TSLA Q1 FY2022

Q1 FY2022 Earnings Call

TSLA · Preprocessing Report

2022-04-20

Quality

100%

Turns

Speakers

Sections

Exchanges

379

Claims

Quality issues

[WARNING] speakers: no speaker with OPERATOR role

Entities by group 36

electric vehicle manufacturer 1

Teslacompany

company executives 4

Elon MuskpersonZachary KirkhornpersonAndrew BaglinopersonLars Moravyperson

analysts 6

Dan LevypersonMark DelaneypersonColin LanganpersonRod LachepersonPierre FerragupersonAlex Potterperson

gigafactory factories 5

Gigafactory TexascompanyGigafactory NevadacompanyGigafactory BerlincompanyGigafactory AustincompanyGigafactory Shanghaicompany

vehicle models 5

CybertruckproductModel YproductModel SproductModel XproductModel 3product

robotics 1

Optimusproduct

autonomous ride-hailing 1

Robotaxiproduct

autonomous driving software 1

Full Self-Driving (FSD)technology

sell-side analysts 1

Trip Chowdhryperson

battery chemistry 1

LFP (lithium iron phosphate)technology

regulatory standards 1

CAFE standardstechnology

battery cells 1

4680 batteryproduct

charging network 1

Superchargingtechnology

Ungrouped 7

Shanghai, ChinaotherCOVID-19otherBerlin, GermanyotherAustin, TexasotherFremont, CaliforniaotherUnited StatesotherSparks, Nevadaother

REPORTING 49PROJECTING 35POSITIONING 120EXPLANATORY 37ANALYST 45

Topics 71

insurance×37lithium×26factory×15robotaxi×14supply×12cost×12cash×12cybertruck×12pricing×9vehicle×9cathode×9production×7growth×5battery×5charging×5logistics×4electric vehicle×4repair×4claims×4inflation×3

Themes 228

supply×14vehicle×5growth×5feedback loop×4production ramp×3annual×3parts comparison×3record profitability×2automotive×2factory interruptions×2regulatory change×2volume×2margin×2shanghai restart×2record output×2shanghai production×2production growth×2valuation outlook×2company optimism×2fremont performance×2affordability×2cost pressure×2cost advantage×2profitability×2end-of-decade buildup×2technical difficulty×2giga nevada×2china parts disruption×2customer experience×2customer reception×2customer savings×2collision repairs×2company performance×1china factory disruptions×1wait times×1prior-quarter vehicle×1per-unit vehicle×1inflation and raw materials×1more profitable vehicles×1macro conditions×1record level×1factory startup×1accounting reclassification×1strong×1working capital impact×1net debt reduction×1factory output lost to shutdowns×1q2 supply disruption impact×1ramp-up progress×1backlog pricing×1second-half improvement×1record highs in profitability and margin×1covid shutdown disruption×1giga berlin and texas ramp×1ramp dynamics×1team execution×1high-volume ramp×1dedicated autonomous vehicle×1autonomy design×1product innovation×1cost efficiency×1production scale×1operating continuity×1early stage×1past 12 months×1capacity goal×1year-over-year×1optimus program×1optimus importance×1drivers of improvement×1shanghai or fremont attribution×1kaizen efforts×1benefit in q1 fy2022×1mix shift to shanghai×1fremont efficiency improvement×1q4 2021 surge×1reducing expedites×1expedite situation×1covid disruption×1parts arrivals and disruptions×1operational execution×1raw materials offsets×1outbound challenge×1affordable ev×1industry-wide increase×1inflation pass-through×1persistent constraint×1pricing trajectory×1measurement×1cost increases×1pressure×1inflation-driven increase×1per-mile cost guidance×1accessibility×1cost comparison×1material constraints×1internal sourcing×1constraint concern×1supplier contracts×1contract expiration×1sustainable transition×1lithium-ion cell production×1limiting factor×1ore availability×1ubiquity×1element×1ore refining×1refining process×1business entry×1margins×1spot pricing vs extraction cost×1business expansion×1business framing×1per vehicle inflation×1manufacturing savings×1inflation offset×1further increases×1cost-driven×1possible reduction×1limited increases×1input costs and inflation×1future planning×1delivery lag×1best estimate×1sustainable energy×1raw materials growth×1focus×1counterparty expansion×1gigafactory nevada×1ev adoption×1electric vehicles×1long-term generation×1inflation erosion×1purchasing power over time×1large balance×1capital deployment×1liquidity risk×1deployment decisions×1production capacity×1economic model×1future cash flows×1parts count×1nevada operations×1part comparisons×1parts counting×1simplified structure saves parts×1manufacturing design×1exoskeleton design×1door reinforcements×1legacy comparison frequency×1complexity reduction×1lower complexity×1nevada production×1upstream bottlenecks×1shanghai lockdown impact×1shanghai ramp×1supplier recovery×1shanghai supply situation×1recent improvement×1lower executive pay×1long-term package×1incremental×1battery supply×1build-out speed×1long-term build-out×1shortage risk×1time to build×1lfp switch for nickel reduction×1lfp mix×1chemistry flexibility×1substitution flexibility×1material sourcing×1material availability×1global battery output×1battery strategy×1battery materials×1expansion output×1refining difficulty×1refining comparison×1refining operation size×1build-out time×1supplier relations×1pipeline capacity×1market fundamentals×1long-term demand×1clarification×1non-tesla access×1capacity expansion×1future vehicle demand×1third-party expansion×1north america solution×1system×1network expansion×1capacity planning×1investment pace×1rollout to more states×1adoption rate×1launch in new states×1longest-standing market×1rank in texas×1largest insurer potential×1u.s. access expansion×1international expansion×1underwriting risk×1state expansion×1financial performance×1scale-up×1real-time driving feedback×1safer driving incentives×1safer driving and lower premiums×1customer retention×1internal priority×1economic impact×1company framing×1macroeconomic efficiency×1minor incident frequency×1accident repairs×1in-house management×1accident notification and estimate×1collision repair×1end-to-end visibility×1cost inefficiency analysis×1claims management×1full circle process×1immediacy×1insurance process×1traditional process×1claims process×1

Key Metrics 65

price×15production×11production volume×5free cash flow×4output×4cost improvement×4cash×4capacity×4revenue×3gross margin×3cost per mile×3units×3costs×3margin×3cash balance×3insurance cost×3operating margin×2build volume×2growth×2cost×2expedites×2savings×2parts count×2profitability×2compensation×2charger capacity×2market share×2deliveries×1delivery wait time×1unit cost×1volume×1operating expense×1r&d×1automotive costs×1debt×1average selling price×1profit×1average cost×1manufacturing efficiency×1inflation×1cost increase×1ride cost×1cell output×1lithium×1spot price×1cost of goods sold×1vehicle price×1complexity×1supply×1build-out speed×1shortage×1mix×1annual output×1time×1projects×1terawatt hours×1wait times×1investment×1take rate×1customer access×1risk×1insurance rates×1premiums×1insurance feedback×1retention×1

Entities 518

Tesla×238Elon Musk×88Zachary Kirkhorn×43Andrew Baglino×20Shanghai, China×13Cybertruck×11Dan Levy×10Mark Delaney×7Gigafactory Texas×6Gigafactory Nevada×6Colin Langan×6COVID-19×5Berlin, Germany×5Austin, Texas×5Optimus×5Fremont, California×5Rod Lache×5Lars Moravy×5Gigafactory Berlin×4Robotaxi×4Pierre Ferragu×4Alex Potter×4United States×3Full Self-Driving (FSD)×2Trip Chowdhry×2LFP (lithium iron phosphate)×2Model Y×1CAFE standards×1Model S×1Model X×1Model 3×14680 battery×1Sparks, Nevada×1Gigafactory Austin×1Gigafactory Shanghai×1Supercharging×1

Business Segments 172

Automotive×124Services And Other×36Energy Generation And Storage×12

Sectors 182

automotive×65insurance×43mining×26battery manufacturing×10autonomous vehicles×9robotics×5electric vehicle×4battery materials×4energy storage×3chemicals×3solar×2software×2ev charging×2semiconductor×1renewable energy×1industrial machinery×1oil and gas×1

Regions 68

Shanghai×16Berlin×9Texas×8Fremont×7Austin×6Nevada×6U.S.×4China×4Sparks×1worldwide×1Europe×1North America×1Virginia×1Colorado×1Oregon×1United States×1

Metadata Distributions

Sentiment

positive 89negative 40neutral 157

Temporality

backward 44forward 63current 179

Certainty

definitive 32confident 100moderate 96tentative 57speculative 1

Magnitude

major 21moderate 175minor 90

Direction

improvement 28decline 3mixed 2none 253

Time Horizon

immediate 51near_term 95medium_term 28long_term 16unspecified 96

Verifiability

quantitative 41event 21qualitative 224

Analyst Intent

probing 10challenging 3confirming 6seeking_detail 20seeking_guidance 6

Speakers

Executives

ABAndrew BaglinoexecutiveEMElon MuskCEOLMLars MoravyexecutiveZKZachary KirkhornCFO

Analysts

APAlex PotteranalystCLColin LangananalystDLDan LevyanalystMDMark DelaneyanalystPFPierre FerraguanalystRLRod LacheanalystTCTrip Chowdhryanalyst

Other

MVMartin Viechair

Sections

Type	Label	Speaker
preamble	Preamble	Martin Viecha
prepared_remarks	Prepared Remarks	Elon Musk, Zachary Kirkhorn, Martin Viecha
qa_session	Q&A Session	—
closing_remarks	Closing Remarks	Elon Musk, Martin Viecha

Q&A Exchanges 7

#	Analyst	Firm	Turns
1	DLDan Levy	CSFB	14
2	RLRod Lache	Wolfe Research	8
3	PFPierre Ferragu	New Street Research	10
4	TCTrip Chowdhry	Global Equity Research	11
5	APAlex Potter	Piper Sandler	7
6	CLColin Langan	Wells Fargo	6
7	MDMark Delaney	Goldman Sachs	15

Claim Taxonomy 286

REPORTING49

resultFinancial outcome for a completed period28

metricNon-financial quantitative fact12

operationalDiscrete completed event9

PROJECTING35

guidanceQuantitative expectation with number + time10

commitmentPromise with binary verifiable outcome17

targetLong-term aspirational quantitative goal8

POSITIONING120

strategyPriority, direction, or initiative92

competitiveCompany's position or advantages2

opportunityMarket condition framed as growth driver4

riskHeadwind, constraint, or uncertainty22

EXPLANATORY37

attributionWhy a specific outcome happened9

contextNon-company macro/industry fact28

FRAMING0

thesisFalsifiable belief about how the world works0

ANALYST45

questionInterrogative seeking information20

observationRestates a fact or data point13

concernFlags a risk or challenge6

estimateAnalyst's own projection or calculation4

sentimentOpinion, praise, or critique2

Field Guide

TopicWhat the claim is about — a short phrase used to group claims across quarters

ThemeBroad strategic dimension (e.g. profitability, innovation, market expansion)

MetricThe primary financial or operational metric referenced (e.g. revenue, gross margin)

TemporalityTime direction: backward (completed fact), forward (expectation), current (ongoing trend), timeless (universal truth)

VerifiabilityHow checkable: quantitative (contains a number), event (binary outcome), qualitative (subjective)

SentimentDirectional sentiment: positive, negative, neutral, or mixed

CertaintyHow hedged: definitive (fact) → confident → moderate → tentative → speculative

MagnitudeInvestment-thesis impact: major (concrete number + newsworthy), moderate (one of the two), minor (neither). Derived from Has Number and Newsworthy flags.

Has NumberWhether the claim contains a specific number or quantified result

NewsworthyWhether this would appear in a financial news headline

DirectionComparison direction: improvement, decline, flat, mixed, or none

Time HorizonHow far forward: immediate (current quarter), near_term (1-2 Qs), medium_term (1-3 yrs), long_term (3+ yrs), unspecified

Analyst IntentWhat the analyst seeks (Q&A only): probing, challenging, confirming, seeking_detail, seeking_guidance

EntitiesTyped named entities — each has a type: person, company, product, technology, event, or other

SegmentsBusiness segments referenced (e.g. Data Center, Gaming)

SectorsIndustry sectors (GICS/NAICS standard names) — excludes company division names

RegionsGeographic regions explicitly referenced

NumbersSpecific figures extracted from the claim text

TimeTime references anchoring the claim to a period

BoilerplateWhether the claim is boilerplate/formulaic language (dimmed in transcript)

FeaturesSix independent dimensions used to classify each executive claim: time_reference — when does this refer to? (completed: past fact, forward: expectation/plan, ongoing: present trend). content_nature — what type of information? (financial_figure: revenue/margin/EPS, quantitative_fact: non-financial number, named_event: launch/partnership/milestone, external_fact: market/industry info, company_framing: strategy/positioning). comparison_type — is a comparison being made? (vs_named: against a named alternative, superlative: best/first/only claim, none). company_valence — how does this affect the company? (tailwind: positive, headwind: negative, neutral). has_causal_link — does this explain why a business outcome happened? (true / false). reports_financial_outcome — does this report an actual financial result or projection? (true / false). For analyst claims, a single feature: analyst_action (asking, restating, challenging, projecting, evaluating). Together, these features determine the claim type.

Transcript

Preamble

Martin ViechairTesla

Good afternoon, everyone, and welcome to Tesla's First Quarter 2022 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations, and I'm joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q1 results were announced at about 3 p.m. Central Time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events and results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today's call, please limit yourself to one question and one follow-up. Please use the Raise Hand button to join the question queue.

Before we jump into Q&A, Zach will have some opening remarks. Zach

Prepared Remarks

Zachary KirkhornCFOTesla

Yes. Thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the Company. Despite numerous supply interruptions, including shuts at our Shanghai factory and nearby suppliers due to COVID, we've continued making progress and achieved our best-ever vehicle deliveries. Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin and bottom line profitability. GAAP automotive gross margin reached 32.9% and first time exceeded 30% when excluding regulatory credits.

Higher pricing continues to positively impact our financials as we make progress delivering cars and our growing backlog. Note that, for most vehicles, our delivery wait times are quite long. Thus, cars delivered in Q1 generally carried pricing set in prior quarters and at levels lower than cars being ordered today. Our per unit vehicle cost increased as well. Inflation, raw material prices, expedite and logistics costs continues to impact our cost structure.

Factory shutdowns also occurred with little to no notice. Hence, we are unable to take action to plan those interruptions in a cost-efficient manner. Additionally, we saw a slight mix shift towards more profitable vehicles, including the Model Y. We also recognized a onetime benefit of $288 million from credit revenue relating to a regulatory change in the U.S. CAFE penalty, without of which credit revenue would have declined compared to the same period last year. The energy business has continued to be impacted by macro conditions, more severely than the vehicle business. Our storage products, our need of chip supply and new import processes have impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. OpEx as a percentage of revenue continues to reduce, driven by higher revenue, lower stock-based comp expense and other items.

As a result of our ongoing improvements in operating leverage, we achieved a record operating margin of over 19%. Note that commissioning costs for our factories are in R&D as Berlin started production in late March and Austin in early April. These costs will be in automotive costs going forward, given these factories are now producing customer sellable cars. Our free cash flows have remained quite strong, yet were impacted by working capital related to lower-than-planned production.

Additionally, we have reduced our debt, excluding product financing, to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2. First, we've lost about a month of build volume out of our factory in Shanghai due to COVID-related shutdowns. Production is resuming at limited levels, and we're working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2.

Second, as I've mentioned before, Austin and Berlin are just starting their ramps. And thus, those inefficiencies will start to flow through our gross margins in Q2. Third, we do have higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers and our new customers for a great first quarter.

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Martin ViechairTesla

Thank you very much. And Elon has some opening remarks as well.

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Elon MuskCEOTesla

Sure. Some of my remarks will be redundant with Zach's, but it's maybe worth repeating. Q1 was once again a record quarter on many levels, by reaching the highest deliveries, profit and an operating margin of 19%. This was despite a lot of chip shortages, many logistics challenges and an overall difficult quarter. So, I'd really like to congratulate the Tesla team on achieving record profitability and output despite many, many difficult headwinds, and especially the Tesla China team in our Shanghai factory. They really had significant challenges due to the COVID shutdown and nonetheless have been able to output a tremendous number of high-quality vehicles. And we are already back up and running with the Shanghai factory.

So, as Zach said, we remain confident of a 50% growth in vehicle production in 2022 versus '21. I think, we actually have a reasonable shot at a 60% increase over last year. So, let's see. Obviously, we ramped production, as you will know, with Giga Berlin and Giga Texas in the past few months.

So, with two fantastic factories with great teams, and they are ramping rapidly. Now, with new factories, the initial ramp always looks small, but it grows exponentially. So, I have very high confidence in the teams of both factories. And we expect to ramp those initially slowly, but like I said, growing exponentially with them achieving high volume by the end of this year. So, we're also working on a new vehicle that I alluded to at the Giga Texas opening, which is a dedicated robotaxi.

That's highly optimized for autonomy, meaning it would not have steering wheel or pedals. And there are a number of other innovations around it that I think are quite exciting. That is fundamentally optimized for — trying to achieve the lowest fully considered cost per mile or cost per kilometer, accounting everything. And so, it's, I think, going to be a very powerful product where we aspire to reach volume production of that in 2024. So, I think that really will be a massive driver of Tesla's growth. And we remain on track to reach volume production of the Cybertruck next year. So, it's basically — once again, I'd like to thank the Tesla employees for their hard work, but also I'd like to thank our suppliers who've really gone the extra mile. They — we have an amazing supplier group, and I want say heartfelt thanks to the suppliers that have really worked day and night to ensure that Tesla is able to keep the factories running. And we're really at the early stage of that journey. We only crossed 1 million units in the past 12 months recently. And we are — we aspire to head to 20 million units a year. So, we're basically 5% along the way towards our goal. And we are growing very, very rapidly year-over-year. And we remain confident of exceeding 50% annual growth for the foreseeable future for basically several of the next years, I mean, so yes. And then, there's, of course, Optimus, which I was surprised that people did not realize the magnitude of the Optimus robot program. The importance of Optimus will become apparent in coming years. Those who are insightful or listen carefully will understand that Optimus ultimately will be worth more than the car business, worth more than FSD. That's my firm belief.

So — and then, of course, insurance is growing well. We expect to address the part shortages that limited our progress with batteries and solar. So, we expect batteries and solar to also grow well this year.

And basically, the future is very exciting. I've never been more optimistic or excited about Tesla's future than I am right now. Thank you.

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#65

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Q&A Session

Q&A 1/7

Martin ViechairTesla

Thank you very much.

Let's go to analyst questions now. The first question comes from Dan Levy from CSFB. Please go ahead and unmute yourself.

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Dan LevyanalystCSFB

Hi. Good evening. Thank you for taking the questions. First, maybe you can just talk through or address what some of the drivers of cost improvement were in the quarter. Was it just further improvements within Shanghai or in Fremont? Anything around sort of ongoing kaizen that you've talked about in the past? Maybe you could just talk through what you benefited from in the first quarter.

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Zachary KirkhornCFOTesla

Sure. I mean, at a high level, cars produced in Shanghai do carry a lower cost structure than cars produced in Fremont. And so, as our mix of cars shift towards Shanghai, the average cost is positively impacted by that. We're also seeing some progress in manufacturing efficiencies in Fremont, particularly on the S and X side as volume increases improves there.

Expedites has been a huge story for the company. Q4, we had massive amounts of expedites. Q1 was still quite large, but we did make progress on bringing that down some.

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Elon MuskCEOTesla

Special mention goes to the Fremont manufacturing team and our associates there because we're achieving record output at Fremont.

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Zachary KirkhornCFOTesla

Yes. The Fremont team is doing a tremendous job. Really absolutely from the back [ph] quarters.

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Elon MuskCEOTesla

Yes.

#105

Andrew BaglinoexecutiveTesla

It's hard to underweight. Like you should — the expedite situation with the crazy logistics that occurred with COVID.

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Zachary KirkhornCFOTesla

Yes. And to Elon's point, the Fremont team and also the Shanghai team has been extremely dynamic with the unpredictable nature of our part arrivals, and our supply chain team, in particular, production planning portion of supply chain. We often get very little notice when there's part shortage is coming, and it's kind of a scramble couple of days before that part is supposed to arrive to figure out how to get it here. And so, the amount of Herculean effort that goes in to produce a quarter like Q1 and even the quarters before that is absolutely immense.

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Elon MuskCEOTesla

There's a saying in the military, it's like amateurs talk about tactics, professionals talk about logistics when it comes to war.

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Zachary KirkhornCFOTesla

Yes. So, there were some inherent cost improvements, as I mentioned, but there's also offsets that we've talked about previously on raw materials, commodities. Outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity there and bring those costs down.

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Dan LevyanalystCSFB

Second question, one of the initial goals of Model 3 way back when was to have an EV that was affordable for a wide portion of the market. And we know prices are much higher now just given the supply constraints. Prices are higher for all other automakers. We know that there's inflation that you're battling through, and some of that needs to be passed through the price of the vehicles. And you're going to be supply-constrained for the foreseeable future. So, it's one of the points. But given the goal long term of making EVs more widely available to the masses over time, how do you look at the progression of prices over time?

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Elon MuskCEOTesla

We absolutely want to make EVs as affordable as possible. It's been very difficult with the — I mean, I think, inflation is at like a 40 or 50-year high. And I think the official numbers actually understate the true magnitude of inflation, so.

And that inflation appears to be likely to continue for at least the remainder of this year is what — when we're talking to suppliers, suppliers are under severe cost pressure. So, yes, and in some cases, we're seeing suppliers request 20% to 30% cost increases for parts from last year to the end of this year. So, it's — there's a lot of cost pressure there. That's why we raised our prices because we — when things are on — with respect to inflation, you know it's high, then — and we've got orders that go out a year or more in some cases, then we have to anticipate those cost increases.

But I think, especially with the robotaxi and autonomy, I think we will end up providing consumers with, by far, the lowest cost per mile of transport that they've ever experienced. Yes. I mean with robotaxi, like maybe 5 to 10 times cost per mile. It's really quite substantial.

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Andrew BaglinoexecutiveTesla

And therefore, accessible to everybody.

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Elon MuskCEOTesla

Yes. I mean, looking at some of our projections, it would appear that a robotaxi ride will cost less than a bus ticket, a subsidized bus ticket or subsidized subway ticket.

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Q&A 2/7

Martin ViechairTesla

Thank you very much. Let's go to the next question from Rod Lache from Wolfe Research.

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Rod LacheanalystWolfe Research

Hi, everybody. I'm trying to just parse out your comments about the inflation and constrained supply and battery feedstocks and the initiatives that you are working on internally to secure these materials. It sounds like you're optimistic about Tesla's ability to solve this for Tesla. Do you — but do you see this as a constraint on EV adoption more broadly?

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Elon MuskCEOTesla

Yes, absolutely. But what's sort of keeping our costs down, at least in the short term, is that we have long-term contracts with suppliers, but those long-term contracts will obviously run out and then the year we'll start to see potentially significant cost increases. But the macro is sort of looking at the world as a whole and saying, okay, what does it take for earth to transition to sustainable energy faster? It's fundamentally — the fundamental limiting factor is the output of cell — basically, cell output — at what rate can lithium ion cells increase the gigawatt hours per year? That is the fundamental limiting factor. So, in order — and that will move as fast as the slowest, least lucky element of the whole supply chain. Currently, we see that as being a challenge with lithium.

And it's not that — to be clear, it's not that there's a shortage of lithium ore in the world. Lithium is present almost everywhere. It's a very common element. However, you still need to take up the ore — take up basically sludge or whatever the clay with the lithium and then you need to go through a whole series of refinement steps. And that's a lot of industrial equipment that's needed to refine lithium ore to lithium that can be used as lithium hydroxide or lithium carbonate in the battery cell.

So, we think we're going to need to help the industry on this front, but the — I mean, the industry is very fast. And I certainly encourage entrepreneurs out there who are looking for opportunities to get into the lithium business. The lithium margins right now are practically software margins. I mean, if the — I think it's something — I think there's a — I mean, — correct me if I'm wrong, but I think we're seeing cases where the spot lithium price is 10 times higher than the cost of extraction. So, like we're talking 19% margins here.

Can some — can more people please get into the lithium business? It's — do you like minting money? Well, the lithium business is for you.

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Rod LacheanalystWolfe Research

Interesting. So, I guess, we'll stay tuned to see what happens from that. My second question is it's impressive to see just a modest increase in cost per vehicle — cost of goods sold per vehicle, given what we've seen in terms of commodities actually. And from here, you have a lot of savings opportunities with 4680 cells and the cell manufacturing changes, the anode chemistry, structural packs, giga castings. Are you suggesting that even those may not be sufficient to offset the inflation that you're seeing and that you're going to need additional pricing as well in addition to those specific initiatives that you've called out?

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Elon MuskCEOTesla

We hope we don't need to increase the pricing further. The current pricing is anticipating what we think is the probable growth in costs. And if those growth — if that growth in cost does not materialize, we actually may slightly reduce prices.

So, should we currently anticipate making significant price increases. But obviously, we don't control the macroeconomic environment. If governments keep printing vast amounts of money and if there's — if there are not significant increases in lithium extraction and refinement and other raw materials, such that everyone is competing for a limited amount of raw materials, then obviously, that will drive prices to high levels.

So, if you have a crystal ball that can tell us what the future is going to be like, we'll adjust accordingly. But, the current prices are what we — the current prices are for a vehicle delivered in the future, like 6 to 12 months from now. So, this is our best guess.

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Andrew BaglinoexecutiveTesla

But I think if you zoom out, right, like as you said, our mission is to accelerate the transition to sustainable energy. So, we are working with our existing suppliers and others to figure out how to grow all of these raw materials as quickly as possible to not slow down the transition.

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Elon MuskCEOTesla

Yes.

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Andrew BaglinoexecutiveTesla

And whether that means we have to get directly involved in some cases or not comes down to the counterparty and their willingness to expand at the rate we think they should be able to expand.

And that's similar to what we've done with everything else, like we built a Gigafactory in Reno because it needed to be done. And so, like we will do what needs to be done to not slow down the transition. And affordability is a goal because it's unaffordable. It's going to retard the growth of what is inherently a good thing that we can't have that as an outcome.

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Q&A 3/7

Martin ViechairTesla

Thank you. The next question comes from Pierre Ferragu from New Street Research.

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Pierre FerraguanalystNew Street Research

Thanks. Can you hear me well?

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Martin ViechairTesla

Yes.

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Pierre FerraguanalystNew Street Research

Great. I'd like to ask you some questions about free cash flow. Do you — so first, maybe in the long run, if you look at your performance and your growth model and your growth ambitions, I did the math very quick. And I see you guys sitting on $400 billion or maybe $500 billion of cash at the end of the decade. And I was wondering if it's something you have given some thoughts about.

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Elon MuskCEOTesla

If inflation keeps going crazy, $500 billion might be like $20 billion today.

I don't know. So, we'll see what $500 billion buys you in a decade, but it might be a lot less. So, I don't know if we'll — that seems like a lot of cash. I don't know. We'll try to do something useful with it. I mean, Zach, I don't know — I realize that's problem, that's for sure.

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Zachary KirkhornCFOTesla

The way we've been — I think we have to take this one step at a time.

And so, we have investments that are happening right now to get Austin and Berlin up and running. And then, as Elon mentioned, installing capacity for robotaxi production. And there are some decisions that, as Elon alluded to, just to share in the future about what the economic model looks like — what the economic model looks like for robotaxi. And so, the way Elon and I have discussed this is [Technical Difficulty]

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Elon MuskCEOTesla

Maybe just everyone [Technical Difficulty]

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Zachary KirkhornCFOTesla

Yes. So, our focus is to get to the point where robotaxis are on the road, Optimus is in use, get the economic model for that dialed in, and then evaluate the size of cash flows at that point and make decisions then as to what's next.

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Martin ViechairTesla

Pierre, do you have a follow-up question?

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Pierre FerraguanalystNew Street Research

[Technical Difficulty]

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Q&A 4/7

Martin ViechairTesla

All right. Let's go to the next one. The next question comes from Trip Chowdhry from Global Equity Research.

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Trip ChowdhryanalystGlobal Equity Research

Thank you. Two questions I have. First is regarding the Cybertruck. And I was wondering like in terms of number of parts, how would Cybertruck compare with the traditional pickup truck in terms of number of parts? The second question I have is on Gigafactory Nevada, Sparks. Will we have any production of vehicles in that factory, or all the future production will happen in Giga Austin? Thank you.

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Elon MuskCEOTesla

I'm not sure if we've actually done a comparison of Cybertruck parts versus regular truck parts. I mean, Lars?

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Lars MoravyexecutiveTesla

Yes. I mean, if you want to go down the like — it depends on what kind of part. We still have cells in [Technical Difficulty]

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Elon MuskCEOTesla

Mention count.

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Lars MoravyexecutiveTesla

If we don't count that, like the simplicity of our structure is significant versus a traditional pickup truck or any other vehicle, like as we've talked about their gigacastings, we save hundreds of parts there.

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Elon MuskCEOTesla

I mean, the entire rear — kind of half of the car is one cast.

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Lars MoravyexecutiveTesla

So, with the Cybertruck and the doors, for example, we have an exoskeleton design where the door is ready to take and it takes all the long-term impact. So, we really have — like we don't have the door reinforcements. We don't have the [Technical Difficulty]. So, to your point, I haven't counted them because I don't often look back at old technologies to decide how well I'm doing. I check that once in a while. But in general, architecture is always moving to reduce complexity, reduce parts or reduce parts count. I would say, ignoring the battery cells, we are probably 20% to 30% less.

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Elon MuskCEOTesla

All right.

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Martin ViechairTesla

Okay.

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Elon MuskCEOTesla

Do we expect to expand? Yes, we do expect to expand Giga Nevada. There's a lot of room for expansion there, and we do expect to increase output from Nevada, but by far, the biggest increase in output will be from Giga Texas.

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Q&A 5/7

Martin ViechairTesla

Thank you very much. The next question comes from Alex Potter from Piper Sandler. Alex, can you hear us?

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Alex PotteranalystPiper Sandler

Yes. Hi Martin, can you hear me?

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Martin ViechairTesla

Yes.

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Alex PotteranalystPiper Sandler

Okay, great. So first question I had was the extent to which other plants outside of China are insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID lockdown things gets out of hand, clearly, that's going to continue impacting Shanghai. But is there a point at which it could actually also impact other facilities?

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Elon MuskCEOTesla

Yes. If it would continue, but there are some parts that are sourced in China that apply worldwide. And that would be — that would impact production elsewhere. But all indications are that we are — our Giga Shanghai is back in production at fairly high levels already and so are our suppliers. So, we don't think this is going to be a big deal.

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Alex PotteranalystPiper Sandler

Okay. Thanks. Second question, obviously, the higher profitability that you guys have been able to experience over the last couple of quarters, a lot of that is reflecting sort of "real" improvement. Another part of it is because we're no longer paying you, Elon, as much as we were. And so I'm wondering the extent to which you and the Board are in the process of contemplating another one of these long-term compensation packages, which in the past have seemed to work quite well. Thanks.

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Elon MuskCEOTesla

There are no discussions currently underway for incremental compensation for me.

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Q&A 6/7

Martin ViechairTesla

Thank you. The next question comes from Colin Langan from Wells Fargo.

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Colin LangananalystWells Fargo

Great. Do you guys hear me?

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Martin ViechairTesla

Yes.

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Colin LangananalystWells Fargo

Perfect. Just to follow-up, sorry to keep going on the raw material issue on the battery side, but obviously, it seems pretty important. How quickly can raw material supply be built?

Because my understanding is it takes many years to build that out. So, are we just sort of facing — when do you think we see a lithium shortage or a nickel shortage? And is there even enough time to build that sort of mining capacity in place? And then related, how quickly can you switch to like LFP for the nickel issue?

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Andrew BaglinoexecutiveTesla

Yes.

I mean, I'll take the LFP question. Like, it says so in our letter, like half of our products were LFP last quarter, which shows how quickly we were able to respond to — well, honestly, it wasn't because of a raw material shortage, but just because it seemed like the right thing to do, we could change our cathode chemistry. And there's more to be done on the cathode side. And we are actively pursuing it to give us substitution flexibility in response to market conditions between the other cathodes that are out there that can be competitive in our vehicles, which there are many options. So, we — I guess, what I would say is, specifically on the cathode side, like flexibility is the way we're going to achieve this. And not all of the materials that go into cathodes are actually, first of all, hard to secure like through mining or refining; and second of all, in many cases, are like very plentiful already, like huge scale. And if all of the batteries in the world use those cathodes, it's less than a 1% increase in total annual output. So, that's the cathode side. I think, Elon already spent a lot of time talking about lithium. It really depends on the resource.

Some resources like just getting rocks out of the ground, expanding the amount of rock that you're getting out of the ground is maybe a little bit of paperwork and some additional sort of blasting and trucking operations. The refining is maybe where there's — it's a little bit more chunky to bring it on line, but also the refining doesn't — it's not like an oil refinery. It's a much smaller operation to refine lithium out of spodumene or for liquid, like a brine or a salt pond evaporation. So you're talking about a time scale of 1 to 2 years. And it's not like we haven't been talking to all of the lithium suppliers out there for many years. They have a lot of projects already in the pipeline to come on line this year and next. Some of what's going on in the lithium market this year doesn't actually have truth to bear to the like fundamentals of supply and demand, which is also a little frustrating. But yes, if we look past this year or next year, into 2030 when we need to 15 to 20 terawatt hours of this stuff to get on the growth trajectory — stay on the growth trajectory we're on, we need everybody to do more in the lithium space than they currently are. I don't know if that answers the question.

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Colin LangananalystWells Fargo

Yes.

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Q&A 7/7

Martin ViechairTesla

Fantastic. Thank you very much. So, let's go to the last question from Mark Delaney from Goldman Sachs.

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Mark DelaneyanalystGoldman Sachs

Yes. Good afternoon. And thank you very much for taking the questions.

I was hoping you could comment on your latest thoughts about potentially opening up the charging network in the U.S. to non-Tesla orders. I mean, certainly really important to have a good experience for Tesla owners in terms of wait times and charge installs. But Tesla is able to have enough capacity, it could be a really good way to bring other vehicle owners into the Tesla network, perhaps help Tesla to sustain its network benefits and maybe make more people likely to buy a Tesla vehicles in the future.

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Andrew BaglinoexecutiveTesla

Yes. As Elon has said and as we've publicly committed, yes, we do plan to provide third-party vehicle access in all over the world, not just in Europe, where our original pilot was. And we are working on solutions in North America, which is a little bit more problematic with our connector being different than others, but we are moving in that direction. I don't know if you want to add.

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Elon MuskCEOTesla

Yes, I think that's — there's nothing more to be said on that, but we're — yes, we want to do the right thing with respect to the whole system.

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Zachary KirkhornCFOTesla

And we're going faster on adding chargers. With the growth of the cars that we're producing and then anticipating what you were discussing, overall charger capacity is really important. And so, the pace of our investment in supercharging has accelerated.

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Elon MuskCEOTesla

Absolutely.

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Mark DelaneyanalystGoldman Sachs

Okay. That's helpful. And for my second question, could you share any more details on Tesla Insurance, in particular, as you roll it out in more states. Are there any metrics you can share on what take rates have been like? And how do profitability margins on the insurance offering compared to the corporate average? Thank you.

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Zachary KirkhornCFOTesla

So, we just launched Tesla Insurance for real-time insurance in Virginia, Colorado and Oregon earlier this week. Maybe one step that I'll share. So, Texas is our longest-standing real-time insurance market. But based upon the information that we have, Tesla is the second largest insurer of Teslas in the State of Texas. And possibly by the end of this quarter, maybe early next quarter, we'll be the largest insurer of Teslas.

And so, the customer reception to this has been quite positive. And I was reading social media on Monday after we launched in the three new states, a lot of folks who are reporting their stories of saving quite substantial amounts of money relative to their previous insurance. And so, we're quite encouraged by that. And we're working as quickly as we can to get to 80% of customers having access to a Tesla Insurance product by the end of this year in the United States, at which point we'll pivot our attention to expansion outside of the U.S. The other thing I'll say on insurance is with these three new states, the model is different because we are now the underwriter, and we are also now holding the risk. And so, with those states, we are a fully vertically integrated provider of insurance from systems and financials.

With respect to the financials of the program, it's still very early. And so, as the program gets more scale, happy to share more information on that.

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Elon MuskCEOTesla

And ones I noticed that we are seeing that the — having real-time feedback for driving habits is actually resulting in Tesla owners driving the cars in a safer way because they can see the — they get real-time feedback on, okay, this is affecting my insurance rate or it isn't. And so, when people see it — they can see a real-time score, they realize, if I make the following changes in my driving habits, then I pay less in insurance, then they have a very — like a real-time feedback loop for driving for safer driving and an incentive to do so. So, it is — actually, what we're seeing is it is causing people to drive their cars in a safer manner, which is also net good.

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Zachary KirkhornCFOTesla

It's safer on average, what we see in the data, to Elon's point, and premiums are lower. We see that in the take rate data, we have extremely high retention for customers who experience the product.

And I think I've talked about this in the past, but this has become a real passion program for us for these benefits. It's bigger than just the economics. We're trying to do a good thing here for our customers, save people money and make the roads a little bit safer.

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Elon MuskCEOTesla

Yes. I think it improves just overall macroeconomic efficiency. It's also a feedback loop for Tesla because we see if there is crash, both large or small, like we sort of see exactly what that caused.

And then we think about how can we change the design of the car or the software in order to minimize the probability of that accident. Most accidents are minor, but how do you have those accidents occur less frequently? And how do we make the repair associated with that accident super fast? Like, aspirationally, it would be like a same-day repair of a collision, which is night and day difference compared to sometimes having to wait for a month while insurance claims are settled and figured out — because Tesla is also doing collision repair.

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Zachary KirkhornCFOTesla

Yes, the feedback loop is instant.

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Elon MuskCEOTesla

Yes.

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Zachary KirkhornCFOTesla

Right. So, I mean, we do claims management in-house. And so, we receive the notification that there's an accident, we work to prepare the estimate. And we can, with the support of our customers, use our collision centers to do the repair. And so, it's full end-to-end visibility. And all of that, to Elon's, we can then identify areas of cost inefficiency, feed those back to our engineering teams or elsewhere, software teams, actually improve the product. This lowers the cost of insurance, improves reliability of the product. So, it's a full circle.

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Elon MuskCEOTesla

Yes.

And basically, the customer experience is just vastly better because if there's an accident, there's no argument. We'll repair it immediately. And this is as compared to arguing with an insurance company and then a claims adjuster and then a collision repair center. And this can be a nightmare basically. So we're trying to turn a nightmare into a dream with Tesla Insurance.

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Closing Remarks

Martin ViechairTesla

Fantastic.

Thank you very much. Unfortunately, that's all the time we have for this quarter. So, thank you very much for all your great questions, and we'll speak to you again in three months.

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Elon MuskCEOTesla

Thank you.

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