations and the mood of the markets, one cannot predict.
271	0	Neutral	And so, the old adage of buy and hold is right.
272	0	Neutral	For an investment advice, I’d say like identifying a company as products you love.
273	0	Neutral	See if they -- does it seem like they’ll continue to make good products or great products?
274	0	Neutral	Buy that stock and hold it.
275	0	Neutral	That’s it.
276	0	Neutral	You’ll win.
277	0	Neutral	The reason companies exist is to make goods and services, ideally great goods and services.
278	0	Neutral	They don’t exist for any other reason.
279	0	Neutral	They shouldn’t.
280	0	Neutral	So, that’s why you should buy stock of a company that makes good products and has a great future pipeline.
281	0	Neutral	It’s common sense, actually.
282	0	Neutral	And then generally, if you see -- if you provide your confidence about what that company’s products or services are, when the market panics, buy; and when the market is overly exuberant, you can sell.
283	0	Neutral	I’m not recommending you to Tesla, but yes, buy low, sell high.
284	0	Neutral	Warren Buffett actually, I think has a saying -- I’m paraphrasing him, but a publicly traded company is like imagine living in your house and some crazy manic-depressive guy comes and stands outside your house and yells property prices at you, and it’s a different price every day.
285	0	Neutral	But the house is still the same house.
286	0	Neutral	So, this is a stock market.
287	0	Neutral	Credit that to Warren Buffett.
288	0	Neutral	Martin Viecha: Thank you.
289	0	Neutral	Let’s go to the next question.
290	0	Neutral	With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts?
291	0	Neutral	And if so, when?
292	0	Neutral	Elon Musk: Where’s that crystal ball, again?
293	0	Neutral	If I may, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture.
294	0	Neutral	Autonomy will make all of these numbers look silly.
295	0	Neutral	I’d recommend looking at ARK Invest.
296	0	Neutral	I think their analysis is very good.
297	0	Neutral	It’s the best.
298	0	Neutral	And generally, Fintwit or the finance, Smart Finance people on Twitter, follow their accounts.
299	0	Neutral	They’re great.
300	0	Neutral	So that’s in my opinion where you’ll get the best info.
301	0	Neutral	So, I strongly believe Tesla is a big long-term investment.
302	0	Neutral	And don’t sweat when things go up and down.
303	0	Neutral	In fact, if the market panics, buy; if the market is a little too exuberant, sell at the time.
304	0	Neutral	But just generally, like -- I feel -- I’m confident we’ll deliver over long term, but can’t control short term.
305	0	Neutral	So -- and the autonomy is really where it’s at.
306	0	Neutral	I mean, Zachary?
307	0	Neutral	Zachary Kirkhorn: I fully agree with you.
308	0	Neutral	I mean, I think the only thing in the short term that matters is what I said in my opening remarks, which is are we generating enough money to continue to invest.
309	0	Neutral	And the portfolio of products and technologies that the technical teams are investing in right now, this is intense.
310	0	Neutral	It’s intense in terms of investment; it’s intense in terms of potential.
311	+75	Strong Positive	Elon Musk: Frankly, I think it’s ridiculous that we have positive free cash flow in a capital-intensive business, while investing massive amounts of money in new technology.
312	0	Neutral	That is super hard.
313	0	Neutral	Unidentified Company Representative: And vertical integration.
314	0	Neutral	It’s not even just like new products, but also... Elon Musk: Yes.
315	0	Neutral	We actually make our share... Zachary Kirkhorn: And so, at least from my perspective, what matters is continuing to generate the cash to invest.
316	+10	Neutral	That means continuing to be hyper focused on near-term cost reduction.
317	0	Neutral	Is everything we do in near-term cost reduction provides capital to reinvest?
318	+35	Positive	Hyper-focused on working capital management, which we’ve made quite a bit of progress there on the raw materials and with -- a set of that we’ve been very focused on accounts receivables as well to ensure that we can continue to reinvest the cash.
319	0	Neutral	This is what we’re focused on.
320	0	Neutral	And so, there’s a set of this that we control.
321	+20	Neutral	We have a pipeline of cost reductions.
322	+20	Neutral	We are getting tailwinds in the commodity space right now, as Karn mentioned, that’s helpful.
323	0	Neutral	Variability around average selling prices goes back to Elon’s point.
324	0	Neutral	We don’t control interest rates.
325	0	Neutral	We don’t control macro consumer sentiment.
326	0	Neutral	But we have an obligation to be responsive to that to ensure that we’re matching supply and demand and keeping things balanced.
327	0	Neutral	And so, this is how we’re managing the next handful of quarters.
328	0	Neutral	Soon enough, these quarters will be behind us.
329	0	Neutral	They won’t be part of the present value of future cash flows of the business.
330	0	Neutral	And so, we want to make sure we keep that view and make sure that the long term business is exactly the way that we want it to be.
331	0	Neutral	Martin Viecha: All right.
332	0	Neutral	Thank you very much.
333	0	Neutral	Now let’s go to analyst questions.
334	0	Neutral	The first question comes from Dan Levy from Barclays.
335	0	Neutral	Dan Levy: I wanted to start first with a question about your efforts in AI and Dojo.
336	0	Neutral	It’s pretty clear it sounds like you’re accelerating your focus.
337	0	Neutral	Can you maybe provide us with a sense of what the process is of refining a product?
338	0	Neutral	Is it more machines?
339	0	Neutral	And maybe you could give us a sense of when the payout starts to -- when you start to see the payout and what the resource outlay is, what should we expect on the OpEx front as a result of this?
340	0	Neutral	Elon Musk: Sorry.
341	0	Neutral	Are you saying how much are we going to spend on Dojo or…?
342	0	Neutral	Dan Levy: Yes.
343	0	Neutral	Elon Musk: R&D on Dojo?
344	0	Neutral	Dan Levy: Yes.
345	0	Neutral	Elon Musk: Well, we’re not going to be open loop on our Dojo expenditures.
346	-20	Neutral	So -- but I mean, I think we will be spending something north of $1 billion over the next year on -- through the next year, it’s well over $1 billion in Dojo.
347	0	Neutral	And yes, so I mean we’ve got a truly staggering amount of video data to do training on.
348	+20	Neutral	And this is another thing -- in order to copy us, you also need to spend billions of dollars on training compute.
349	0	Neutral	I mean, it’s like -- and it’s also hard to -- you need the data and you need the training computer.
350	0	Neutral	It’s like -- think, well, things needed to actually achieve this at scale toward generalized solution for autonomy, it’s -- this is one of the highest problems ever.
351	0	Neutral	You see a lot of AI companies doing LLMs and whatnot.
352	0	Neutral	I would say if they’re so great, why can’t they make a self-driving car?
353	0	Neutral	Because it’s harder.
354	0	Neutral	That’s why.
355	0	Neutral	So -- but I do think -- I think there’s some great AI companies out there.
356	0	Neutral	But just fundamentally, the staggering amount of data we’ve got to process, it’s got to be processed somehow.
357	0	Neutral	And custom silicon is the best way to do that.
358	0	Neutral	So that’s what Dojo is designed to do is optimize for video training.
359	0	Neutral	It’s not optimized for LLMs.
360	0	Neutral	It’s optimized for video training.
361	0	Neutral	With video training, you have a much higher ratio of compute-to-memory bandwidth, so -- whereas LLMs tends to be memory bandwidth choked.
362	0	Neutral	So that’s it.
363	0	Neutral	I mean -- but like I said, we’re also -- we have some -- we’re using a lot of NVIDIA hardware.
364	0	Neutral	We’ll continue to -- we’ll actually take NVIDIA hardware as fast as NVIDIA will deliver it to us.
365	0	Neutral	Tremendous respect for Jensen and NVIDIA.
366	0	Neutral	They’ve done an incredible job.
367	0	Neutral	And frankly, I don’t know if they could deliver us enough GPUs, we might not need Dojo, but they can’t.
368	0	Neutral	So they’ve got so many customers.
369	0	Neutral	They’ve been kind enough to nonetheless, prioritize some of our GPU orders.
370	0	Neutral	But yes, the sheer magnitude of video training -- because like I said, we’re not trying to just get as good as human.
371	0	Neutral	We want to get to 10 times better than human, maybe 100 times better than human.
372	0	Neutral	Right now, I believe there’s something on the order of 1 million automotive deaths per year.
373	0	Neutral	And then if you say permanent serious injuries, I think it’s probably closer to 10 million per year.
374	0	Neutral	And -- so it matters if you’re twice as good as human, 10 times -- like 10 times better than human would still mean 100,000 deaths and 1 million severe permanent injuries.
375	0	Neutral	So, it’s like, okay, we would rather be 100 times better.
376	0	Neutral	So there’s really -- it’s a march of 9s, and we want to achieve as perfect safety as possible.
377	0	Neutral	And that’s truly mind-boggling amounts of video and computer needed for that.
378	+15	Neutral	And then, I do think there’s other applications for Dojo, but we just desperately need it for video training.
379	0	Neutral	Zachary Kirkhorn: Just to add to what Elon mentioned.
380	0	Neutral	So, the numbers that he mentioned are between R&D spend and capital spend.
381	0	Neutral	And this is moving quickly.
382	0	Neutral	And so, we provide a three-year outlook on our capital expense.
383	0	Neutral	We are considering these expenses in that outlook.
384	0	Neutral	And as that moves up and down, we’ll continue to update our guidance in the Q. Elon Musk: Yes.
385	0	Neutral	I want to say, the fundamental rate limiter on the progress of full self-driving is training.
386	0	Neutral	That’s -- if we had more training compute, we would get it done faster.
387	0	Neutral	So that’s it.
388	0	Neutral	Zachary Kirkhorn: And it’s just difficult to predict how quickly we can execute on it.
389	0	Neutral	Dan Levy: Great.
390	0	Neutral	Thank you.
391	+20	Neutral	Just as a follow-up, I recognize there’s incredible macro uncertainty right now, but you’re sticking with your near term, your volume target of 50% CAGR.
392	0	Neutral	As we just think about sort of in the year ahead, Cybertruck is going to be some contribution.
393	0	Neutral	There’s going to be some help from further EV penetration growth.
394	0	Neutral	But to what extent are you willing to sacrifice on pricing to keep that 50% volume CAGR intact, or are you thinking differently about margins versus your prior commentary of willing to sacrifice on margins to get more share?
395	0	Neutral	Elon Musk: It’s not about getting more share.
396	0	Neutral	It’s just that you can think of every car that we sell or produce that has full autonomy capability as actually something that in the future may be worth as much as 5 times what it is today.
397	0	Neutral	Because average -- vehicle is doing like maybe 10 hours of driving a week.
398	0	Neutral	If sort of -- if this says 1.5 hours a day on average, that’s 10 hours a week-ish.
399	0	Neutral	If you’ve got on autonomous -- if the vehicle is able to operate autonomously and use either dedicated autonomous or partially autonomous like Airbnb, like maybe sometimes you allow your car to be used by others.
400	0	Neutral	Sometimes you want to use it exclusively just like Airbnb -- doing Airbnb with a room in your house.
401	0	Neutral	The value is just tremendous.
402	+10	Neutral	So, I think it’s sort of, it would be -- I think it -- it does make sense to sacrifice margins in favor of making more vehicles because we think in the not too distant future, they will have a dramatic valuation increase.
403	0	Neutral	I think the Tesla fleet value increase at the point which we can upload full self-driving and is approved by regulators will be the single biggest step change in asset value maybe in history.
404	0	Neutral	Martin Viecha: Thank you.
405	0	Neutral	Let’s go to the next analyst.
406	0	Neutral	The question comes from Emmanuel Rosner from Deutsche Bank.
407	0	Neutral	Emmanuel Rosner: Two questions from me as well.
408	0	Neutral	First, following up on the autonomy.
409	0	Neutral	So before you start launching these dedicated robotaxi vehicles, on existing vehicles, you’re improving FSD incrementally.
410	0	Neutral	What is your latest targeted timing to essentially release a non-beta version or an eyes-off version that would trigger much higher take rates?
411	0	Neutral	And would Tesla benefit from lowering the price of FSD?
412	-20	Neutral	Elon Musk: Well, obviously, as people have sort of made fun of me and perhaps quite fairly have made fun of me, my predictions about achieving full self-driving have been optimistic in the past.
413	0	Neutral	The reason I’ve been optimistic is -- it tends to look like is the -- we’ll make rapid progress with a new version of FSD, but then it will curve over logarithmically.
414	0	Neutral	So first, logarithmic curve looks like just sort of fairly straight upward line, diagonally up.
415	0	Neutral	And so, if you extrapolate that, then you have a great thing.
416	0	Neutral	But then because it’s actually logarithmic, it curves over, and then there have been a series of stacked logarithmic curves.
417	0	Neutral	Now, I’m the boy who cried FSD, but I think we’ll be better than human by the end of this year.
418	-50	Negative	That’s not to say we’re approved by regulators.
419	0	Neutral	And I’m saying that would be in the U.S. because we’ve got to focus on one market first.
420	0	Neutral	But I think we’ll be better than human by the end of this year.
421	0	Neutral	I’ve been wrong in the past, I may be wrong this time.
422	0	Neutral	And the price of FSD -- so the great thing is the price of FSD is actually very low, it’s not high.
423	0	Neutral	When you go back to what I said earlier, the value of the car increases dramatically if it is actually autonomous.
424	0	Neutral	$15,000 is actually a low price, not a high price.
425	0	Neutral	And we will offer -- and we -- I think we do sort of offer FSD as a sort of monthly subscription, although most people don’t know that.
426	-20	Neutral	So, I’d recommend like maybe trying it out as a monthly subscription so you don’t have to go with the $15,000 thing.
427	0	Neutral	But I think yes, yes -- obviously, if the car is worth several times its original price, $15,000 is actually a low price for FSD.
428	0	Neutral	Martin Viecha: And the next question comes from William Stein from Truist.
429	0	Neutral	William Stein: I’d like to ask about -- to stick on this AI topic.
430	0	Neutral	We’ve read with great interest the developments in Dojo today, and you’ve spoken about FSD, but you’ve also -- Elon, you started this x.ai company.
431	-20	Neutral	And for investors that think that there might be quite a bit of value in the AI features and products of Tesla, it might be concerning to see you pursuing another endeavor where AI is the focus.
432	0	Neutral	So can you talk about how x.ai might overlap, might perhaps compete with Tesla or in other ways, perhaps it enhances the value of what Tesla does?
433	0	Neutral	Elon Musk: Yes.
434	0	Neutral	I think it’ll actually enhance the value of Tesla.
435	0	Neutral	There were just some of the world’s best AI engineers and scientists that were willing to join a startup, but they were not willing to join a large sort of relatively established company like Tesla.
436	0	Neutral	So, it was like -- that’s actually how it got started.
437	0	Neutral	I was interviewing a few people and they’re like, no, we want to do a startup.
438	0	Neutral	I was like, and that’s well -- I couldn’t convince them to join Tesla.
439	0	Neutral	So -- so it’s like, okay, well, better to start up that I run than go work somewhere else.
440	0	Neutral	That’s kind of the genesis of xAI.
441	0	Neutral	And xAI is focused on sort of AGI.
442	0	Neutral	Yes.
443	0	Neutral	So it’s -- like I said, I think there will be some value that xAI brings to Tesla.
444	0	Neutral	Also some of the best -- for the very best people in the world, they really just want to work on interesting problem.
445	0	Neutral	So if you take, say, a material science group, really what convinced Charlie Colman to leave Apple, where he was very happy and well compensated, and both at -- in both -- where we think is the best material science group in the world, was that he got to work at both Tesla and SpaceX.
446	0	Neutral	He wasn’t willing to leave Apple if it was just Tesla, but he’s willing to do it if it is Tesla and SpaceX.
447	0	Neutral	So sometimes you get the best talent in the world if that’s the kind of thing you need to do.
448	0	Neutral	And that actually has been very beneficial to Tesla.
449	0	Neutral	William Stein: If I could squeeze one more mundane question in.
450	0	Neutral	I wonder if you think you can hit the 1.8 million unit number with current pricing, or do you anticipate needing to continue to lower prices because it seems like they’ve stabilized.
451	0	Neutral	The trends have stabilized in the last maybe 1.5 months.
452	0	Neutral	Should we expect sort of continued decreases or more stabilization for the rest of the year?
453	0	Neutral	Elon Musk: Sure.
454	+25	Positive	We have sort of -- we started the referral program, which I think will be quite effective.
455	0	Neutral	As Zach was saying earlier, we don’t control the macroeconomic conditions.
456	-50	Negative	So, if interest rates continue to rise, that reduces the affordability of cars.
457	0	Neutral	And for a lot of people, they’re really -- they’re just really breaking even every month.
458	-70	Negative	In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month.
459	-50	Negative	Credit card debt is looking scary.
460	0	Neutral	So, we just don’t control the market conditions.
461	0	Neutral	If market condition is stable, I think prices will be stable.
462	-50	Negative	If they’re not stable, then we would have lower prices.
463	0	Neutral	Yes.
464	0	Neutral	Martin Viecha: Thank you.
465	0	Neutral	Let’s go to Colin Rusch from Oppenheimer.
466	0	Neutral	Colin Rusch: As you’re building out Dojo and implementing what truly is going to be a highly complex set of software, can you speak to the maturity of the operating system and how much outsourced software you’re expecting to use in that system?
467	0	Neutral	Elon Musk: This is a custom software stack, so.
468	0	Neutral	But it is designed such that you can run at a high level, PyTorch and JAX.
469	0	Neutral	But then we have to customize it to actually run on a custom silicon.
470	0	Neutral	So, the software stack is a combination of open source software and then Tesla software all the way to the bare silicon, which is the case for the inference computer in the car.
471	0	Neutral	Colin Rusch: Okay.
472	0	Neutral	Thanks so much.
473	0	Neutral	That’s super helpful.
474	0	Neutral	And then can you speak to how you’re managing some of the geopolitical risks relative to your capacity expansion?
475	0	Neutral	Obviously, as you guys continue to grow at this rate, you’re going to be putting some folks out of business.
476	0	Neutral	And there’s going to be some impacts around regional economy.
477	0	Neutral	So, I just want to understand how you’re thinking about that in terms of some of your CapEx plans and how you’re managing some of those relationships with different countries and regions.
478	0	Neutral	Elon Musk: Well, this is a period of unusual geopolitical risk.
479	+30	Positive	So, I think we’re -- the best we can do is have factories in many parts of the world such that if things get difficult in one part of the world, we can still keep things going in the rest of the world.
480	0	Neutral	Martin Viecha: Thank you.
481	0	Neutral	The next question comes from Mark Delaney from Goldman Sachs.
482	+70	Positive	Mark Delaney: Tesla has been making progress reducing costs and did so again last quarter.
483	+36	Positive	Can you give an update on when you think automotive COGS per vehicle could be under the historical $36,000 per vehicle level?
484	0	Neutral	And what are the key puts and takes to get there?
485	0	Neutral	Zachary Kirkhorn: This is -- I think I was asked this in the past.
486	0	Neutral	This is very difficult to forecast.
487	0	Neutral	There’s a series of costs that we manage, the series of costs which we don’t control.
488	0	Neutral	And so particularly on the commodity side, where labor costs go, et cetera, it’s just hard to say.
489	0	Neutral	Elon Musk: Yes.
490	-10	Neutral	And we saw very inflationary -- like strong inflationary pressures for a while last year.
491	-50	Negative	And now -- which obviously makes it very difficult to reduce COGS.
492	0	Neutral	And now we’re seeing what seems to be deflationary pressures, certainly deflationary -- deflation isn’t pressure.
493	0	Neutral	But we’re seeing commodity prices dropping as was mentioned, as Karn mentioned a moment ago.
494	0	Neutral	I mean, I don’t know, what do you think?
495	0	Neutral	I mean, basically, the trends seem to be deflationary at the commodity level.
496	0	Neutral	Karn Budhiraj: Definitely.
497	0	Neutral	There’s that.
498	+50	Positive	And then there’s also the unit economics improve as volumes grow.
499	0	Neutral	That’s the other thing we’re seeing.
500	+25	Positive	As we’re becoming a bigger and better part of a lot of suppliers, the economies of scale come into play.
501	-15	Neutral	There’s equipment depreciation that comes into play, equipment that was commissioned 5 to 7 years ago.
502	0	Neutral	That used to be a part of the piece price.
503	0	Neutral	That’s completely amortized.
504	0	Neutral	So, we’ll see situation where piece price comes down because that equipment contribution has gone away.
505	+15	Neutral	And then just we continue to have this mentality of continuous improvement in terms of labor, reducing labor, improving automation, and just continue to get better at what we do.
506	0	Neutral	So we have seen -- I think every quarter, we have seen an improvement.
507	0	Neutral	Of course, the commodities spiked up and down.
508	0	Neutral	Just in general, the trend is towards being more efficient.
509	0	Neutral	Zachary Kirkhorn: Yes, I’m totally agreeing.
510	0	Neutral	Elon Musk: Yes, lithium prices were absolutely insane there for a while.
511	0	Neutral	Zachary Kirkhorn: Yes.
512	0	Neutral	And they’re recovering now.
513	0	Neutral	Karn Budhiraj: Cobalt -- the way it used to be.
514	0	Neutral	Zachary Kirkhorn: Yes.
515	0	Neutral	And we’re still early in the ramp -- well, not early in the ramp, but early in the cost down curve of Austin and Berlin.
516	0	Neutral	And so, it takes time to work the cost out it.
517	-10	Neutral	First, it’s a focus on ramp -- ramp, it brings cost down... Elon Musk: And quality costs… Zachary Kirkhorn: Yes.
518	0	Neutral	And then once that stabilizes, we can divert bandwidth to cost reduction.
519	+40	Positive	And so Austin and Berlin saw quite a decent amount of cost reduction on a fundamental basis from Q1 to Q2.
520	0	Neutral	We’ll continue to do that work that will be helpful.
521	0	Neutral	And so we’re just going to keep chipping away at it.
522	0	Neutral	Unidentified Company Representative: Packaging is a big element to that.
523	+10	Neutral	Elon Musk: Yes, logistics… Zachary Kirkhorn: Logistics is normalizing, which is great.
524	0	Neutral	Unidentified Company Representative: [Indiscernible] utilization, something that the team has been very focused on.
525	0	Neutral	So, every bit of it.
526	0	Neutral	Zachary Kirkhorn: Yes, and it’s hard... Elon Musk: Logistics is underappreciated.
527	0	Neutral	Yes, so sold saying goes like valves and with tactics as one with logistics.
528	0	Neutral	Unidentified Company Representative: Yes.
529	+50	Positive	And we’ve made tremendous improvements in cost in all fronts on expired costs.
530	+20	Neutral	We have done pre-pandemic expired cost levels now, and our goal is to go further down.
531	0	Neutral	Zachary Kirkhorn: Yes.
532	+25	Positive	So when we look at our progress from Q1 to Q2 on cost, the way that we look at internally, normalized for the impacts of mix shift with Austin and Berlin being a higher percentage of our mix, normalized for S and X being a higher percentage of our mix in Q2 versus Q1, the sequential cost reduction, it might be the largest we’ve had in a while.
533	0	Neutral	So, I think it’s great work on behalf of the Tesla team, and we just got to keep it up.
534	0	Neutral	Elon Musk: Yes, it’s a game of pennies.
535	0	Neutral	It’s a Game of Thrones with pennies.
536	0	Neutral	Martin Viecha: Mark, do you have a follow-up question?
537	0	Neutral	I think you’re muted.
538	0	Neutral	Mark Delaney: Yes.
539	0	Neutral	Thank you very much for all the details on that.
540	0	Neutral	Maybe you could put a finer point on the downtime impact that you spoke about in your prepared comments in terms of production impact and then also to what extent there’s a margin impact from those factory upgrades that you’re planning this quarter?
541	0	Neutral	Zachary Kirkhorn: Yes.
542	0	Neutral	The downtime -- we don’t know exactly the number of cars impacted because kind of the way that we go into downtime windows for upgrades is we set aside a period of time, but then the team is challenged to go as quickly as possible so that we can get the factories up and running again and minimize that.
543	0	Neutral	It’s not profound reduction.
544	0	Neutral	Hopefully, it’s small.
545	0	Neutral	Elon Musk: I think we’re getting too much into the weeds here.
546	0	Neutral	I mean, like we’re asking for a level of precision that is not possible to answer.
547	0	Neutral	So, let’s move on.
548	0	Neutral	Martin Viecha: Yes.
549	0	Neutral	I think this is unfortunately all the time we have for today.
550	0	Neutral	So, we’ll speak to you all in the next three months.
551	0	Neutral	Thank you very much.
552	0	Neutral	Elon Musk: Thank you.

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Tesla Q2 2023 Earnings Transcript

Index	Score	Sentiment	Transcript
1	+85	Strong Positive	In Q2 we achieved record vehicle production and deliveries, and record revenue of about $25 billion in a single quarter.
2	+70	Positive	And Model Y became the bestselling vehicle of any kind globally in Q1, surpassing the likes of Corolla and Golf.
3	0	Neutral	So, it was the number one vehicle of any kind, including vehicles that are sold at a far lower price.
4	0	Neutral	This is, I think, an incredible achievement by the Tesla team, and just a huge thank you to our customers for their support.
5	0	Neutral	And this came in spite of high interest rates and a lot of macro uncertainty.
6	0	Neutral	And nonetheless, we managed to achieve operating margin of about 10%.
7	0	Neutral	We continue to target 1.8 million vehicle deliveries this year.
8	-30	Negative	Although, we expect that Q3 production will be a little bit down because we’ve got summer shutdowns to -- for a lot of factory upgrades.
9	-20	Neutral	So, just probably a slight decrease in production in Q3 for sort of global factory upgrades.
10	0	Neutral	In the long-term, autonomy we think is going to just drive volume through the ceiling next level.
11	0	Neutral	And our sort of future robotaxi products -- dedicated robotaxi products we think have like quasi-infinite demand.
12	0	Neutral	The way we’re going to manufacture robotaxi is, is also itself a revolution.
13	0	Neutral	So, it’s revolutionary design made in a revolutionary way.
14	0	Neutral	It’ll be by far the highest units per hour of any vehicle production ever.
15	0	Neutral	So, very excited about that.
16	+20	Neutral	With respect to Autopilot and Dojo, in order to build autonomy, we also need to train our neural net with data from millions of vehicles.
17	0	Neutral	The more -- I mean, this has been proven over and over again.
18	0	Neutral	The more training data you have, the better the results.
19	0	Neutral	And, I mean, there are times where we see basically -- in a neural net, basically it’s sort of at 1 million training examples, it barely works; at 2 million, it slightly works; at 3 million, it’s like wow, okay, we’re seeing something, but then you get like 10 million training examples, it’s like -- it becomes incredible.
20	0	Neutral	So, there’s just no substitute for a massive amount of data.
21	0	Neutral	And obviously, Tesla has more vehicles on the road that are collecting this data than all of the companies combined by, I think, maybe even an order of magnitude.
22	0	Neutral	So, I think we might have 90% of all -- or a very big number.
23	0	Neutral	So, the success in AI endeavors is a function of talent, sort of unique data and computing resources.
24	0	Neutral	And we have outstanding capabilities in all three arenas.
25	0	Neutral	And I really just don’t know how anyone could do what we’re doing, even if they had our software and had our computer, if they did not have the training data.
26	+30	Positive	So, speaking of which, our Dojo training computer is designed to significantly reduce the cost of neural net training.
27	0	Neutral	It is designed to -- it’s somewhat optimized for the kind of training that we need, which is a video training.
28	0	Neutral	So, we just see that the need for neural net training -- again, talking -- speaking of quasi-infinite things, is just enormous.
29	0	Neutral	So, I think having -- we expect to use both, NVIDIA and Dojo, to be clear.
30	0	Neutral	But there’s -- we just see demand for really vast training resources.
31	0	Neutral	And we think we may reach in-house neural net training capability of a 100 exaflops by the end of next year.
32	+20	Neutral	So, to date, over 300 million miles have been driven using FSD beta.
33	0	Neutral	That 300 million mile number is going to seem small very quickly.
34	0	Neutral	It’ll soon be billions of miles, then tens of billions of miles.
35	0	Neutral	And FSD will go from being as good as a human to then being vastly better than a human.
36	0	Neutral	We see a clear path to full self-driving being 10 times safer than the average human driver, so.
37	0	Neutral	And between Autopilot, Dojo computer, our inference hardware in the car, which we call sort of Hardware 3, 4, but it’s really dedicated.
38	0	Neutral	It’s a high efficiency inference computer that’s in the car and our Optimus robot, Tesla’s clearly at the cutting edge of AI development.
39	+25	Positive	With regard to our Cybertruck, we continue to build our release candidates of the Cybertruck on our final production line in Austin.
40	0	Neutral	I’m actually here in Austin at the Gigafactory.
41	+5	Neutral	This is the first truck that we’re aware of that will have four doors over a six foot bed and will fit into a 20-foot garage.
42	0	Neutral	So, it’s sort of biggest on the outside, but it’s even bigger on the inside.
43	0	Neutral	So it’s -- I think that’s a -- one of the elements of good design is it should feel bigger on the inside than it looks on the outside.
44	0	Neutral	And this is no small car, but we really cared about the exterior dimensions of the Cybertruck down to the last millimeter.
45	0	Neutral	So just -- we try to get right in the middle of the Goldilocks zone, not too big, not too small and then really maximize the utility of the volume.
46	0	Neutral	And we can’t wait to start delivering it later this year.
47	0	Neutral	Some other highlights.
48	+10	Neutral	Our global Supercharging network now stands at over 50,000 -- roughly 50,000 connectors and over 5,000 locations.
49	0	Neutral	As I think a lot of people are aware, the Tesla Charging Standard, which we made open source and it’s now called the North American Charging Standard.
50	+50	Positive	We’re deeply honored that Ford, GM, Mercedes and many other OEMs have signed up to use our connector and gain access to our charging network.
51	0	Neutral	We strongly believe in helping other car companies to accelerate the EV revolution and just trying to do the right thing in general.
52	0	Neutral	So, that’s the goal there.
53	+60	Positive	Then something I think, I want emphasize, like very strongly, this is a very important point is that Tesla -- just as with the North American Charging Standard, although we’re not license -- in that case not licensing, we’re just making it available, but we are very open to licensing our full self-driving software and hardware to other car companies.
54	+10	Neutral	And we are already in discussions with -- early discussions with major OEM about using Tesla FSD.
55	0	Neutral	So, we’re not trying to keep this to ourselves.
56	0	Neutral	We’re more than happy to license it to others.
57	+30	Positive	And lastly, our new lithium refinery and cathode facility are progressing well.
58	+10	Neutral	In conclusion, we continue to focus on making as many cars as we can, while maintaining healthy financials.
59	+50	Positive	Our artificial intelligence development is obviously entering a new era and we’re incredibly excited about what’s to come.
60	+60	Positive	Our other businesses such as Megapack, Supercharging service and whatnot, all started to become a meaningful contributor to overall profitability this quarter.
61	+5	Neutral	And then lastly, I’d just like to profusely thank all of our employees who are making a lot of extra effort during uncertain times.
62	0	Neutral	Thank you very much for your hard work and the impact you’re making.
63	0	Neutral	Martin Viecha: Thank you very much, Elon.
64	0	Neutral	And I think Zach has some opening remarks as well.
65	0	Neutral	Zachary Kirkhorn: Yes.
66	0	Neutral	Thanks Martin.
67	+70	Positive	As Elon mentioned, Q2 was another record quarter of production and deliveries, as well as records in profit for our energy and services and other businesses.
68	0	Neutral	Congratulations again to the Tesla team on the continued progress.
69	0	Neutral	As we navigate through a period of economic uncertainty, rising interest rates, volatility in consumer confidence and regulatory change, I want to comment on our financial approach.
70	+15	Neutral	First, the single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the long-term value of the business.
71	+20	Neutral	This includes increasing spending on AI related technologies such as full self-driving, Optimus and Dojo, as well as new products such as Cybertruck, our next generation platform and the Semi, as evidenced by the continued growth in our R&D spend.
72	+15	Neutral	This also includes continuing our investments in capacity expansion, not only in our vehicle factories, but also our Supercharging network, service, internal applications, and battery processes, as we continue with meaningful capital expenditures to lay this foundation for the future.
73	+35	Positive	Second, we continue to work towards our goals of maximizing volumes on both, our vehicle and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments.
74	+25	Positive	This requires a strong focus on per unit COGS reductions in each of our key businesses, as well as working capital improvements on raw materials, work in process inventory and customer AR, all of which progressed appropriately in Q2.
75	+20	Neutral	If we look specifically at our automotive business, our gross margin showed a modest reduction and remained healthy, despite action taken to further improve vehicle affordability early in the quarter.
76	+70	Positive	We recognized – we realized per unit cost improvements in nearly every category, including material cost and commodities, manufacturing costs and logistics, while also continuing to rapidly increase the build rate in our Austin and Berlin factories.
77	+60	Positive	For our energy business, we improved margins and gross profit driven by cost reductions and deal economics, particularly with Megapack.
78	0	Neutral	As a reminder, storage volumes are typically volatile sequentially based on the types of projects and their specific revenue recognition milestones.
79	-10	Neutral	As we look forward to the rest of the year, I want to reiterate Elon’s comments on Q3 volumes driven by planned downtimes for factory upgrades.
80	-15	Neutral	These upgrades will also carry some amount of factory idle cost.
81	0	Neutral	However, we are working to minimize as much as possible.
82	0	Neutral	It’s also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term.
83	0	Neutral	Regardless, we continue to remain dynamic with a focus on fundamental efficiency and a long-term outlook.
84	0	Neutral	Congratulations again to everybody on a great quarter.
85	0	Neutral	A - Martin Viecha : Thank you very much, Zach.
86	0	Neutral	And let’s go to investor questions.
87	0	Neutral	The first question on licensing FSD we’ve already answered.
88	0	Neutral	So, let’s go to the second one.
89	0	Neutral	The second question is, what is the status of 4680 cells?
90	0	Neutral	How far are you from the specs you laid out on Battery Day?
91	0	Neutral	When do you expect to achieve what you laid out on Battery Day?
92	0	Neutral	Unidentified Company Representative: Yes.
93	0	Neutral	First, I’ll just start with a little bit of a production update.
94	+75	Strong Positive	So, in Texas, 4680 cell production increased 80% Q2 over Q1, and the team surpassed 10 million production cells produced here in Texas.
95	0	Neutral	So, congrats to the team for that.
96	+75	Strong Positive	Their focus on yield reduced our scrap bill by 40% quarter-over-quarter, and that resulted in a 25% reduction in cell COGS.
97	+65	Positive	Here in Texas, we’re preparing to launch our Cybertruck cell, which is 10% higher energy density than current production.
98	0	Neutral	That was accomplished through process and mechanical design optimization.
99	+40	Positive	As we scale Cyber cell production through the end of the year and early next, we should be in a comfortable place on cost per cell.
100	0	Neutral	Against our battery energy density targets, the Cyber cell is at our expectations on a like-for-like electrochemistry basis.
101	+30	Positive	We’re yet to integrate silicon or in-house cathode production, both reviewed on Battery Day, which do bring significant further energy density and cost improvements, but that is a topic for another day.
102	+40	Positive	Lastly, it is important to remember that most of what we focused on a Battery Day was the Tesla-engineered 4680 production system and the improvements we strove to achieve on equipment, factory density, capital cost and utility cost reduction, all of which we are realizing in our Texas scale up to date.
103	0	Neutral	Martin Viecha: Thank you very much.
104	0	Neutral	The next question is, can you talk more to the upcoming Tesla Energy products and how your thinking has evolved on the revenue model?
105	0	Neutral	Given Tesla’s AI capabilities, how do you see the long-term mix between hardware margin and recurring software margin from Autobidder as this segment accelerates?
106	0	Neutral	Unidentified Company Representative: We can’t comment on future product road map, but I can provide a quick energy Q2 update.
107	+40	Positive	Megapack continues to show strong demand globally with Lathrop ramping successfully to meet our contracted projects in 2023.
108	0	Neutral	As stated last quarter, Megapack margins are in a reasonable place, in line with our target – vehicle target margins.
109	+30	Positive	The second final assembly line at Lathrop is progressing on schedule, eventually doubling Lathrop capacity ahead of our full factory ramp in 2024.
110	+30	Positive	We have several exciting large projects in construction or nearing completion, including the KES project in Hawaii, the Riverina project in Australia, several products in California and one here at Gigafactory, Texas that we’ll tour today, actually.
111	0	Neutral	We want to thank our customers, utilities and grid operators for trusting us with these projects.
112	+55	Positive	On the Autobidder question, we continue to grow Autobidder contracts in wholesale markets like Australia, Texas, UK and California with over 6 gigawatt hours under Tesla’s dispatch next year.
113	+40	Positive	In the UK, our projects performed best in the industry in Q2.
114	+20	Neutral	Autobidder does have software margins and is an enabler for hardware sales, but it’s a relatively small contributor to revenues, given how much deployment growth on the Megapack hardware side is occurring.
115	+40	Positive	It’s important to remember that these large projects – these large capital projects have lifetimes of 20 years of recurring revenues on an annualized basis relative to upfront CapEx are small.
116	0	Neutral	On the residential side, we have some fun things happening.
117	+25	Positive	We recently surpassed 0.5 million Powerwalls installed.
118	+20	Neutral	Just this week, we are launching Charge on Solar, which allows Tesla Powerwall and vehicle customers to charge their vehicles using their excess solar and drive only on the sunshine that hits their roof.
119	0	Neutral	Yesterday, we began paying customers in Texas for participating in our virtual power plant to provide grid support to ERCOT.
120	+75	Strong Positive	We expect these credits to lower our median customer’s annual bill by a third and to increase these credits over time as ERCOT expands market access.
121	+25	Positive	And today, we are expanding Tesla electric enrollment to new Model 3 owners in Texas, followed by all Texas vehicle customers over the rest of the quarter.
122	-30	Negative	Unfortunately and somewhat similar to Tesla Insurance, bringing Tesla electric and BPP capabilities to our customers requires working through a fractured regulatory environment on a jurisdiction-by-jurisdiction basis.
123	0	Neutral	In the long run, the value of residential energy software and hardware will be driven by the level of market access that utilities, market operators and regulators permit.
124	+60	Positive	For Powerwall that’s eligible to provide the full stack of energy services, like peaker capacity and system buffering, such as in Australia, we can more than double the value of ownership relative to a typical system today.
125	0	Neutral	Martin Viecha: Thank you very much.
126	0	Neutral	The next question is, could you quantify the benefits to COGS per unit from the IRA battery manufacturing incentives; and secondly, battery raw material declines year-to-date?
127	0	Neutral	Zachary Kirkhorn: All right.
128	0	Neutral	I can take that.
129	0	Neutral	On the first part of the question for IRA manufacturing incentives, we provided previous guidance that we expect these to be for the course of this year in the range of $150 million to $250 million per quarter.
130	0	Neutral	We are staying within that boundary as we guided previously, so that was the case in Q2 as well.
131	0	Neutral	I will note, and I think we’ve mentioned this before, that this includes a 50-50 sharing of credits for qualified cells from our long-term battery partner, Panasonic.
132	0	Neutral	On the commodity side, we are continuing to see improvements there, as we’ve discussed previously.
133	0	Neutral	Lithium is the most notable improvement so far.
134	0	Neutral	I think I commented on this on the last call, because typically, we see this coming about a quarter before it actually is realized in our financials.
135	0	Neutral	And also just as a reminder, we’re not fully exposed to the price of lithium.
136	+10	Neutral	Our supply chain team has done a terrific job in partnership with another – a bunch of other companies to put in place some long-term agreements here, but we do have some exposure that moves up and down.
137	0	Neutral	We’re also seeing benefits in aluminum and steel, which I think is great.
138	0	Neutral	Not as large as the lithium impacts, but they contribute nonetheless.
139	0	Neutral	So, if we add up the total impact of this in Q2 relative to prior quarter, it’s about the same size and magnitude as the IRA benefits that we also received.
140	0	Neutral	Just to put this in context, as you look at COGS per unit sequentially from Q1 to Q2, I think there’s two things to keep in mind there.
141	+1	Neutral	The first is that our SX mix for deliveries increased quite a bit from Q1 to Q2.
142	0	Neutral	So, as you think about fundamental cost reductions, it’s important to adjust for that.
143	-10	Neutral	And then secondly, as we continue to work on reducing our Austin and Berlin cost, which we did quite a bit of that from Q1 to Q2, these factories are still slightly above Model Y production costs elsewhere.
144	0	Neutral	And in the quarter, our mix of Austin and Berlin related builds increased.
145	0	Neutral	And so, that’s something to consider as you model out the impact on – from Q1 to Q2 in terms of COGS per unit.
146	0	Neutral	I do want to ask Karn if there’s anything else on the commodity side or just more generally, you want to add here?
147	0	Neutral	Karn Budhiraj: Yes.
148	0	Neutral	As you mentioned, Zach, we’ve naturally been a little bit hedged from the lithium position because of the long-term contracts we have in place.
149	+60	Positive	But we have seen reduction in pricing across the board for all commodities that specifically go into batteries such as nickel, cobalt and graphite.
150	-25	Negative	And the reductions in pricing translate into thousands of dollars when you look at it from a per-vehicle impact.
151	+65	Positive	We’re taking advantage of the historically low commodity pricing and certainly [Indiscernible] to kind of extend some of those fixed price contracts through the end of the decade.
152	0	Neutral	So it’s a playbook that we’ll continue to kind of go back to as we look to the future.
153	0	Neutral	Martin Viecha: Thank you.
154	0	Neutral	The next question on FSD.
155	0	Neutral	Have you considered allowing FSD transferability as a lever to allow existing customers to upgrade to a new Tesla instead of being locked into an existing car due to the price of FSD?
156	0	Neutral	Elon Musk: Yes.
157	0	Neutral	This is a question we get asked a lot.
158	0	Neutral	So, we’re excited to announce that for Q3, we will be allowing transfer of FSD.
159	0	Neutral	This is a onetime amnesty.
160	0	Neutral	So, it needs to be -- you need to take advantage of it in Q3, but -- or at least place the order in Q3 within reasonable delivery time frames.
161	0	Neutral	So yes, I hope this makes people happy.
162	0	Neutral	This is a onetime thing.
163	0	Neutral	Martin Viecha: Right.
164	0	Neutral	The next question, when will we give more information about the Cybertruck orders, estimated delivery schedules, pricing and specifications?
165	+50	Positive	Elon Musk: Demand is so far off the hook, you can’t even see the hook.
166	0	Neutral	So, that’s really not an issue.
167	0	Neutral	I do want to emphasize that the Cybertruck has a lot of new technology in it, like a lot.
168	0	Neutral	It doesn’t look like -- it doesn’t look like any other vehicle because it is not like any other vehicle.
169	0	Neutral	So -- and the production ramp will move as fast as the slowest and least likely elements of the entire supply chain and internal production.
170	0	Neutral	So, I wouldn’t expect -- I hope it’s smooth.
171	0	Neutral	We’re certainly better at production ramps that -- we’ve got a lot of experience with the production ramps.
172	0	Neutral	But first order approximation, there’s like 10,000 unique parts and processes in the Cybertruck.
173	0	Neutral	And if any one of -- it will go as fast as the least lucky, least well-executed element of the 10,000.
174	0	Neutral	So, it’s always difficult to predict the ramp initially, but I think we’ll be making them in high volume next year, and we will be delivering the car this year.
175	0	Neutral	Martin Viecha: Thank you.
176	-50	Negative	The next question is critics of Gigacasting contended that process makes vehicles harder and more costly to repair, essentially pushing costs on to the customer.
177	0	Neutral	Can you share some details about the initial repair experience with Gigacast vehicles?
178	0	Neutral	Elon Musk: That must be why everyone’s copying us.
179	0	Neutral	Lars Moravy: Thanks, Elon.
180	0	Neutral	This is Lars.
181	0	Neutral	I mean, that’s like simply not true.
182	0	Neutral	There’s a misconception that traditional bodies are easy to repair, but they are made up of multiple materials and multiple joining methods.
183	0	Neutral	Spot welds and rivets have to be drilled out.
184	0	Neutral	Panels and structural adhesives have to be chiseled out.
185	0	Neutral	Dried adhesive has to be removed, stains, cut, blah, blah, blah.
186	0	Neutral	Elon Musk: It’s a crazy patch of a quilt.
187	0	Neutral	Lars Moravy: Yes.
188	0	Neutral	And so putting that back together means time and money.
189	+45	Positive	Using an example of replacing a rear cast rail in the Model Y, to do that versus like what we replaced it with from Model 3, it’s 10 times cheaper and 3 times faster to do it with the cast rail.
190	+10	Neutral	Design team works with our collision repair team since we’re a closed loop on this with insurance, and we design specific parts that make it easier and faster to repair.
191	+20	Neutral	And we have an incentive to do that because we have our own insurance and our own body shops.
192	+20	Neutral	We expect that we’ll continue to do this, and collision repair will continue to become cheaper and faster over time.
193	0	Neutral	And we already make this available to all body shops or our Tesla-approved body shop training.
194	+5	Neutral	Elon Musk: Yes, closing loop on collision repair and factoring that into design is a big deal.
195	0	Neutral	Lars Moravy: Crucial.
196	0	Neutral	I don’t think anyone else can do it with that ecosystem that we have, so.
197	0	Neutral	Elon Musk: Yes.
198	0	Neutral	And we are actually able to change the details of the casting with inserts, and we actually do that all the time, so -- because the inserts actually wear out and need to be replaced anyway.
199	0	Neutral	So we can actually make design changes to the inserts and tweak the castings.
200	+20	Neutral	But the cast --basically cast rear body or front body is lighter, cheaper, better noise vibration, harshness, much easier to manufacture.
201	0	Neutral	It’s better in every way.
202	0	Neutral	And that’s why so many other car companies are copying us.
203	0	Neutral	Lars Moravy: Probably.
204	0	Neutral	Elon Musk: Well, they certainly put out a lot of press releases about it.
205	0	Neutral	I think it’s basically going to be how all cars are made in the future.
206	0	Neutral	Martin Viecha: Thank you.
207	0	Neutral	Next question, how many Optimus bots have been made?
208	0	Neutral	And when will they be able to start performing useful tasks?
209	0	Neutral	Elon Musk: 10 million.
210	0	Neutral	Yes.
211	0	Neutral	I think we’re around 5 or 6 bots.
212	0	Neutral	I think -- there’s -- we were -- look, 10, I guess.
213	0	Neutral	Depends on what -- how many are working and what phase.
214	0	Neutral	But it’s sort of -- yes, there’s more every month.
215	0	Neutral	There’s a lot of interesting things about the Optimus bot.
216	-75	Strong Negative	We found that there are actually no suppliers that can produce the actuators.
217	0	Neutral	There are no off-the-shelf actuators that work well for humanoid robot at any price.
218	0	Neutral	Unidentified Company Representative: Certainly not compelling.
219	0	Neutral	Elon Musk: Yes.
220	0	Neutral	There’s not a humanoid robot that can do something -- the things that human could do.
221	0	Neutral	So, we’ve actually had to design our own actuators that integrate the motor or the power electronics, the controller, the sensors.
222	0	Neutral	And really, every one of them is custom designed.
223	0	Neutral	And then, of course, we’ll be using the same inference hardware as the car.
224	+10	Neutral	But we are, in designing these actuators, designing them for volume production.
225	0	Neutral	So, they’re not just lighter, tighter and more capable than any other actuators wherever that exists in the world, but it’s also actually manufacturable.
226	0	Neutral	So, we should be able to make them in volume.
227	+10	Neutral	The first Optimus that is -- that will have all of the Tesla designed actuators, sort of production candidate actuators integrated and walking should be around November-ish.
228	0	Neutral	And then, we’ll start ramping up after that.
229	0	Neutral	In terms of when we’ll be able to do some useful things, like we’ll first be trying this out in our own factories and just proving out its utility, but I think we’ll be able to have it do something useful in our factories sometime next year.
230	0	Neutral	I would be -- yes, I’m pretty confident of that.
231	0	Neutral	So yes, it’s going well.
232	0	Neutral	I should say another cool thing about Optimus is that there’s -- just in the U.S. alone, there are 2 million amputees.
233	0	Neutral	And I was just talking to the Neuralink team.
234	0	Neutral	And by combining a Neuralink implant and a robotic arm or leg for someone that has had their arm or leg or arms and legs amputated, we believe we can give basically a cyber body that is incredibly capable, $6 million man in real life, before don’t want to cost $6 million.
235	0	Neutral	$60,000 man.
236	0	Neutral	This sounds impressive, but it will actually -- so that actually could be a really -- I think, would be incredible to potentially help people around the world and give them a robot arm or like that is as good, maybe long term better than a biological one.
237	0	Neutral	Martin Viecha: Thank you.
238	0	Neutral	The next question is, how has the order intake trended relatively to production levels during Q2?
239	0	Neutral	And how has it trended in the quarter-to-date period?
240	0	Neutral	Conceptually, how does Tesla decide when is it appropriate to reduce prices or at other sales incentives to increase demand?
241	0	Neutral	Elon Musk: Yes.
242	0	Neutral	I guess, demand has roughly tracked production.
243	0	Neutral	So -- which is what we aim for is -- we look at -- it’s something that we have that really -- I think no other carmaker has -- is that we have real-time demand and real-time production, like so seven days a week.
244	0	Neutral	I get an e-mail -- order generated e-mail, chose output from all factories and orders globally.
245	0	Neutral	So it’s like a real-time finger on the pulse of earth basically.
246	0	Neutral	And we adjust course according to what the mood of the public is.
247	0	Neutral	Buying a new car is a big decision for vast majority of people.
248	-50	Negative	So, any time there’s economic uncertainty, people generally pause on new car buying at least to see what happens.
249	0	Neutral	And then obviously, another challenge is the interest rate environment.
250	-50	Negative	As interest rates rise, the affordability of anything bought with debt decreases, so effectively increasing the price of the car.
251	-60	Negative	So when interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car.
252	-60	Negative	And this is -- at least up until recently, it was, I believe, the sharpest interest rate rise in history.
253	0	Neutral	So, we had to do something about that.
254	0	Neutral	If somebody’s got a crystal ball for the global economy, I really appreciate it, if I could borrow that crystal ball.
255	0	Neutral	Unidentified Company Representative: DM us.
256	0	Neutral	Elon Musk: Yes, exactly, DM me.
257	0	Neutral	It should be not on Twitter.
258	0	Neutral	So, I mean, one day, it seems like the world economy is falling apart and the next day, everything is fine.
259	0	Neutral	I don’t know what’s going on.
260	0	Neutral	It’d be totally fine.
261	0	Neutral	I wish I did.
262	0	Neutral	So, I mean that’s why I say like I was on Twitter, I posted like just really advising because I care a lot about the sort of small shareholders, especially ones that have stuck with us through thick and thin.
263	0	Neutral	I love you, guys.
264	-30	Negative	And so, we can’t control these macro shocks or the thematic depressive nature of the stock market.
265	0	Neutral	So, that’s why I recommend against margin loans in times that are turbulent.
266	0	Neutral	If times are not that turbulent, actually margin loan can be a smart move within reason.
267	-25	Negative	But we’re in, I would call it, turbulent times.
268	0	Neutral	Like I have very high confidence in the long-term value of Tesla.
269	0	Neutral	Like I see it -- I really see a path to a 10x -- call it a 5x increase in the value of the company, maybe a 10x.
270	0	Neutral	And -- but where things go along the way, the trials and tribulations and the mood of the markets, one cannot predict.
271	0	Neutral	And so, the old adage of buy and hold is right.
272	0	Neutral	For an investment advice, I’d say like identifying a company as products you love.
273	0	Neutral	See if they -- does it seem like they’ll continue to make good products or great products?
274	0	Neutral	Buy that stock and hold it.
275	0	Neutral	That’s it.
276	0	Neutral	You’ll win.
277	0	Neutral	The reason companies exist is to make goods and services, ideally great goods and services.
278	0	Neutral	They don’t exist for any other reason.
279	0	Neutral	They shouldn’t.
280	0	Neutral	So, that’s why you should buy stock of a company that makes good products and has a great future pipeline.
281	0	Neutral	It’s common sense, actually.
282	0	Neutral	And then generally, if you see -- if you provide your confidence about what that company’s products or services are, when the market panics, buy; and when the market is overly exuberant, you can sell.
283	0	Neutral	I’m not recommending you to Tesla, but yes, buy low, sell high.
284	0	Neutral	Warren Buffett actually, I think has a saying -- I’m paraphrasing him, but a publicly traded company is like imagine living in your house and some crazy manic-depressive guy comes and stands outside your house and yells property prices at you, and it’s a different price every day.
285	0	Neutral	But the house is still the same house.
286	0	Neutral	So, this is a stock market.
287	0	Neutral	Credit that to Warren Buffett.
288	0	Neutral	Martin Viecha: Thank you.
289	0	Neutral	Let’s go to the next question.
290	0	Neutral	With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts?
291	0	Neutral	And if so, when?
292	0	Neutral	Elon Musk: Where’s that crystal ball, again?
293	0	Neutral	If I may, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture.
294	0	Neutral	Autonomy will make all of these numbers look silly.
295	0	Neutral	I’d recommend looking at ARK Invest.
296	0	Neutral	I think their analysis is very good.
297	0	Neutral	It’s the best.
298	0	Neutral	And generally, Fintwit or the finance, Smart Finance people on Twitter, follow their accounts.
299	0	Neutral	They’re great.
300	0	Neutral	So that’s in my opinion where you’ll get the best info.
301	0	Neutral	So, I strongly believe Tesla is a big long-term investment.
302	0	Neutral	And don’t sweat when things go up and down.
303	0	Neutral	In fact, if the market panics, buy; if the market is a little too exuberant, sell at the time.
304	0	Neutral	But just generally, like -- I feel -- I’m confident we’ll deliver over long term, but can’t control short term.
305	0	Neutral	So -- and the autonomy is really where it’s at.
306	0	Neutral	I mean, Zachary?
307	0	Neutral	Zachary Kirkhorn: I fully agree with you.
308	0	Neutral	I mean, I think the only thing in the short term that matters is what I said in my opening remarks, which is are we generating enough money to continue to invest.
309	0	Neutral	And the portfolio of products and technologies that the technical teams are investing in right now, this is intense.
310	0	Neutral	It’s intense in terms of investment; it’s intense in terms of potential.
311	+75	Strong Positive	Elon Musk: Frankly, I think it’s ridiculous that we have positive free cash flow in a capital-intensive business, while investing massive amounts of money in new technology.
312	0	Neutral	That is super hard.
313	0	Neutral	Unidentified Company Representative: And vertical integration.
314	0	Neutral	It’s not even just like new products, but also... Elon Musk: Yes.
315	0	Neutral	We actually make our share... Zachary Kirkhorn: And so, at least from my perspective, what matters is continuing to generate the cash to invest.
316	+10	Neutral	That means continuing to be hyper focused on near-term cost reduction.
317	0	Neutral	Is everything we do in near-term cost reduction provides capital to reinvest?
318	+35	Positive	Hyper-focused on working capital management, which we’ve made quite a bit of progress there on the raw materials and with -- a set of that we’ve been very focused on accounts receivables as well to ensure that we can continue to reinvest the cash.
319	0	Neutral	This is what we’re focused on.
320	0	Neutral	And so, there’s a set of this that we control.
321	+20	Neutral	We have a pipeline of cost reductions.
322	+20	Neutral	We are getting tailwinds in the commodity space right now, as Karn mentioned, that’s helpful.
323	0	Neutral	Variability around average selling prices goes back to Elon’s point.
324	0	Neutral	We don’t control interest rates.
325	0	Neutral	We don’t control macro consumer sentiment.
326	0	Neutral	But we have an obligation to be responsive to that to ensure that we’re matching supply and demand and keeping things balanced.
327	0	Neutral	And so, this is how we’re managing the next handful of quarters.
328	0	Neutral	Soon enough, these quarters will be behind us.
329	0	Neutral	They won’t be part of the present value of future cash flows of the business.
330	0	Neutral	And so, we want to make sure we keep that view and make sure that the long term business is exactly the way that we want it to be.
331	0	Neutral	Martin Viecha: All right.
332	0	Neutral	Thank you very much.
333	0	Neutral	Now let’s go to analyst questions.
334	0	Neutral	The first question comes from Dan Levy from Barclays.
335	0	Neutral	Dan Levy: I wanted to start first with a question about your efforts in AI and Dojo.
336	0	Neutral	It’s pretty clear it sounds like you’re accelerating your focus.
337	0	Neutral	Can you maybe provide us with a sense of what the process is of refining a product?
338	0	Neutral	Is it more machines?
339	0	Neutral	And maybe you could give us a sense of when the payout starts to -- when you start to see the payout and what the resource outlay is, what should we expect on the OpEx front as a result of this?
340	0	Neutral	Elon Musk: Sorry.
341	0	Neutral	Are you saying how much are we going to spend on Dojo or…?
342	0	Neutral	Dan Levy: Yes.
343	0	Neutral	Elon Musk: R&D on Dojo?
344	0	Neutral	Dan Levy: Yes.
345	0	Neutral	Elon Musk: Well, we’re not going to be open loop on our Dojo expenditures.
346	-20	Neutral	So -- but I mean, I think we will be spending something north of $1 billion over the next year on -- through the next year, it’s well over $1 billion in Dojo.
347	0	Neutral	And yes, so I mean we’ve got a truly staggering amount of video data to do training on.
348	+20	Neutral	And this is another thing -- in order to copy us, you also need to spend billions of dollars on training compute.
349	0	Neutral	I mean, it’s like -- and it’s also hard to -- you need the data and you need the training computer.
350	0	Neutral	It’s like -- think, well, things needed to actually achieve this at scale toward generalized solution for autonomy, it’s -- this is one of the highest problems ever.
351	0	Neutral	You see a lot of AI companies doing LLMs and whatnot.
352	0	Neutral	I would say if they’re so great, why can’t they make a self-driving car?
353	0	Neutral	Because it’s harder.
354	0	Neutral	That’s why.
355	0	Neutral	So -- but I do think -- I think there’s some great AI companies out there.
356	0	Neutral	But just fundamentally, the staggering amount of data we’ve got to process, it’s got to be processed somehow.
357	0	Neutral	And custom silicon is the best way to do that.
358	0	Neutral	So that’s what Dojo is designed to do is optimize for video training.
359	0	Neutral	It’s not optimized for LLMs.
360	0	Neutral	It’s optimized for video training.
361	0	Neutral	With video training, you have a much higher ratio of compute-to-memory bandwidth, so -- whereas LLMs tends to be memory bandwidth choked.
362	0	Neutral	So that’s it.
363	0	Neutral	I mean -- but like I said, we’re also -- we have some -- we’re using a lot of NVIDIA hardware.
364	0	Neutral	We’ll continue to -- we’ll actually take NVIDIA hardware as fast as NVIDIA will deliver it to us.
365	0	Neutral	Tremendous respect for Jensen and NVIDIA.
366	0	Neutral	They’ve done an incredible job.
367	0	Neutral	And frankly, I don’t know if they could deliver us enough GPUs, we might not need Dojo, but they can’t.
368	0	Neutral	So they’ve got so many customers.
369	0	Neutral	They’ve been kind enough to nonetheless, prioritize some of our GPU orders.
370	0	Neutral	But yes, the sheer magnitude of video training -- because like I said, we’re not trying to just get as good as human.
371	0	Neutral	We want to get to 10 times better than human, maybe 100 times better than human.
372	0	Neutral	Right now, I believe there’s something on the order of 1 million automotive deaths per year.
373	0	Neutral	And then if you say permanent serious injuries, I think it’s probably closer to 10 million per year.
374	0	Neutral	And -- so it matters if you’re twice as good as human, 10 times -- like 10 times better than human would still mean 100,000 deaths and 1 million severe permanent injuries.
375	0	Neutral	So, it’s like, okay, we would rather be 100 times better.
376	0	Neutral	So there’s really -- it’s a march of 9s, and we want to achieve as perfect safety as possible.
377	0	Neutral	And that’s truly mind-boggling amounts of video and computer needed for that.
378	+15	Neutral	And then, I do think there’s other applications for Dojo, but we just desperately need it for video training.
379	0	Neutral	Zachary Kirkhorn: Just to add to what Elon mentioned.
380	0	Neutral	So, the numbers that he mentioned are between R&D spend and capital spend.
381	0	Neutral	And this is moving quickly.
382	0	Neutral	And so, we provide a three-year outlook on our capital expense.
383	0	Neutral	We are considering these expenses in that outlook.
384	0	Neutral	And as that moves up and down, we’ll continue to update our guidance in the Q. Elon Musk: Yes.
385	0	Neutral	I want to say, the fundamental rate limiter on the progress of full self-driving is training.
386	0	Neutral	That’s -- if we had more training compute, we would get it done faster.
387	0	Neutral	So that’s it.
388	0	Neutral	Zachary Kirkhorn: And it’s just difficult to predict how quickly we can execute on it.
389	0	Neutral	Dan Levy: Great.
390	0	Neutral	Thank you.
391	+20	Neutral	Just as a follow-up, I recognize there’s incredible macro uncertainty right now, but you’re sticking with your near term, your volume target of 50% CAGR.
392	0	Neutral	As we just think about sort of in the year ahead, Cybertruck is going to be some contribution.
393	0	Neutral	There’s going to be some help from further EV penetration growth.
394	0	Neutral	But to what extent are you willing to sacrifice on pricing to keep that 50% volume CAGR intact, or are you thinking differently about margins versus your prior commentary of willing to sacrifice on margins to get more share?
395	0	Neutral	Elon Musk: It’s not about getting more share.
396	0	Neutral	It’s just that you can think of every car that we sell or produce that has full autonomy capability as actually something that in the future may be worth as much as 5 times what it is today.
397	0	Neutral	Because average -- vehicle is doing like maybe 10 hours of driving a week.
398	0	Neutral	If sort of -- if this says 1.5 hours a day on average, that’s 10 hours a week-ish.
399	0	Neutral	If you’ve got on autonomous -- if the vehicle is able to operate autonomously and use either dedicated autonomous or partially autonomous like Airbnb, like maybe sometimes you allow your car to be used by others.
400	0	Neutral	Sometimes you want to use it exclusively just like Airbnb -- doing Airbnb with a room in your house.
401	0	Neutral	The value is just tremendous.
402	+10	Neutral	So, I think it’s sort of, it would be -- I think it -- it does make sense to sacrifice margins in favor of making more vehicles because we think in the not too distant future, they will have a dramatic valuation increase.
403	0	Neutral	I think the Tesla fleet value increase at the point which we can upload full self-driving and is approved by regulators will be the single biggest step change in asset value maybe in history.
404	0	Neutral	Martin Viecha: Thank you.
405	0	Neutral	Let’s go to the next analyst.
406	0	Neutral	The question comes from Emmanuel Rosner from Deutsche Bank.
407	0	Neutral	Emmanuel Rosner: Two questions from me as well.
408	0	Neutral	First, following up on the autonomy.
409	0	Neutral	So before you start launching these dedicated robotaxi vehicles, on existing vehicles, you’re improving FSD incrementally.
410	0	Neutral	What is your latest targeted timing to essentially release a non-beta version or an eyes-off version that would trigger much higher take rates?
411	0	Neutral	And would Tesla benefit from lowering the price of FSD?
412	-20	Neutral	Elon Musk: Well, obviously, as people have sort of made fun of me and perhaps quite fairly have made fun of me, my predictions about achieving full self-driving have been optimistic in the past.
413	0	Neutral	The reason I’ve been optimistic is -- it tends to look like is the -- we’ll make rapid progress with a new version of FSD, but then it will curve over logarithmically.
414	0	Neutral	So first, logarithmic curve looks like just sort of fairly straight upward line, diagonally up.
415	0	Neutral	And so, if you extrapolate that, then you have a great thing.
416	0	Neutral	But then because it’s actually logarithmic, it curves over, and then there have been a series of stacked logarithmic curves.
417	0	Neutral	Now, I’m the boy who cried FSD, but I think we’ll be better than human by the end of this year.
418	-50	Negative	That’s not to say we’re approved by regulators.
419	0	Neutral	And I’m saying that would be in the U.S. because we’ve got to focus on one market first.
420	0	Neutral	But I think we’ll be better than human by the end of this year.
421	0	Neutral	I’ve been wrong in the past, I may be wrong this time.
422	0	Neutral	And the price of FSD -- so the great thing is the price of FSD is actually very low, it’s not high.
423	0	Neutral	When you go back to what I said earlier, the value of the car increases dramatically if it is actually autonomous.
424	0	Neutral	$15,000 is actually a low price, not a high price.
425	0	Neutral	And we will offer -- and we -- I think we do sort of offer FSD as a sort of monthly subscription, although most people don’t know that.
426	-20	Neutral	So, I’d recommend like maybe trying it out as a monthly subscription so you don’t have to go with the $15,000 thing.
427	0	Neutral	But I think yes, yes -- obviously, if the car is worth several times its original price, $15,000 is actually a low price for FSD.
428	0	Neutral	Martin Viecha: And the next question comes from William Stein from Truist.
429	0	Neutral	William Stein: I’d like to ask about -- to stick on this AI topic.
430	0	Neutral	We’ve read with great interest the developments in Dojo today, and you’ve spoken about FSD, but you’ve also -- Elon, you started this x.ai company.
431	-20	Neutral	And for investors that think that there might be quite a bit of value in the AI features and products of Tesla, it might be concerning to see you pursuing another endeavor where AI is the focus.
432	0	Neutral	So can you talk about how x.ai might overlap, might perhaps compete with Tesla or in other ways, perhaps it enhances the value of what Tesla does?
433	0	Neutral	Elon Musk: Yes.
434	0	Neutral	I think it’ll actually enhance the value of Tesla.
435	0	Neutral	There were just some of the world’s best AI engineers and scientists that were willing to join a startup, but they were not willing to join a large sort of relatively established company like Tesla.
436	0	Neutral	So, it was like -- that’s actually how it got started.
437	0	Neutral	I was interviewing a few people and they’re like, no, we want to do a startup.
438	0	Neutral	I was like, and that’s well -- I couldn’t convince them to join Tesla.
439	0	Neutral	So -- so it’s like, okay, well, better to start up that I run than go work somewhere else.
440	0	Neutral	That’s kind of the genesis of xAI.
441	0	Neutral	And xAI is focused on sort of AGI.
442	0	Neutral	Yes.
443	0	Neutral	So it’s -- like I said, I think there will be some value that xAI brings to Tesla.
444	0	Neutral	Also some of the best -- for the very best people in the world, they really just want to work on interesting problem.
445	0	Neutral	So if you take, say, a material science group, really what convinced Charlie Colman to leave Apple, where he was very happy and well compensated, and both at -- in both -- where we think is the best material science group in the world, was that he got to work at both Tesla and SpaceX.
446	0	Neutral	He wasn’t willing to leave Apple if it was just Tesla, but he’s willing to do it if it is Tesla and SpaceX.
447	0	Neutral	So sometimes you get the best talent in the world if that’s the kind of thing you need to do.
448	0	Neutral	And that actually has been very beneficial to Tesla.
449	0	Neutral	William Stein: If I could squeeze one more mundane question in.
450	0	Neutral	I wonder if you think you can hit the 1.8 million unit number with current pricing, or do you anticipate needing to continue to lower prices because it seems like they’ve stabilized.
451	0	Neutral	The trends have stabilized in the last maybe 1.5 months.
452	0	Neutral	Should we expect sort of continued decreases or more stabilization for the rest of the year?
453	0	Neutral	Elon Musk: Sure.
454	+25	Positive	We have sort of -- we started the referral program, which I think will be quite effective.
455	0	Neutral	As Zach was saying earlier, we don’t control the macroeconomic conditions.
456	-50	Negative	So, if interest rates continue to rise, that reduces the affordability of cars.
457	0	Neutral	And for a lot of people, they’re really -- they’re just really breaking even every month.
458	-70	Negative	In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month.
459	-50	Negative	Credit card debt is looking scary.
460	0	Neutral	So, we just don’t control the market conditions.
461	0	Neutral	If market condition is stable, I think prices will be stable.
462	-50	Negative	If they’re not stable, then we would have lower prices.
463	0	Neutral	Yes.
464	0	Neutral	Martin Viecha: Thank you.
465	0	Neutral	Let’s go to Colin Rusch from Oppenheimer.
466	0	Neutral	Colin Rusch: As you’re building out Dojo and implementing what truly is going to be a highly complex set of software, can you speak to the maturity of the operating system and how much outsourced software you’re expecting to use in that system?
467	0	Neutral	Elon Musk: This is a custom software stack, so.
468	0	Neutral	But it is designed such that you can run at a high level, PyTorch and JAX.
469	0	Neutral	But then we have to customize it to actually run on a custom silicon.
470	0	Neutral	So, the software stack is a combination of open source software and then Tesla software all the way to the bare silicon, which is the case for the inference computer in the car.
471	0	Neutral	Colin Rusch: Okay.
472	0	Neutral	Thanks so much.
473	0	Neutral	That’s super helpful.
474	0	Neutral	And then can you speak to how you’re managing some of the geopolitical risks relative to your capacity expansion?
475	0	Neutral	Obviously, as you guys continue to grow at this rate, you’re going to be putting some folks out of business.
476	0	Neutral	And there’s going to be some impacts around regional economy.
477	0	Neutral	So, I just want to understand how you’re thinking about that in terms of some of your CapEx plans and how you’re managing some of those relationships with different countries and regions.
478	0	Neutral	Elon Musk: Well, this is a period of unusual geopolitical risk.
479	+30	Positive	So, I think we’re -- the best we can do is have factories in many parts of the world such that if things get difficult in one part of the world, we can still keep things going in the rest of the world.
480	0	Neutral	Martin Viecha: Thank you.
481	0	Neutral	The next question comes from Mark Delaney from Goldman Sachs.
482	+70	Positive	Mark Delaney: Tesla has been making progress reducing costs and did so again last quarter.
483	+36	Positive	Can you give an update on when you think automotive COGS per vehicle could be under the historical $36,000 per vehicle level?
484	0	Neutral	And what are the key puts and takes to get there?
485	0	Neutral	Zachary Kirkhorn: This is -- I think I was asked this in the past.
486	0	Neutral	This is very difficult to forecast.
487	0	Neutral	There’s a series of costs that we manage, the series of costs which we don’t control.
488	0	Neutral	And so particularly on the commodity side, where labor costs go, et cetera, it’s just hard to say.
489	0	Neutral	Elon Musk: Yes.
490	-10	Neutral	And we saw very inflationary -- like strong inflationary pressures for a while last year.
491	-50	Negative	And now -- which obviously makes it very difficult to reduce COGS.
492	0	Neutral	And now we’re seeing what seems to be deflationary pressures, certainly deflationary -- deflation isn’t pressure.
493	0	Neutral	But we’re seeing commodity prices dropping as was mentioned, as Karn mentioned a moment ago.
494	0	Neutral	I mean, I don’t know, what do you think?
495	0	Neutral	I mean, basically, the trends seem to be deflationary at the commodity level.
496	0	Neutral	Karn Budhiraj: Definitely.
497	0	Neutral	There’s that.
498	+50	Positive	And then there’s also the unit economics improve as volumes grow.
499	0	Neutral	That’s the other thing we’re seeing.
500	+25	Positive	As we’re becoming a bigger and better part of a lot of suppliers, the economies of scale come into play.
501	-15	Neutral	There’s equipment depreciation that comes into play, equipment that was commissioned 5 to 7 years ago.
502	0	Neutral	That used to be a part of the piece price.
503	0	Neutral	That’s completely amortized.
504	0	Neutral	So, we’ll see situation where piece price comes down because that equipment contribution has gone away.
505	+15	Neutral	And then just we continue to have this mentality of continuous improvement in terms of labor, reducing labor, improving automation, and just continue to get better at what we do.
506	0	Neutral	So we have seen -- I think every quarter, we have seen an improvement.
507	0	Neutral	Of course, the commodities spiked up and down.
508	0	Neutral	Just in general, the trend is towards being more efficient.
509	0	Neutral	Zachary Kirkhorn: Yes, I’m totally agreeing.
510	0	Neutral	Elon Musk: Yes, lithium prices were absolutely insane there for a while.
511	0	Neutral	Zachary Kirkhorn: Yes.
512	0	Neutral	And they’re recovering now.
513	0	Neutral	Karn Budhiraj: Cobalt -- the way it used to be.
514	0	Neutral	Zachary Kirkhorn: Yes.
515	0	Neutral	And we’re still early in the ramp -- well, not early in the ramp, but early in the cost down curve of Austin and Berlin.
516	0	Neutral	And so, it takes time to work the cost out it.
517	-10	Neutral	First, it’s a focus on ramp -- ramp, it brings cost down... Elon Musk: And quality costs… Zachary Kirkhorn: Yes.
518	0	Neutral	And then once that stabilizes, we can divert bandwidth to cost reduction.
519	+40	Positive	And so Austin and Berlin saw quite a decent amount of cost reduction on a fundamental basis from Q1 to Q2.
520	0	Neutral	We’ll continue to do that work that will be helpful.
521	0	Neutral	And so we’re just going to keep chipping away at it.
522	0	Neutral	Unidentified Company Representative: Packaging is a big element to that.
523	+10	Neutral	Elon Musk: Yes, logistics… Zachary Kirkhorn: Logistics is normalizing, which is great.
524	0	Neutral	Unidentified Company Representative: [Indiscernible] utilization, something that the team has been very focused on.
525	0	Neutral	So, every bit of it.
526	0	Neutral	Zachary Kirkhorn: Yes, and it’s hard... Elon Musk: Logistics is underappreciated.
527	0	Neutral	Yes, so sold saying goes like valves and with tactics as one with logistics.
528	0	Neutral	Unidentified Company Representative: Yes.
529	+50	Positive	And we’ve made tremendous improvements in cost in all fronts on expired costs.
530	+20	Neutral	We have done pre-pandemic expired cost levels now, and our goal is to go further down.
531	0	Neutral	Zachary Kirkhorn: Yes.
532	+25	Positive	So when we look at our progress from Q1 to Q2 on cost, the way that we look at internally, normalized for the impacts of mix shift with Austin and Berlin being a higher percentage of our mix, normalized for S and X being a higher percentage of our mix in Q2 versus Q1, the sequential cost reduction, it might be the largest we’ve had in a while.
533	0	Neutral	So, I think it’s great work on behalf of the Tesla team, and we just got to keep it up.
534	0	Neutral	Elon Musk: Yes, it’s a game of pennies.
535	0	Neutral	It’s a Game of Thrones with pennies.
536	0	Neutral	Martin Viecha: Mark, do you have a follow-up question?
537	0	Neutral	I think you’re muted.
538	0	Neutral	Mark Delaney: Yes.
539	0	Neutral	Thank you very much for all the details on that.
540	0	Neutral	Maybe you could put a finer point on the downtime impact that you spoke about in your prepared comments in terms of production impact and then also to what extent there’s a margin impact from those factory upgrades that you’re planning this quarter?
541	0	Neutral	Zachary Kirkhorn: Yes.
542	0	Neutral	The downtime -- we don’t know exactly the number of cars impacted because kind of the way that we go into downtime windows for upgrades is we set aside a period of time, but then the team is challenged to go as quickly as possible so that we can get the factories up and running again and minimize that.
543	0	Neutral	It’s not profound reduction.
544	0	Neutral	Hopefully, it’s small.
545	0	Neutral	Elon Musk: I think we’re getting too much into the weeds here.
546	0	Neutral	I mean, like we’re asking for a level of precision that is not possible to answer.
547	0	Neutral	So, let’s move on.
548	0	Neutral	Martin Viecha: Yes.
549	0	Neutral	I think this is unfortunately all the time we have for today.
550	0	Neutral	So, we’ll speak to you all in the next three months.
551	0	Neutral	Thank you very much.
552	0	Neutral	Elon Musk: Thank you.

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