TSLA Q1 FY2023

Q1 FY2023 Earnings Call

TSLA · Preprocessing Report

2023-04-19

Quality

100%

Turns

Speakers

Sections

Exchanges

491

Claims

Quality issues

[WARNING] speakers: no speaker with OPERATOR role

Entities by group 41

company executives 5

Elon MuskpersonZachary KirkhornpersonAndrew BaglinopersonDan LevypersonAlex Potterperson

analysts 7

Karn BudhirajpersonAdam JonaspersonEmmanuel RosnerpersonBen KallopersonColin RuschpersonMark DelaneypersonGeorge Gianarikasperson

electric vehicles 5

CybertruckproductModel YproductModel TproductModel SproductModel 3product

sell-side analysts 2

Rod LachepersonPhilippe Houchoisperson

driver assistance 3

Full Self-DrivingtechnologyAutopilottechnologyFSD Betatechnology

investment banks 2

Goldman SachscompanyJefferiescompany

energy storage 1

Megapackproduct

manufacturing facilities 2

MegafactorycompanyGiga Texascompany

cloud service providers 1

Amazon Web Services (AWS)company

vehicle autonomy hardware 1

Hardware 3technology

charging network 1

Magic Docktechnology

company founders 1

Henry Fordperson

Ungrouped 10

TeslacompanyXproductSuper AppproductLithiumtechnologySuperchargerproductNVIDIAcompanySpaceXcompanyStarlinkproductInvestor DayeventV4product

REPORTING 57PROJECTING 23POSITIONING 164EXPLANATORY 54ANALYST 77

Topics 106

vehicle×24margin×20lithium×20pricing×18energy storage×16market×14demand×12self-driving×11cybertruck×10dojo×10cost×8outlook×8charging×8service×8production×6factory×5business×5interest rate×5heat pump×5super app×5

Themes 295

pricing×9growth×5competitive positioning×5supply chain×4mining and refining×4electrification×4production ramp×3potential×3investment×3at lathrop×3full autonomy×3ev commodity×3price decline×3next-generation×3gross margin floor×3nonrecurring×3ev vehicles×3open access×3business model×3deployment×2data×2automotive profitability×2capacity expansion×2global expansion×2market breadth×2take rate×2valuation×2uncertain times×2near-term×2recovery timeline×2materials markets×2fixed pricing×2capability buildout×2refining outsourcing×2macro pressure×2adjustments×2outlook×2affordability×2collectors' items×2variable×2shipping costs×2interconnection queue×22023 target×2customer feedback×2reinvestment×2initial margin×2best-selling vehicle in europe×1best-selling non-pickup vehicle in the united states×1production and delivery challenges×1delivering strong results×1uncertainty×1large purchases uncertainty×1operating margin strength×1scale over margin×1future profit generation×1lower near-term, higher later×1strategy×1prototype testing×1production line installation×1delivery event×1demand×1product praise×1manufacturing setup×1product design×1vehicle design×1production progress×1factory ramp×1production capacity×1shanghai expansion×1beta usage×1competitive advantage×1training capabilities for autonomy×1gpu training cost×1sellable service×1production and sales×1production and deliveries×1record volumes×1warranty and deferred revenue×1logistics improvement×1commodity cost reductions×1austin ramp×1berlin ramp×1margin headwind×1regional mix shift×1in transit inventory×1quarter-ending impact×1international deliveries×1business buildup×1revenue mix×1delivery-driven growth×1profitability×1financial health×1efficiency and liquidity×1reduction×1closing remarks×1full utilization×1ramping up×1not the limitation×1ramp phase×1general assembly phase×1unlock in q1 fy2023×1capex rollout×1serving other regions from shanghai×1vehicle allocation to new regions from berlin×1regional coverage gaps×1addressing regional exposure gaps×1global availability×1international rollout×1beta improvements×1beta releases×1achievement this year×1trajectory to autonomy×1ev-related prices×1supply-demand imbalance×1price outlook×1ev input outlook×112-month outlook×1liquidity×1price volatility×1market softening×1spot market exposure×1upstream resources×1refining capacity bottleneck×1supply abundance×1more important than ore supply×1ubiquity of supply×1lithium and anode×1north america leadership×1refining capability×1ready to buy×1in-house execution×1doing the work internally×1outsourcing preference×1connection check×1lifecycle monetization×1future monetization×1autonomous monetization×1monetization methods×1terminology×1internal name×1model 3 and model y×1automotive outlook×1automotive floor after price cuts×1full-year view×1macro deterioration×1competitive landscape×1full-year guidance×1headwinds×1delayed car purchases×1consumer hesitation×1layoff concerns×1layoff fears×1weaker auto sales×1pent-up new-car×1cyclical×1external sales×1project prioritization×1capital allocation×1long-shot bet×1high-upside but uncertain×1security×1company belief×1product development×1technology×1prioritization×1vehicles autonomy and storage×1sustainable energy and autonomy×1software updates and asset value×1market share×1evs×1real-time tracking×1real-time visibility×1direct sales×1global tracking×1real-time latency×1government latency×1vehicle production clearing price×1rapid adjustments×1daily monitoring×1weekly×1down payment×1decision quality×1industry average×1business framing×1car industry×1market framing×1vehicle deliveries×1company framing×1combustion transition×1external combustion vehicle×1small numbers×1vehicle variable costs×1cost variance×1timing×1improvement×1lithium cost declines×1lithium hydroxide cost declines×1upstream commodity cost×1cost impact to vehicle×1delayed cost pass-through×1efficiency metrics×1cost reduction×1per-unit cost impact×1operational improvement×1utility-scale demand×1interconnection backlog×1quotation volume in renewables queue×1quote-to-sale conversion×1ramp and developer pipeline×1selective project selection×1product improvements×1grid connection speed×12023 volume target×1operating environment×1upside case×1forward outlook×1ramp progress×1network rollout×1universal compatibility×1customer access balance×1network access×1regional approach×1margin pressure×1comfort range×1margin outlook×1discussion×1forecastability×1macroeconomic sensitivity×1vehicle sales support from rates×1buyer financing costs×1mid-2024 optimism×1mid-2024 and year-end optimism×1cfo commentary×1future growth×1health×1musk agreement×1lifetime revenue×1analyst confirmation×1price elasticity under recession×1consumer elasticity checks×1core challenge×1monthly affordability×1loan access constraints×1loan availability×1strong competitive position×1future economics×1extremely significant×1boca chica×1luck matters×1customer acquisition×1off-topic discussion×1q&a×1history×1moving assembly line history×1cost curve versus competition×1competition×1strategic focus×1product appeal and affordability×1customer experience×1future value upside×1zero profit future cash flow×1recurring revenue×1industry success×1malicious attacks×1network expansion×1capacity ramp×1volume growth×1supply-driven demand×1capacity utilization×1production slowdown risk×1austin and berlin×1intended volume at austin×1vertical integration comparison×1geographic comparison×1production efficiency×1factory improvements×1regional optimization×1inventory efficiency×1efficiency improvement×1supplier localization×1auto vs ev×1direct selling limits×1direct selling expiry×1capacity mismatch×1production scale×1capacity constraints×1product redesign×1service minimization×1reliability×1service incentives×1servicing×1spare parts and servicing profit contribution×1peer comparison×1spare parts and servicing monetization×1premium product advantage×1

Key Metrics 62

margin×18gross margin×13market share×8production×7demand×7capacity×6revenue×6utilization×5pricing×5interest rate×5cost×5deliveries×4volume×4profit×4battery cost×4vehicle deliveries×4sales×3deployment×3price×3commodity prices×3lithium carbonate price×3detention and demurrage×3cost reduction×2cost per unit×2capital expenditure×2take rate×2full self-driving×2full autonomy×2orders×2units×2days on hand×2operating margin×1miles driven×1free cash flow×1gross profit×1working capital×1inventory×1capital expenditures×1value×1improvements×1spot market share×1cathode refining capability×1vehicle volume×1asset value×1sales data×1market×1vehicle sales×1lithium cost×1air expedites×1interconnection queue×1quotation volume×1grid connection speed×1percentage×1interest costs×1cash×1price elasticity×1demand elasticity×1monthly payment×1loan×1net present value×1cost structure×1growth rate×1

Entities 670

Tesla×326Elon Musk×143Zachary Kirkhorn×50Cybertruck×11Andrew Baglino×11Karn Budhiraj×9Full Self-Driving×8Rod Lache×8Adam Jonas×8Dan Levy×8X×7Emmanuel Rosner×7Alex Potter×6Megapack×5Ben Kallo×5Colin Rusch×5Super App×5Philippe Houchois×5Model Y×4Mark Delaney×4Goldman Sachs×4Jefferies×4Autopilot×3Lithium×3Megafactory×2George Gianarikas×2Supercharger×2Model T×2Giga Texas×1NVIDIA×1Amazon Web Services (AWS)×1Model S×1FSD Beta×1Hardware 3×1Model 3×1SpaceX×1Starlink×1Investor Day×1V4×1Magic Dock×1Henry Ford×1

Business Segments 231

Automotive×183Energy Generation And Storage×40Services And Other×8

Sectors 304

automobiles×238energy storage×22battery materials×6chemicals×5banks×5hvac×4logistics×4autonomous vehicles×2metals & mining×2automotive×2battery manufacturing×1semiconductors×1cloud software×1oil & gas refining×1commercial real estate×1software×1utility-scale power×1renewable energy×1consumer finance×1aerospace & defense×1consumer internet×1insurance×1electric vehicle charging×1aftermarket services×1

Regions 53

Austin×11Berlin×10Shanghai×5North America×5Europe×3the world×3Lathrop×2United States×1Texas×1California×1Southeast Asia×1Australia×1Africa×1South America×1US×1Corpus Christi×1global×1China×1Boca Chica×1Michigan×1Fremont×1

Metadata Distributions

Sentiment

positive 93negative 42neutral 240

Temporality

backward 43forward 71current 261

Certainty

definitive 61confident 103moderate 125tentative 82speculative 4

Magnitude

major 12moderate 224minor 139

Direction

improvement 23decline 6flat 1mixed 8none 337

Time Horizon

immediate 40near_term 117medium_term 48long_term 22unspecified 148

Verifiability

quantitative 40event 20qualitative 315

Analyst Intent

probing 30challenging 2confirming 8seeking_detail 32seeking_guidance 5

Speakers

Executives

ABAndrew BaglinoexecutiveEMElon MuskCEOKBKarn BudhirajexecutiveRTRoshan ThomasexecutiveZKZachary KirkhornCFO

Analysts

AJAdam JonasanalystAPAlex PotteranalystBKBen KalloanalystCRColin RuschanalystDLDan LevyanalystEREmmanuel RosneranalystGGGeorge GianarikasanalystMDMark DelaneyanalystPHPhilippe HouchoisanalystRLRod Lacheanalyst

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	Martin Viecha

Q&A Exchanges 10

#	Analyst	Firm	Turns
1	APAlex Potter	Piper Sandler	8
2	GGGeorge Gianarikas	Canaccord	12
3	EREmmanuel Rosner	Deutsche Bank	8
4	BKBen Kallo	Baird	7
5	CRColin Rusch	Oppenheimer	8
6	MDMark Delaney	Goldman Sachs	6
7	RLRod Lache	Wolfe Research	9
8	AJAdam Jonas	Morgan Stanley	11
9	DLDan Levy	Barclays	6
10	PHPhilippe Houchois	Jefferies	6

Claim Taxonomy 375

REPORTING57

resultFinancial outcome for a completed period28

metricNon-financial quantitative fact12

operationalDiscrete completed event17

PROJECTING23

guidanceQuantitative expectation with number + time10

commitmentPromise with binary verifiable outcome10

targetLong-term aspirational quantitative goal3

POSITIONING164

strategyPriority, direction, or initiative122

competitiveCompany's position or advantages11

opportunityMarket condition framed as growth driver4

riskHeadwind, constraint, or uncertainty27

EXPLANATORY54

attributionWhy a specific outcome happened12

contextNon-company macro/industry fact42

FRAMING0

thesisFalsifiable belief about how the world works0

ANALYST77

questionInterrogative seeking information48

observationRestates a fact or data point22

concernFlags a risk or challenge3

estimateAnalyst's own projection or calculation2

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 2023 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 3:00 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 or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today's call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue.

But before we jump into Q&A, Elon has some opening remarks. Elon?

Prepared Remarks

Elon MuskCEOTesla

Thank you, Martin. So just a Q1 recap. Model Y became the best-selling vehicle of any kind in Europe and the best-selling non-pickup vehicle in the United States. And this is in spite of a lot of challenges in production and delivery. So it's a huge credit to the Tesla team for achieving these great results. The — it is worth pointing out that the current macro environment remains uncertain. I don't think I'm telling anyone anything, I think people already know, especially with large purchases such as cars. And while we reduced prices considerably in early Q1, it's worth noting that our operating margin remains among the best in the industry. We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin. However, we expect our vehicles, over time, will be able to generate significant profit through autonomy. So we do believe we're like laying the groundwork here, and then it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy.

This is an extremely important point. Let's see. Regarding the Cybertruck, we continue to build Alpha versions of the Cybertruck on our pilot line for testing purposes. It's a great product, and we're completing the installation of the volume production line at Giga Texas, and we're anticipating having delivery event, a great delivery event probably in Q3. As with all new products, it will follow an S curve, so production starts out slow and then accelerates. So the Cybertruck is no different. So it's — there's [inaudible] amount of demand for the product, obviously. And it is my view, a fantastic product, a hall of famer. But as with all new products, it takes time to get the manufacturing line going. And this is really a very radical product. It's not made in the way that other cars are made. So with regard to Megapack, we're making great progress.

Our energy storage deployment reached nearly 4 gigawatt hours in Q1. This is, by far, the strongest quarter ever.

And this growth was achieved thanks to the ongoing ramp at our Mega factory in Lathrop, California. There's still some way to go to reach the [inaudible] rate of 40 gigawatt hours per year. And then we additionally announced the start of a new Mega factory in Shanghai. So we're — as we've expected, the stationary storage growth actually will significantly exceed the vehicle growth.

Regarding Autopilot and Full Self-Driving, we've now crossed over 150 million miles driven by Full Self-Driving beta, and this number is growing exponentially. We're — I mean, this is a data advantage that really no one else has. Those who understand AI will understand the importance of data — of training data and how fundamental that is to achieving an incredible outcome. So, yes, so we're also very focused on improving our neural net training capabilities as is one of the main limiting factors of achieving full autonomy. So, we're continuing to simultaneously make significant purchases of NVIDIA GPUs and also putting a lot of effort into Dojo, which we believe has the potential for an order of magnitude improvement in the cost of training. And it also — Dojo also has the potential to become a sellable service that we would offer to other companies in the same way that Amazon Web Services offers web services, even though it started out as a bookstore. So, I really think that, yes, the Dojo potential is very significant. In conclusion, we're taking a view that we want to keep making and selling as many cars as we can. Despite this being an uncertain macro environment, this is a good time to increase our lead further, and we'll continue to invest in growth as fast as possible. Once again, I'd like to give a huge thanks to all Tesla employees worldwide who are doing an incredible job again. And yes, super appreciated.

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Martin ViechairTesla

Thank you very much. And Zach has some remarks as well.

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Zachary KirkhornCFOTesla

Thanks Martin.

I want to start by congratulating the Tesla team for record vehicle production and deliveries. And I also want to congratulate our energy storage team for record volumes as well. There's three main points I want to make.

First, automotive gross margin and operating margin reduced sequentially. But as Elon mentioned, these remain at healthy levels. In particular, automotive gross margin was impacted by a few factors since our discussion on the last earnings call, which include additional action taken in the second half of the quarter to improve vehicle pricing and one-time items, most notably warranty adjustments on older S and X vehicles as well as increased deferred revenue for certain Autopilot features as we transition technologies. Progress on vehicle cost reduction continued in Q1 with meaningful improvements on logistics and the beginnings of some commodity cost reductions starting to be realized. Per unit cost for Austin and Berlin improved as well, driven by record volumes. However, these factories still provide a margin headwind and will likely continue to do so until after we reach and stabilize at our intended volumes.

Note that Q1 was our third quarter in our multi-quarter plan to move to a more regionally balanced mix of build and deliveries. As I've mentioned previously, this results in lower deliveries and production within a quarter due to a higher volume of cars in transit at the end of the quarter and has an associated impact on quarter-ending free cash flows. This was particularly prevalent in Q1 for S and X as we begin exporting cars for international deliveries. Second, our storage business is starting to take shape, and this is exciting to see after many years of investment and focus. This business is growing as a percentage of the businesses of the company's revenue and reached its highest level yet in Q1, driven by an increasing rate of deliveries for our Megapack products. We are also making progress on storage profitability, generating our highest gross profit yet in the quarter. Third, I want to reiterate the philosophy by which we're operating the business this year. Our approach is to grow volumes as quickly as possible in both our vehicle and energy businesses. We plan to continue to invest heavily into our future plans, which include the Cybertruck next-generation platform, in-house cell production, energy storage business and our autonomy and AI-enabled products. And we plan to do this while keeping the business financially healthy and industry leading. To accomplish this, we need to remain focused on cost efficiency and working capital and in particular, unwinding the strategic inventory buildup left over from the pandemic. I want to conclude by thanking the Tesla team again, as well as thanking our suppliers and our customers.

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Q&A Session

Q&A 1/10

Martin ViechairTesla

Great. Thank you very much. And let's go to analyst questions. We'll start with Alex Potter from Piper Sandler. Alex, go ahead and unmute.

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Alex PotteranalystPiper Sandler

Can you hear me?

#79

Martin ViechairTesla

Yes.

#80

Elon MuskCEOTesla

Yes.

#81

Alex PotteranalystPiper Sandler

Okay. Perfect. So, first question was on Lathrop.

Obviously, that's — it's great to see the growth there. Just wondering when you think that facility might be closer to full utilization? Are you just sort of deliberately working your way up the S curve there? Demand, obviously, isn't the limitation. So what are what are the steps, I guess, to unlocking full utilization there?

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Andrew BaglinoexecutiveTesla

Sure. There are some classic factory ramp aspects of what's going on in Lathrop. We actually had two phases of the CapEx there. We phased some of the general assembly parts of the facility. But in addition, we also have ramps with our suppliers that we are following, so both on the sell side and on the power electronics side. And we will see that unlock in the latter half of this year with both those inputs. So the overall facility was phased with the second phase of CapEx coming online towards the end of this year.

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Alex PotteranalystPiper Sandler

Okay. Great. And then I guess my second question is on your ability to serve other markets out of Shanghai. Obviously, the facility in Berlin should be opening up your ability to, I guess, allocate more vehicles to Southeast Asia, Australia, other areas. I'm just wondering what other regions do you think you're maybe not yet serving effectively? What are your timelines for addressing some of those gaps in your regional exposure? Thanks.

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Elon MuskCEOTesla

Yes.

That's a good question because there are still many parts of the world that we do not yet serve with respect to vehicles especially. So we do expect to open up new markets around the world. And while those markets are not necessarily individually gigantic, they do add up to add a whole bunch of markets. They do collectively sum up to something significant. So it's high time that Tesla operates its cars to the rest of the world, and that is something that we intend to do.

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Q&A 2/10

Martin ViechairTesla

Okay. Thank you very much. Let's go to the next analyst, George from Canaccord. Go ahead and unmute.

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George GianarikasanalystCanaccord

Hi.

Thanks for taking my question. I was wondering, first, if you could discuss your FSD take rates and whether you've seen any significant positive or negative change there? And also, given that you've reduced the prices for your vehicles, do you think you need to do that for FSD as well? Thanks.

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Elon MuskCEOTesla

Well, I can kind of answer the details on the FSD take rate, but the — it's a tricky pricing question, because the value of a car that is autonomous is enormous. So in a way, the price right now is an option value on an autonomous vehicle. And that value is — that will ultimately be very significant. And it's really — yes.

I mean, for those that are using the FSD beta, I think you can see the improvements are really quite dramatic. There'll be a little bit of two steps forward, one step back between releases for those trying the beta. But the trend is very clearly towards full self-driving, towards full autonomy. And I hesitate to say this, but I think we'll do it this year. So that's what it looks like. Yes.

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George GianarikasanalystCanaccord

Thank you. Maybe on the dramatic change we've seen in EV-related commodity prices. Do you think it's a reflection of any recent overcapacity in mining and refining, or is that sort of a coincident indicator on global EV demand? And how do you expect those prices to kind of track over the next several quarters? Thank you.

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Elon MuskCEOTesla

Man, I wish I had a crystal ball to answer your question. I don't know if we can provide a question that would — with — that would have any value really. I think we're in uncertain times. And if somebody got a crystal ball they can lend me, I'd really like to borrow it. But these are uncertain times.

My guess is this it's economic to me whether for about a year or so. And then if we hold roughly 12 months and then — but this is my guess. It's just pure speculation. Stormy weather for about 12 months and then provided there are no major geopolitical wildcards that show up, that things start getting sunny around spring next year.

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Andrew BaglinoexecutiveTesla

The only thing I would say on the — like EV materials markets. They're not all super liquid and some of them, for example, like less than — like single-digit percentage of the market has actually traded on the spot market. And not only are they not super liquid, there's not — like storage isn't particularly fast for all of materials. So like small mismatches in supply and demand drive, like large price wins, not really real price wins, but just like temporarily large price swings. So it's hard to read into those price wings. I don't know, Karn if you want to add anything.

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Karn BudhirajexecutiveTesla

Yes. Well, this is Karn, by the way.

We are seeing, as Elon mentioned, quite a bit of softening in the lithium carbonate market. This was — six months ago, we were trading at like $85,000 a ton, and today's spot price is about 26%. So there's been a dramatic decrease in that. Of course, we were able to take advantage of low lithium pricing earlier on with fixed price contracts. And we find that this is going to be another opportunity — opportune moment to basically extend that into the later half of the decade. But we — at the quantities we're procuring, we're not as impacted by the spot market because we have those contracts in place, and we're just going to be going and doing more of that. The other thing that's happening is because of the price spike, a lot of the companies that are in this business are becoming more ambitious about finding more upstream resources and exploring locations in Africa as well as South America. So that's also helping the macro situation with pricing.

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Elon MuskCEOTesla

Yes.

But just on the lithium front, to emphasize, the choke point is more — much more on refining capacity than it is on mining. The theme is actually — is very common throughout the world, including in the US and really never — it's just a very common element on earth, is lithium. So, it's much more a question of where is the refining capacity and can the refining capacity keep up? That's really what matters more than where is the lithium ore. It's everywhere basically. I think that same question also extends to refining of the cathode and to some degree, refining of the anode. And this is why we, at Tesla, we're building our lithium refinery capability at Corpus Christi and our cathode refinery outside Austin. It's worth noting, I hope other companies do the same thing. We will have, by far, the most lithium refining capability and the most cathode refining capability in North America, I think, probably more than everyone else combined by a lot. So, can other people please do those work?

That would be great. We're begging you. We don't want to do it. Can someone please? Like instead of making a picture-sharing app, please, we're trying, lithium, mining and refining, heavy industry, come on.

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Karn BudhirajexecutiveTesla

It's fun. It's actually fun.

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Elon MuskCEOTesla

Yes, yes. Exactly. For real.

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Zachary KirkhornCFOTesla

That's we're here, ready to buy.

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Elon MuskCEOTesla

It's — Tesla is not famous because we want to do it. We have a lot of fish to fry, obviously, but we're doing it because others aren't doing it, and we wish others would do it.

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Q&A 3/10

Martin ViechairTesla

Awesome. Thank you very much. Let's go to Emmanuel Rosner from Deutsche Bank.

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Emmanuel RosneranalystDeutsche Bank

Can you hear me?

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Martin ViechairTesla

Yes, we can. Yes.

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Emmanuel RosneranalystDeutsche Bank

Perfect. Thank you so much for taking my questions. Maybe a first question for Elon, on your pricing strategy. So, if I understand your message, you're saying Tesla feels it's worth maximizing the volume, increasing the size of the fleet as fast as you can because you'll be able to monetize this over the life cycle of the vehicle. Could you be a little bit more specific around ways you would be able to monetize sort of like this existing fleet in the future. Obviously, I think autonomous seems to be a big piece of it, but my understanding was that robotaxi would probably be for the next-generation vehicle, not the existing ones. So, I guess in which ways would you monetize it?

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Elon MuskCEOTesla

Sorry, the robotaxi terminology can be a bit confusing because that's sort of like a generic term for our next-generation vehicle. And we obviously are working on next-generation vehicle. That's going to be very compelling. This is just not the time to talk about it in details product.

So, we internally call it robotaxi. But really, all of the vehicles that have Hardware 3, which is the vast majority of our fleet, we believe will achieve full autonomy. So, there will be a like a Model 3 or Model Y would be a robotaxi, a robotic taxi. So, yes, that's — to the best of my knowledge that we believe the current hardware can achieve full autonomy.

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Emmanuel RosneranalystDeutsche Bank

Understood. And then maybe a question for Zach. Back on the automotive gross margins. So, I think, I guess, a few months ago, even after major price cuts, you felt pretty strongly that 20% automotive gross margin was still probably a reasonable floor. Obviously, the macro has gone worse and additional price cuts have happened.

Is there anything else that has changed in terms of the outlook? Is it just the macro deteriorating? Is it the competitive landscape? Anything else that's sort of like makes you think differently around the full year? And is there a way, therefore, to frame a floor?

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Zachary KirkhornCFOTesla

Yeah.

About half of the miss against that previous conversation last quarter is attributed to adjustments we made in pricing in the second half of the quarter. I mean, I guess you could argue that that lowers the floor in a sense. We've also made pricing adjustments so far this quarter. So that brings it down further.

About the other half of the miss in Q1 was attributed to things that are nonrecurring. So I mentioned these in my opening remarks. It's a warranty adjustment for cars that were previously produced but not part of the pedigree of cars we're building now and some autopilot-related deferrals as we make some technology changes here that this deferral should get recognized once some of the software catches up. So those two things are not repeating. So hopefully, that helps answer your question.

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Elon MuskCEOTesla

Yeah.

I mean there's really two macro factors that are tricky. The biggest being the interest rate. So if there's a very high Fed rate or interest rates are very high, that is — every time the Fed raise the interest rates that's equivalent to increasing the price of a car. It makes the cars less affordable because people are able to buy cars as a function of what they can afford on a monthly basis. So that's — so it's just almost directly equivalent to a price increase, is there any kind of interest rate increase.

Then the other factor is whenever there is uncertainty in the economy, people will generally postpone new — big, new capital purchases like a new car. This is a natural human reaction. So if people are reading about layoffs and whatnot in the press, they're like, well, they might be worried about — they might be laid off. So then there'll be naturally a little more hesitant than they would otherwise be to buy a new car. Now this is just the nature of the auto industry. But there is — there will be a trans amount of pent-up demand for new cars. So it goes through cycles.

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Q&A 4/10

Martin ViechairTesla

Thank you. Let's go to Ben Kallo from Baird. Ben go ahead and unmute.

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Ben KalloanalystBaird

Hey guys. When you talk about manifest supply, you talked about Dojo being a product that you can sell outside of Tesla. How do we rank all the things you have going on and then in the economic environment? I mean, like heat pumps and everything else you have going on versus investing in the vehicle business, or is that not the right way to look at it?

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Elon MuskCEOTesla

I'm not sure I fully understand your question, but I'd look at Dojo as like kind of a long-shot bet, but if it's a long-shot bet that pays off, it will pay off in a very, very big way. But potentially, yeah, potentially in a very, very big way, Like in the multi-hundred billion dollar level. But I think it's like still put it in the long shot category, but long shot with a multi-hundred billion dollar potential outcome. And — so it's a bet worth making, but not one you can sort of say like or take it to the bank type of thing. Although, these days take it to the bank, it's maybe not as secure as it used to be.

So obviously, big believes in heat pumps. And that is on all this that over time is to do a really good heat pump for homes and commercial offices and stuff. And we have the technology that's really good. But it's still — it's a back burner item. Our focus is very much on vehicles, autonomy, stationary storage, basically solving sustainable energy and solving autonomy, which would be like — solving autonomy, if we're able to have a fleet of several million vehicles that with a software update can be potentially worth several times their original value, that's — that will be — if that happens, that will be the — and I think it will happen, that will be the biggest asset value increase in history, I think.

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Ben KalloanalystBaird

Thank you.

Moving to sort of pricing, but a lot of pundits talk about the pie and losing share or gaining share. But how do you guys look at pricing versus the EVs or price vehicles, or does that not come into the equation? Sorry to ask about pricing again. Thank you.

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Elon MuskCEOTesla

No, it's really just like — every day, we get a daily real-time update of how many cars were ordered yesterday, how many cars were produced yesterday. We must have — if there's a company that's got more real-time data than Tesla — I'm not sure, there's any company on earth that has better real-time data than Tesla, except maybe SpaceX Starlink. So — because like we don't have to — for the other car companies, they will make the cars, send them to the dealers then the dealers will sell the cars. And then it takes quite a long time for them to get the data back to actually figure out how many cars were sold. Whereas we know how many cars were ordered yesterday throughout the world.

So our fingers on the pulse is real-time and does not have latency, whereas the other car companies have a lot of latency in their data. As does the government, the government has a lot of latency in their data.

So we're just looking at and saying, okay, what does it take to achieve a clearing price for our vehicle production? And then we'll make a pricing change, and we see what happens immediately and adjust course. So we're adjusting course — and we're thinking about it literally every day, seven days a week. Every seven days, we collect that e-mail and so is the rest of the team. And we try to make the lease down decision that we can.

And on balance, I think our decisions are pretty good. Sometimes they'll be down, but on average, they're, I think, better than the rest of the industry.

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Zachary KirkhornCFOTesla

Just to add on the question about EV market share or ICE. This comes up a lot. I think a lot of the public debate is around this concept of EV market share. We don't look at it that way. I mean, we look at it as — it's a car market and not the EV market. And actually, the mission of the company requires internal combustion engine cars to be switched over to electric vehicles. So that's what we pay attention to.

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Elon MuskCEOTesla

Yes. I've said that last time, too. We got — you guys got to stop looking at it as EV — the EV market. Its how many cars are we selling, just start looking at it that way. All cars will be EVs.

It's going to — I've said this for a long time. We'll look back, I don't know, assuming civilization is still around in 20 years, we'll look back on internal combustion engine vehicles the same way we look back on external combustion engine vehicles, which is like the steam engine. A steam engine is an external combustion engine vehicle. And there's still a few around. They're kind of quirky and kind of cool collectors' items. That's how gasoline cars will be in the future.

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Q&A 5/10

Martin ViechairTesla

Thank you. Let's go to Colin Rusch from Oppenheimer. Colin, go ahead. Unmute please.

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Colin RuschanalystOppenheimer

Thanks so much, guys. Can you talk a little bit about how much of the actual cost structure is variable on these vehicles? And if you could give us a range on pulse or minus the lithium cost within those contracted volumes that you're seeing?

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Elon MuskCEOTesla

Well, I think — again, we'd really love to have a crystal ball here, but we don't have it. Depending on what time scale you're looking at, most of the car is variable. So most cost is variable. So — and probably, if I were to guess, I think we will see improved costs from suppliers, yes, I think we will — that is our expectation.

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Zachary KirkhornCFOTesla

And we're already starting to see that, Elon, I think you had mentioned before that we anticipated a crash in the lithium prices and some of that has flowed through by way of lithium carbonate reductions into battery cost. And the same thing will happen with lithium hydroxide. The length of the supply chain matters also because what we're talking about is very far upstream. So by the time it makes sense that battery that ends up in car. It will be several months. But beyond just the commodity pricing, as Zach mentioned earlier, we're also very focused on other metrics that make production very efficient.

So, for example, detention and demurrage air expedites. I think our air expedites are down 90%. Detention and demurrage is down 93% from the peaks. That can be hundreds of thousands of dollars per vehicle. So we're sort of attacking all vectors and becoming very efficient.

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Colin RuschanalystOppenheimer

Okay. And then, my follow-up is really around stationary storage demand on the utility scale. I mean, obviously, there's a gigantic queue for interconnection in the US. And can you talk about the volume of quotation you're seeing at this point around stationary storage for the renewables queue on a global basis? And how much of that is converting into actual sales?

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Elon MuskCEOTesla

Drew, do you want to take that?

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Andrew BaglinoexecutiveTesla

I mean — yes, I don't — that's also not exactly how we look at it, really.

We're not like — yes, we're not engaged in the interconnection queue. Like we're focused on ramping Megapack as quickly and efficiently as we can, and we have visibility into the pipelines of a variety of different renewable energy and just pure stationary storage developers and we also develop our own projects. And we're mostly just — we're being selective in trying to pick the products, the projects that best fit our mission and our objectives.

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Elon MuskCEOTesla

Yes. This — again, this is not a product call, but we'll have something, I mean, this — we're making improvements on many fronts, including Megapacks. So I think some of those improvements will improve the speed at which you can connect the Megapacks to the grid.

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Q&A 6/10

Martin ViechairTesla

Thank you. The next question is from Mark Delaney from Goldman Sachs.

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Mark DelaneyanalystGoldman Sachs

Yes. Good afternoon. Thank you for taking the question. Do you still see 2 million units as an upside case for volume this year? And is the gating factor for reaching 1.8 million or 2 million units in 2023 still supply chain, as was mentioned on your last conference call, or is it more about demand at this point?

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Elon MuskCEOTesla

Well, if you have a crystal ball you can lend me back to the crystal ball situation. These are volatile times.

From a production standpoint, if things go well, we've got a shot at 2 million vehicles this year. But that's an upside case. And we feel comfortable with 1.8 million. And we'll have to see how this year unfolds.

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Mark DelaneyanalystGoldman Sachs

That's helpful. Thanks. And then the company had spoken at the Investor Day and then for the past conference calls about opening up its vehicle charging network. Can you speak to some of the feedback you've been getting from both Tesla owners and non-Tesla owners? And how the ramp of the charging network may progress from here? Thanks.

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Elon MuskCEOTesla

Drew, do you want to take that?

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Andrew BaglinoexecutiveTesla

Yes. So as you may have seen, we opened our first V4 post in Europe and our Magic Dock post in North America in Q1.

I mean, that is indicative of the direction we're heading with universal compatibility for all vehicles no matter where the charge port is, et cetera, in all major markets, and we're going to continue to roll out those sort of improved offerings as we build new stations. We're always balancing like our ability to serve our own customers with our ability to serve new customers when doing that. I think we've been able to balance it rather well. For example, in Europe, 50% of all of our supercharging stations are open to all EVs, and we've been able to do that without any increase in wait times at all for anybody. So we're going to continue to take a similar approach as we do this in North America and China over the coming quarters.

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Q&A 7/10

Martin ViechairTesla

Okay. Thank you very much. Let's go to Rod Lache from Wolfe Research.

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Rod LacheanalystWolfe Research

Hi, everybody. I just wanted to first just follow-up on your comments in your letter about leveraging your cost position as others struggle with unit economics and also taking into account the lifetime revenue, actually in a way that most other automakers will never see just given your service network and supercharging and other attributes. Can you just maybe give us a sense of how far you'd be willing to take this? Are there brackets around the range of initial margin that you'd be comfortable with? And again, any color that you might provide on the updated range of margins that you'd expect in the auto business?

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Elon MuskCEOTesla

I think we may have answered this question or tried to ask this question a few times. But it's difficult to say what the margin will be. It depends on what the macroeconomic environment is like. So for example, if the Fed were to lower the rates, that would be super helpful for demand. If they raise them, that just raises the interest costs that buyers have to pay for to buy a car. So it reduces affordability and therefore, reduces demand.

So it's — but if — like if we look past, say, this year or like go sometime next year, middle of next year, so I think things are looking really — I think, like I said, albeit if there's some major geopolitical wildcard that turns up. But in the absence of that, I think I would be very optimistic about middle of next year, end of next year.

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Zachary KirkhornCFOTesla

Just to add to Elon's comments, just two other points. What's really important for us this year in addition to just managing the day-to-day of the business but is also investing in, as Elon mentioned, what 2024 and 2025 will look like. And so using the cash generated from the sale of products today and reinvesting that, this is very important for us. And I think that what happens to margins over the next couple of quarters that only matters in the context of what that means for our ability to reinvest into 2024 and 2025. And we have a lot of space before that becomes something that we have to revisit our investment plans.

And so we're planning to keep the business healthy. But I just want to caution folks about reading too much into what happens over the near-term here because we're very focused as a company on making sure that when we exit this macroeconomic situation, this company is positioned in the best possible way.

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Elon MuskCEOTesla

Yes, exactly.

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Rod LacheanalystWolfe Research

Just to elaborate on that point though, the revenue, the long-term lifetime revenue that you're targeting from each vehicle is massive. So if you took that to the extreme, it would seem that you'd be comfortable with a relatively low initial margin. Am I misinterpreting that, or is that exactly right?

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Elon MuskCEOTesla

Correct. That's exactly right.

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Rod LacheanalystWolfe Research

Okay. And the — normally, in a recession, when consumers feel less financially secure, actually price elasticity deteriorates. Just based on your pulse taking of the consumer, do you have a view on elasticity of demand?

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Elon MuskCEOTesla

Well, I can't emphasize enough the whole — just fundamental question of affordability. For most people, their ability to buy a car is a function of can they make monthly payment or not. And so like I said, if interest rates are really high, like they are right now, then in some cases, people can't get a loan at all. So it's — I think probably banks are pretty — not leaning forward in providing loans, I expect, these days. So that's — like there is — there is quite a powerful story here when you — going back to something as alluded to a moment ago — I mentioned a moment ago that Tesla is in a uniquely strong strategic position. Because we're the only ones making cars that technically, we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy, no one else can do that. I'm not sure how many people will appreciate the profundity of what I've just said, but it is extremely significant.

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Q&A 8/10

Martin ViechairTesla

Thank you. Let's go to Adam Jonas from Morgan Stanley.

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Adam JonasanalystMorgan Stanley

Hi everybody. So, first, Elon, good luck with tomorrow's launch of Boca Chica. Break a leg.

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Elon MuskCEOTesla

Thanks. You can't have too much luck in the rocket business, that's for sure.

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Adam JonasanalystMorgan Stanley

Incredible. So, now that you've gotten another Twitter architecture kind of intimately well over the past six months, what can you tell Tesla stakeholders about how an X.com or Super App could be potentially accelerative to Tesla's business model?

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Elon MuskCEOTesla

Well, I don't know. I guess it could make it potentially make it easier to buy cars. So, — We've string somewhat off topic here because I think there's some benefit. I think probably there's some benefit, yes.

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Adam JonasanalystMorgan Stanley

I get it, Elon,.

So just as a follow-up on manufacturing, you're a student of history. And you'll note that back in 1913, Henry Ford introduced the moving assembly line in Highland Park, Michigan. And the price of a Model T, which had already been undercutting cars around the time, fell another 70% or 80%, and hundreds of rival car companies went bust. I'm wondering if history is repeating itself here, Elon, and that the recent pattern of cuts with you is way ahead of the cost curve compared to competition? Is this — it seems like it's a calculated strategy, not just in reaction to competition or changing supply demand in the market, but your — could we catalyze some Darwinian forces in the EV market?

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Elon MuskCEOTesla

Well, I mean, we're not trying to say, take pricing actions in order to be deliberately — to deliberately undermine competitors or anything like that. We really don't think about competitors that much. We just look at, do people like our cars, how can we make the product better, can they afford our cars? And the sort of the things like improving service and whatnot.

But actually, we do have this unique strategic advantage that we have — we're making a car that if autonomy pans out and we think it will, where that asset is actually will be worth a hell a lot more in the future than it is now. So, it is taking to be possible to sell it at zero profit, but still have the net present value of future cash flows associated with that asset very significant.

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Andrew BaglinoexecutiveTesla

And service and charging and insurance and all of these other ongoing revenue streams that other companies don't have.

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Elon MuskCEOTesla

Yes.

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Karn BudhirajexecutiveTesla

Certainly, we want all EVs to succeed, too. We just want to say that we're not like some malicious attacks to try to destroy everybody.

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Elon MuskCEOTesla

Definitely not.

We're like opening up superchargers. We've made our patents available for free. So, it's like — we're trying to be helpful here. So we're not out to destroy competitors or anything like that. We're trying to help competitors, frankly, in any way we can.

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Q&A 9/10

Martin ViechairTesla

Thank you. Let's go to Dan Levy from Barclays.

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Dan LevyanalystBarclays

Hi. Good evening. Thank you. First question, you're ramping supply at Austin and Berlin. So I wanted to understand just how critical it is to further increase volume at those plants just to get the vertical integration benefits in the face of the market with some demand questions. And just broadly, should we — I mean, historically, you've been operating at the pace at which your supply allows you to produce as opposed to gauging to demand. Should we generally expect that you're going to continue to produce at your — whatever the max capacity that you're allowed within your supply constraints, regardless of what the broader economic environment is just to continue to get that volume out there?

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Elon MuskCEOTesla

So that is — yes, I mean, there could be like obviously a macro shock that is so severe that people just stop buying cars for some reason. But in the absence of that, we will continue to grow output at a rapid clip.

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Dan LevyanalystBarclays

Great. Thank you.

And then just on the margins associated with Austin and Berlin. You mentioned Austin want to have the margin drag until you reach intended volumes. I don't know if you can disclose what those volumes are. And then maybe you could just remind us of what the margin profile of Austin and Berlin will look like versus Shanghai once you get the vertical integration benefits in place?

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Elon MuskCEOTesla

Well, probably one have be quite as good as Shanghai. Shanhai is hard to — has a very efficient cost structures, obviously, our lowest cost structure in the world. But we do expect to be — make significant improvements in Austin and Berlin and continue to make improvements in Fremont as well. So…

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Roshan ThomasexecutiveTesla

For making improvements in North America & Berlin cost structures, we've increased — this is Roshan by the way. We increased our localization efforts strategically. So that will then drive down our days on-hand requirements reducing tied up working capital. We've made 10% quarter-over-quarter improvement in days on-hand. So we'll continue that improve cost structure as supplier localization improves.

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Q&A 10/10

Martin ViechairTesla

Okay. Thank you very much. And our final question comes from Philippe Houchois from Jefferies.

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Philippe HouchoisanalystJefferies

Yes, good evening, and thanks for taking the question. It's slightly longer term.

I completely agree with your comments that we should look at Tesla in terms of auto market share and not EV market share. But I'm just wondering, as you build up the market share globally, is there a limit to the direct selling business model as you practice it? And should we think about — going forward, you need to look into the agency or using importers to basically develop market share more smoothly, I guess, globally? And so in other words, is there kind of fell by date for the direct business model as you practice it today?

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Zachary KirkhornCFOTesla

Seems to be working well so far because we hear different feedback from customers who miss the human interaction or unhappy with the service, and I'm just wondering if you're seeing some growth pains in there that would lead you to change. You're not seeing that?

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Elon MuskCEOTesla

Well, I mean, there are — since we're always going to have some growing pains where at times — and it depends on which geography we're talking about where sometimes service is behind sales, sometimes it's ahead of sales. This is — I mean, Telsa's growing, I believe, faster than any company in history that makes a large complex manufactured object. So these are — as you try to max — it's always difficult to match exponentials.

So — but I think it is helpful to have the feedback loop with a service because that means we feel the pain of service, and then we can address the design to make the car need less service. And I think that gives us the right incentive structure, like because the best service is no service. The car doesn't break. And whereas if you have say a dealer network that is reliant upon services revenue, then you arguably have a misalignment of incentives where they're making money on service. But actually, we want to — the best thing for the consumer is the car doesn't need servicing so.

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Philippe HouchoisanalystJefferies

Yeah. And then last one, if I can follow up. Have you worked out, I mean, for many of your traditional competitors, a fair amount of profits for them comes from selling spare parts and servicing, and you don't have that in your profit structure. And have you looked at the deficit you have compared to your peers?

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Elon MuskCEOTesla

Yeah.

Actually, this one — assuming I could wax on about for a while because really, people didn't understand that the best short-selling argument against Tesla for the longest time was the fact that Tesla does not have an existing fleet and that the auto industry, the reason incumbents succeed and newcomers fail, the biggest reason is that the incumbents have a large fleet, and they're able to sell new cars at close to zero margin and then sell spare parts at a very high margin, sort of razors and blades type thing. And so the only way to actually succeed for a newcomer to succeed is to have a product that is so compelling that people are willing to pay a premium over the incumbent product. And in the absence of electrification and autonomy, I don't think a newcomer can succeed.

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Closing Remarks

Martin ViechairTesla

Thank you very much, everyone. Unfortunately, that's all the time we have for this quarter.

We'll see you again in three months from now. Thank you.

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