Q2 FY2022 Earnings Call
TSLA · Preprocessing Report
2022-07-20
Quality
100%
78
Turns
10
Speakers
4
Sections
5
Exchanges
393
Claims
Quality issues

Entities by group 33

company executives 3
Elon MuskpersonAndrew BaglinopersonLars Moravyperson
analysts 4
Pierre FerragupersonToni SacconaghipersonEmmanuel RosnerpersonColin Ruschperson
battery cells 2
4680 battery cellsproduct2170 battery cellsproduct
autonomous driving software 1
Full Self-Driving (FSD)technology
electric vehicle models 2
CybertruckproductModel Yproduct
AI training platform 1
Dojotechnology
energy storage products 2
PowerwallproductMegapackproduct
humanoid robots 1
Optimusproduct
autonomous driving features 1
City Streetstechnology
vehicle software/hardware updates 1
AP3product
battery manufacturing processes 1
Katotechnology
Ungrouped 14
TeslacompanyZachary KirkhornpersonCOVID-19otherBitcoinotherAI DayeventBattery DayeventEarthotherDogecoinotherWilliam SteinpersonShanghaiotherBerlinotherGigafactory TexasotherTexasotherUnited Statesother
REPORTING 49PROJECTING 31POSITIONING 131EXPLANATORY 53ANALYST 41

Topics 73

battery×44production×23demand×19supply×14fsd×12chip×12capacity×11manufacturing×10lithium×10supplier×9outlook×7ai×6factory×5safety×5gross×5bitcoin×5earth×5price×5earnings call×5cybertruck×4

Themes 238

production×14customer×4reduction×4ramp×3rust metaphor×3vehicle×3macroeconomic impact×3long×3excess×3attendance policy×3in-house production×3shutdown×2force majeure×2competitive advantage×2efficiency×2process improvement×2seatbelt tensioning×2second half×2support×2factory ramp×2sale×2backlog×2energy density scalability×2sustainability transition×2battery growth×210-year×2survival over 10 years×2chemistry mix×2shortage×2battery ramp×2texas buildout×2order lead times×2utilization×2ramping×2full utilization×2pricing strategy and rollout×2pricing increase×2fast×2musk call participation×2fsd, dojo and optimus×2meeting×2company support×2integration×2strongest results×1record levels×1record-breaking outlook×1disruption×1shanghai factory recovery×1weekly output milestone×1giga texas ramp×1call timing×1supply sufficiency×1quarterly dependence×1future importance×1manufacturing equipment×1beta rollout×1software improvement×1fsd beta mileage×1autonomous mileage leadership×1fsd beta growth×1global leadership×1company strategy×1industry advocacy×1operational priority×1large scale×1body welding reduction×1smaller size×1lighter and cheaper×1ongoing journey×1simplicity and improvements×1collision detection×1seatbelt and airbag adjustment×1fundamental advantage×1over-the-air rollout×1record rate×1product enthusiasm×1best product×1release rollout×1regional rollout×1company event×1demonstrations×1employee and supplier appreciation×1company performance×1sequential decline×1improved rate×1full production resumption×1gross profit×1volumes×1appreciation×1excellence×1automotive decline sequentially×1shanghai decline and restart costs×1regional mix affected by shanghai decline×1new factories coming online×1pricing tailwind×1inflation and logistics pressure×1operational progress×1solar supply and unit economics×1component constraints×1supply relief×1startup costs×1liquidation gain×1impairment charges×1staffing reductions×1position management×1future holdings×1no sales×1still held×1operating×1free cash flow×1working capital×1company outlook×1macroeconomic pressure×1target remains possible but more difficult×14680 structural pack×14680 roadmap×14680 cell architecture×1silicon content×1energy improvement×1range behavior×14680 range edge×1manufacturing ramp×1manufacturing risk×1technology roadmap×1dry electrode process challenges×1dry electrode process uncertainty×14680 issue resolution×14680 scale and cost improvements×1positive×1debatable counterpoint×1dry process advance×1supplier displacement×1supply chain growth×1transition bottleneck×1sustainability bottleneck×1non-scalable technology risk×1battery day execution risk×1technology de-risking×1sustainable transition×1battery production constraints×1growth×1sustainable target×1secured through long-term contracts×1business entry×1secured supply for growth×1current secured amount×1supply security×1future geopolitical risk×1refining material constraints×1material scarcity×1element abundance×1ubiquity of supply×1battery material processing×1battery material supply×1iron abundance×1earth composition×1physical proximity×1rust composition×1material access×1capital intensity×1scalability×1supply scaling×1supply challenge×1cell ingredient supply risk×1cathode materials mix×1refining process×1investment×1supply issues×1recession risk×1focus×1availability outlook×1primary issue×1more than demand×1macroeconomic headwind×1management focus×1value for money×1demand sensitivity×1multiple increases×1high levels×1problems and inflation×1supply-side×1installed×1weekly run rate×1weekly output growth×1record output×1berlin ramp×1record quarter×1forecasting uncertainty×1weekly output ramp×1beta access rollout×1perceived value×1low pricing×1contaminant purity issues×1lithium purity specs×14680 cell contaminants×1pressure×1decline×1visibility×1pricing impact×1concern×1validation×1constraint×1versus demand×1persisting issue×1scaling×1factory expansion×1impact×1global demand signal×1daily volatility×1consumer outlook×1price management×1consistent cash flow and margins×1musk commitment and time allocation×1behavior×1long-term commitment×1announcement timing×1future announcements×1industry shortage×1in-car inference and microcontrollers×1internal improvement×1supply constraints×1supplier reliance×1chip investments×1microcontrollers and power electronics×1technical advantage×1platform scaling×1supplier engineering solutions×1hardware comparison×1software reconfiguration×1inventory sufficiency×1software integration×1platform evolution×1chips×1in-house design×1supplier partnership×1application-specific×1component reduction×1module constraints×1

Key Metrics 63

production×13price×12demand×10capacity×7production rate×6margin×5orders×4backlog×4capacity utilization×3lead time×3miles driven×2release×2production volume×2bitcoin holdings×2cash flow×2growth×2range×2production capacity×2output×2growth rate×2delivery time×2supply chain×1battery cell×1vehicle production×1owners×1autonomous miles×1robot count×1size×1probability×1gross profit×1volume×1gross margin×1deliveries×1cost structure×1unit economics×1startup costs×1cogs×1realized gain×1impairment charges×1restructuring charges×1cash position×1bitcoin×1liquidity×1sales×1holdings×1operating margin×1free cash flow×1pricing×1costs×1efficiency×1energy density×1production ramp×1cell cost×1storage capacity×1percentage×1commodity prices×1affordability×1beta access×1value×1yield×1order lead time×1wait time×1sentiment×1

Entities 579

Tesla×268Elon Musk×131Andrew Baglino×36Zachary Kirkhorn×324680 battery cells×17Full Self-Driving (FSD)×15Pierre Ferragu×15Toni Sacconaghi×7Emmanuel Rosner×6Cybertruck×5COVID-19×5Bitcoin×5AI Day×4Battery Day×3Earth×3Dojo×32170 battery cells×2Dogecoin×2Model Y×2Colin Rusch×2William Stein×2Optimus×2Lars Moravy×2Shanghai×1Berlin×1Gigafactory Texas×1Texas×1City Streets×1AP3×1Powerwall×1Megapack×1Kato×1United States×1

Business Segments 170

Automotive×156Energy Generation And Storage×14

Sectors 81

battery manufacturing×20semiconductor×20autonomous vehicles×5energy storage×5automotive manufacturing×4financial services×4battery technology×4software×4solar×2chemicals×2electric vehicle×2artificial intelligence×2robotics×2metals and mining×1aerospace×1materials×1power electronics×1consumer electronics×1

Regions 48

Berlin×10Shanghai×9China×6Austin×6Fremont×4Texas×4Boston×2Germany×1United States×1North America×1Europe×1Reno×1U.S.×1worldwide×1

Metadata Distributions

Sentiment
positive 73negative 44neutral 188
Temporality
backward 59forward 67current 179
Certainty
definitive 59confident 90moderate 106tentative 47speculative 3
Magnitude
major 13moderate 177minor 115
Direction
improvement 19decline 5none 281
Time Horizon
immediate 66near_term 91medium_term 29long_term 9unspecified 110
Verifiability
quantitative 45event 40qualitative 220
Analyst Intent
probing 12challenging 2confirming 4seeking_detail 23

Speakers

Executives
ABAndrew BaglinoexecutiveEMElon MuskCEOLMLars MoravyexecutiveZKZachary KirkhornCFO
Analysts
CRColin RuschanalystEREmmanuel RosneranalystPFPierre FerraguanalystTSToni SacconaghianalystWSWilliam Steinanalyst
Other
MVMartin Viechair

Sections

TypeLabelSpeaker
preamblePreambleMartin Viecha
prepared_remarksPrepared RemarksElon Musk, Zachary Kirkhorn, Martin Viecha
qa_sessionQ&A Session—
closing_remarksClosing RemarksElon Musk, Martin Viecha, William Stein

Q&A Exchanges 5

#AnalystFirmTurns
1
PFPierre Ferragu
New Street Research21
2
EREmmanuel Rosner
Deutsche Bank14
3
CRColin Rusch
Oppenheimer6
4
TSToni Sacconaghi
Bernstein13
5
WSWilliam Stein
—11

Claim Taxonomy 305

REPORTING49
resultFinancial outcome for a completed period14
metricNon-financial quantitative fact15
operationalDiscrete completed event20
PROJECTING31
guidanceQuantitative expectation with number + time8
commitmentPromise with binary verifiable outcome16
targetLong-term aspirational quantitative goal7
POSITIONING131
strategyPriority, direction, or initiative92
competitiveCompany's position or advantages6
opportunityMarket condition framed as growth driver6
riskHeadwind, constraint, or uncertainty27
EXPLANATORY53
attributionWhy a specific outcome happened3
contextNon-company macro/industry fact50
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST41
questionInterrogative seeking information27
observationRestates a fact or data point11
concernFlags a risk or challenge2
estimateAnalyst's own projection or calculation0
sentimentOpinion, praise, or critique1

Transcript

Preamble
MV
Martin ViechairTesla
Good afternoon, everyone and welcome to Tesla's Second Quarter 2022 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations; and I am joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q2 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. [Operator Instructions] But before we jump into Q&A, Elon has some opening remarks. Elon?
Prepared Remarks
EM
Elon MuskCEOTesla
Thank you, Martin. So, just as a Q2 recap, Q2 was a unique quarter for Tesla due to a prolonged shutdown of our Shanghai factory. But in spite of all these challenges, it was one of the strongest quarters in our history. Most importantly, in June, we achieved production records in both Fremont and Shanghai. And as a result, we have the potential for a record-breaking second half of the year. I do want to emphasize this was obviously subject to force majeure, things outside of our control. The past few years have been quite a few force majeures and it's been kind of supply chain hell for several years. Credit to our awesome Tesla supply chain team for overcoming entirely difficult challenges and huge thanks to the Tesla Shanghai factory team who sacrificed a lot to get the factory back up and running in June and achieve a record output.
So, also making good progress with production ramp with Berlin. We achieved an important milestone of 1,000 cars a week in June. And we are expecting — sorry, our Giga Texas to exceed the 1,000 vehicle per week milestone, hopefully in the next few months. To be clear, we are currently making the cars with the 2170 cells and Drew Baglino will address some of the 4680 questions later in this call. But it is worth emphasizing that we have enough 2170 cells to satisfy all vehicle production for the remainder of the year. So we are not dependent on 4680. 4680 will be important next year but it is not important for this year. That said we have installed the second generation of manufacturing equipment for 4680 cells in Texas.
And even at our established factories like Fremont and Shanghai, we continue to expand capacity. Regarding Autopilot, we have now deployed our FSD beta with City Streets driving capability to over 100,000 owners. They are very happy with the capability of the system and we will continue to improve it every week. We have now driven over 35 million miles with FSD beta.
That's more autonomous miles than any company we are aware of, I think probably more than — it might be more than any — all other companies combined. So — and that mileage is growing exponentially. With regard to manufacturing and technology, about 5 or 6 years ago, we said we wanted to become the best manufacturer in the world and that is somewhat counterintuitively, to some people, will actually be, I think, our strongest competitive advantage. We are super pro-manufacturing here at Tesla. And in general, we want to encourage other companies to be super pro-manufacturing. And in general, I think it is a very important thing to do.
We need to make stuff and make it efficiently and that's manufacturing. So we've made a lot of advancements in manufacturing processes. As we now show in the shareholder deck, thanks to our — the large castings, we make the world's largest castings. We reduced body welding robot count by 70% per unit of capacity in Austin and Berlin. So that's, call it, roughly a body shop that is roughly 3x smaller than would normally be the case. And I should say it's also lighter, cheaper and has superior noise vibration harshness. So, it's good on every level. But this journey is not over. We will bring another level of simplicity and manufacturing improvements with Cybertruck and future products that we are not quite ready to talk about now, but I think will be very exciting to unveil in the future. Our safety team also introduced a feature that tension seat builds, if the vision system detects imminent collision, which has never been done before. So, you can imagine that if you have a seatbelt that only tensions upon impact you have very little time to tension the seatbelt. If you have got to be — the car has got to be crunching to trigger the seatbelt tensioner, but because we have vision, we can actually see that a collision is about to occur with 100% probability before it actually happens. And so we can tension the seatbelts and we can even adjust the airbag deployment, because we can see, not just feel. This is a fundamental safety advantage that Teslas are now able to offer. And there is also an over-the-air update, so this is something that will be in place in all cars that have at least AP3 hardware.
In conclusion, we exited Q2 with a strong production rate than ever before. Our team continues to focus on Cybertruck production readiness and some future platform design. We are expecting to be — still expecting to be in production with the Cybertruck in the middle of next year. And we are very, very excited about that product. I think it might actually be our best product ever. Let's see. And FSD beta is on track to be released for all of North American customers before the end of this year. And hopefully, if we get regulatory approval, we will also be releasing it hopefully in Europe and some other parts of the world. We are hosting our AI Day in a few months. I think people will be amazed at what we are able to show off in AI Day. So basically, there is a tremendous amount to look forward to in the second half of this year.
And I want to thank all of our employees and suppliers for their super hard work during these challenging times. Super appreciate it. Thank you.
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MV
Martin ViechairTesla
Thank you very much. And Zach has some opening remarks as well.
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ZK
Zachary KirkhornCFOTesla
Yes. Thanks, Martin.
I want to start by congratulating the Tesla team on an excellent execution during the second quarter. Although our production volume reduced sequentially due to COVID-related shutdowns in Shanghai, we made substantial progress in nearly every area of the business, and in particular, our global vehicle production rate as we exited the quarter. Our Fremont factory, supported by our Reno team, reached new production records. The Shanghai factory resumed full production and our new factories in Austin and Berlin are progressing well through their initial ramps.
Additionally, our energy business achieved record gross profit with the highest solar volumes in many years. I want to personally thank the entire Tesla team, as I know many of you are listening. You have embodied a remarkable and relentless pursuit of excellence in support of our mission. I also want to thank our suppliers for their support during another complicated quarter. On GAAP automotive gross margin, it declined sequentially to 27.9%. The temporary decline in Shanghai production volume meaningfully impacted margin, including idle capacity and factory restart costs and also had implications on the mix of regional deliveries. Additionally, as discussed on previous calls, we are working through the ramp inefficiencies of our new factories, which are progressing well, but have had an impact on margin as those factories come online. While we continue to see a benefit from higher pricing flowing through, which experienced some foreign exchange-related headwinds, our cost structure continues to experience cost increases from inflation, commodities and logistics. The energy business progressed well in Q2, aided by alternate solar supply coming online and progress on unit economics. Our storage business remains component-constrained on both Powerwall and Megapack, which we hope will alleviate to some extent in the second half of the year. We are greatly appreciative of the patience and flexibility shown by our customers while we work through these challenges.
Within operating expenses, Boston and Berlin-related startup costs have wound down as these factories have moved into production and their costs are now reflected in automotive COGS. Additionally, we converted a majority of our Bitcoin holdings to Fiat for a realized gain, offset by impairment charges on the remainder of our holdings, netting a $106 million cost to the P&L included within restructuring and other. We also incurred restructuring charges related to targeted staffing reductions.
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EM
Elon MuskCEOTesla
Yes, actually, it should be mentioned that the reason we sold a bunch of our Bitcoin holdings was that we were uncertain as to when the COVID lockdowns in China would alleviate. So it was important for us to maximize our cash position, given the uncertainty of the COVID lockdowns in China. We are certainly open to increasing our Bitcoin holdings in future. So this should not be taken as some verdict on Bitcoin. It's just that we were concerned about overall liquidity for the company given COVID shutdowns in China. And we have not sold any of our Dogecoin.
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ZK
Zachary KirkhornCFOTesla
We still have it.
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EM
Elon MuskCEOTesla
We still have our Dogecoin.
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ZK
Zachary KirkhornCFOTesla
Despite these challenges, we were still able to achieve one of our strongest operating margins at 14.6%. Our free cash flows were impacted by working capital related to the Shanghai factory shutdown. However, we expect this will show as a benefit in Q3 as our working capital-related cash flows restabilize.
As we look ahead and as Elon mentioned, we are positioned for a record-breaking second half of the year. We are quite excited about this. A couple of things to keep in mind as we progress, Austin and Berlin ramp inefficiencies will continue to weigh on our margins for the balance of the year. However, the impact should reduce as we increase ramp. Second, as we've mentioned before, we expect to continue to see recognized global pricing to increase as our backlog flows through. However, macroeconomic-related cost increases will also continue to be part of our story.
And finally, despite losing more builds in Q3 than expected, we are still pushing to reach 50% growth this year. This target has become more difficult, but it remains possible with strong execution and as Elon mentioned, no more force majeure events for the balance of the year.
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EM
Elon MuskCEOTesla
Yes, a lot of force majeure in the last several years, that's for sure.
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ZK
Zachary KirkhornCFOTesla
Thank you.
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Q&A Session
Q&A 1/5
MV
Martin ViechairTesla
Great. Thank you very much. And now let's go to analyst questions. The first question comes from Pierre Ferragu from New Street Research. Pierre, feel free to unmute yourself.
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PF
Pierre FerraguanalystNew Street Research
Hi, guys.
Thanks for taking my question. I'd like to ask like a question on 4680 and the structural battery pack. And I'd love to understand where you stand on the technology and efficiency and energy density road map that you described at the Battery Day. So what I'm trying to understand is where do you stand on the architecture of the battery cell itself?
How much silicon do you have in it? How much energy improvement have you achieved already so far? Sorry. And the reason why I'm asking — sorry.
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Andrew BaglinoexecutiveTesla
Go ahead.
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PF
Pierre FerraguanalystNew Street Research
And the reason why I'm asking that is because you have like very smart guys on Twitter who shared experience about trying to fully empty a Model Y from Texas from Austin and noticing behaviors and like recharging behavior that suggested that maybe these cars had like very, very high mileage, very high range, and were like artificially limited in range in software. So I'm just kind of trying to understand how much of an edge you're building at the moment with the 4680 and the battery back on range.
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question#127
AB
Andrew BaglinoexecutiveTesla
Yes.
Let me just try to provide like a super straightforward answer, like as Elon mentioned before, our priority was really on simplicity and scale during the initial 4680 and structural battery ramp. So we weren't like putting all the bells and whistles in from day 1 because if so, we would be sort of suffering under a string of serious miracles that we would need to achieve to get going. But as we attain the manufacturing goals that we've stated at the ramp that we need to hit next year, we are certainly planning to layer in new material technologies and higher-range structural packs, but like holding back goodies for some rainy day or something like that.
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EM
Elon MuskCEOTesla
Yes. Maybe another way of putting it is that the — our focus right now is on the dozens of little issues that inhibit the production ramp of the 4680. Some of the more challenging ones have been feeding the anode-cathode material because we're using this revolutionary dry electrode process. But when something is revolutionary, it's a lot of unknowns that have to be resolved. So we're confident of resolving those unknowns but it's very difficult. It's — yes, we're making rapid progress on that point. So the first order of business is really get the basics right, get to high volume and high reliability and then very rapidly iterate within that to enhance the energy density and reduce the cost of the cell.
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AB
Andrew BaglinoexecutiveTesla
Totally agree, yes.
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PF
Pierre FerraguanalystNew Street Research
Okay.
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EM
Elon MuskCEOTesla
I'd say we are highly confident of a good outcome. It's the exact counterpoint of that is perhaps is of some debate but the outcome is not.
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AB
Andrew BaglinoexecutiveTesla
Yes. Specific to the dry process, we made a major advance this past quarter in Kato that the team is really excited about, and congrats to the team for achieving that.
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EM
Elon MuskCEOTesla
But I should also emphasize that it is not as though Tesla intends to displace our suppliers of battery cells. The Tesla battery cell production is in addition to what our suppliers can do. And we want our suppliers to grow their battery output as fast as they possibly can, and that goes for the entire supply chain. The fundamental rate limiter for both transitioning to sustainable energy is how fast can you grow with the amount battery output per year? This is the fundamental rate limiter for transition to sustainability because you need the batteries for two of the pillars of sustainability, the stationary storage and for vehicles. So yes.
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AB
Andrew BaglinoexecutiveTesla
Yes, I just want to stress that a lot of these higher energy density technologies are not necessarily scalable. I mean, most of them are not scalable from what I've seen.
And so like focusing on them is a distraction from the mission, like it really is how do we scale as fast as possible? And we're taking these risks that we've discussed at Battery Day. And our plan is as we de-risk them and they are successful, we want to bring them back to our partners so that they can go faster, too, because that's all on the mission, right, like how do we accelerate.
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EM
Elon MuskCEOTesla
People often ask me, if you often ask me, is some breakthrough needed in battery technology for the world to transition to sustainability? The answer is no. Even if there was zero technology breakthroughs, so literally zero from where the technology is right now, we could fully transition Earth to sustainable energy.
The issue is very much the rate at which the entire supply chain from mining to refining to cell production. How fast can that grow? It's growing fast with the faster it grows, the faster we transition to a sustainable energy economy.
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PF
Pierre FerraguanalystNew Street Research
This is actually a great exactly where my follow-up is.
So Elon, you always mention this 50% per annum sustainable growth target that you guys have. And so my question here is when we see like the difficulty regarding the commodities, raw materials, swinging prices, I'm kind of wondering, as you are planning for this 50% per annum growth, if we stand today over the next 5 to 10 years, how much of that do you feel you've secured through your work at entering into long-term contracts and things like that? And you were calling for entrepreneurs to go into the lithium business. So does that mean you don't have enough lithium secured to grow 50% per annum over multiple years? And what's — how much of that is secured today? And how fast can you improve that basically?
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EM
Elon MuskCEOTesla
Well, I think it's very difficult to predict anything 10 years from now. I hope civilization is still around, frankly. I don't count that as a win.
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PF
Pierre FerraguanalystNew Street Research
Not that fun.
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EM
Elon MuskCEOTesla
Yes, exactly. Hopefully, we haven't had World War 3 by then. Yes.
So the — we do see constraints in refining of the materials necessary for lithium ion batteries. I do want to emphasize this as — it is not due to a scarcity of the raw material. In the case of lithium, lithium is one of the most common elements on earth. It's pretty much everywhere. But refining of the lithium into ultra-high purity battery-grade lithium hydroxide, lithium carbonate is quite difficult and requires a massive amount of machinery and it's a hard thing to scale. As it was also difficult to create the anode and cathode, I think — my guess is maybe two-thirds of batteries will be iron phosphate or maybe iron phosphate with some manganese. And there is plenty of — there is a ridiculous amount of iron with it. In fact earth is — a little better of trivia says, what is earth made of more than anything else, iron. Iron is the number one ingredient of earth by mass, number two is oxygen, which is wild. Yes.
Basically rust. Actually, we are stuck together. We are a rust ball. That's roughly — that's almost two-thirds of earth, I think is rust. We are like a rusty ball bearing with a little bit of other stuff, so — but plenty of lithium. So anyway, there is not like a shortage of materials.
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AB
Andrew BaglinoexecutiveTesla
Yes.
I mean but the other thing on the LFP thing is that it isn't just that there is more access to material that way. The actual refining process is less capital intensive to make a good LFP cathode. And so there is — it's not just scalable on the resource side, it's scalable on the refining side.
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EM
Elon MuskCEOTesla
Okay. Absolutely, to clear, there is no fundamental barrier here.
It's simply a rate question. Like at what rate can you scale production, and I think we are seeing a very rapid increase in battery production and in the whole supply chain. If you were to say today, what are concerns appears down the road, I would say one of the concerns is the machinery to refine the critical ingredients of lithium ion cells. So, the lithium itself and then the cathode, which I said like I said, will be mostly iron phosphate, actually some manganese. I think almost all stationary storage will be iron phosphate and then you really just need nickel chemistry for long-range vehicles and like aircraft and that kind of thing.
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Andrew BaglinoexecutiveTesla
Yes. The other thing I would say is — we are working with our suppliers to ramp their capability as quickly as possible.
And it's not like we have a problem in the next year or 2 years to — specifically to your question. But when we look 10 years out, yes, we need to do more to accelerate the growth. And that is why we are making our own investments, like we are building a facility here in Texas. This already is going up, you can see it in the flyovers. We are working on a lithium refining activity as well ourselves because the best way to learn how to accelerate something is to do it yourself. So, these are the things we are doing to move it all forward.
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Elon MuskCEOTesla
Yes. If our suppliers don't solve these problems, then we will.
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Q&A 2/5
MV
Martin ViechairTesla
Thank you. The next question comes from Emmanuel Rosner from Deutsche Bank. Emmanuel, go ahead and un-mute yourself.
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Emmanuel RosneranalystDeutsche Bank
Yes. Thank you so much. I have a question on your vehicle demand and then a quick follow-up on supply. First, on the demand side. Are you seeing any sort of pressure in the order book or the pace of new order or any sort of like slowdown as a result of the pressures that the consumer is experiencing? Are you worried about it in light of your view of the risks to the economy that I think you expressed, Elon?
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Elon MuskCEOTesla
Well, right now, our firm is very much production. So, we have long leads on — as anyone can tell, if they order our car, if you order Model Y, it will arrive sometime next year. So, this is clearly not an issue for many months for us. Our problem is overwhelmingly that of production. So, yes.
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ZK
Zachary KirkhornCFOTesla
Okay.
Maybe just two things to add. Specifically on your question, are we seeing a macroeconomic impact on our demand, not that I can tell. Maybe a little.
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Elon MuskCEOTesla
Some maybe.
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Zachary KirkhornCFOTesla
But it's not material. The second thing to Elon's point about backlogs, we have a very long runway with very long lead times here. I mean certainly, the world is uncertain and we will have to see where things go with commodity prices, how quickly we are ramping production, what the state of the road looks like at some point next year. But the demand is not something we spend really any time talking about.
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EM
Elon MuskCEOTesla
Yes.
I think it's — maybe just one thing worth mentioning the — that there is surface between value for money and fundamental affordability because sometimes people say, "Well, if you got all this demand, why don't you just raise the price to some — double the price or something?" And this is usually expressed by somebody who is rich. But there is — even if you rail value for money to infinity, if somebody does a little bit, concerns do not have enough money to buy it, even a product where the desirability is rail to infinity, they basically cannot buy it. So, this is why you kind of just raise prices to some arbitrarily high level because you pass the affordability boundary and then the demand falls off a cliff. So, I do feel like we have raised our prices or we raise the price quite a few times. They are frankly at embarrassing levels. But we have also had a lot of supply chain and production trucks and as we have got crazy inflation. So, I am hopeful, this is not a promise or anything, but I am hopeful that at some point, we can reduce the prices a little bit.
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Martin ViechairTesla
Thank you. Emmanuel, do you have a follow-up?
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Emmanuel RosneranalystDeutsche Bank
Yes. My follow-up was actually on the supply side. So, it was very encouraging to see that you are quantifying your current installed capacity at basically already in excess of 1.9 million units installed currently. How quickly do you think that you can fill that capacity?
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Elon MuskCEOTesla
Well, I mean we — I think we have got a good chance of exiting this year at 40,000 vehicles a week.
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Andrew BaglinoexecutiveTesla
Yes. I mean our internal plans are to have the capacity utilized by the end of the year. It takes time to ramp there. It will be a challenge. There is a lot that needs to happen to get there, but that's what we are working on.
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Elon MuskCEOTesla
Yes. We have had many 30,000-car weeks already, so I think a 40,000-car week is within reach by the end of this year.
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Andrew BaglinoexecutiveTesla
Shanghai and Fremont, as we said last month for record production and they are really fire to better doing really well. But then also Berlin are coming on strong. Theoretically, they also had record quarters last quarter. And if we ramp them to the capacity shown in the deck by the end of this year, we will be at that rate.
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EM
Elon MuskCEOTesla
There is always a lot of uncertainty like the production looks like ESCO [ph], and that intermediate part of ESCO, it's very difficult to bridge that with high certainty. But the end part of the ESCO, you can say, I think you can have a lot more certainty. And so that's why I am confident we will get to 5,000 cars a week at — in Austin and Berlin by the end of this year or early next year and probably but not certainly, 10,000 cars a week at both locations by the end of next year.
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Q&A 3/5
MV
Martin ViechairTesla
Thank you. The next question comes from Colin Rusch from Oppenheimer. Colin, go ahead please.
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Colin RuschanalystOppenheimer
Thanks so much, guys. Could you talk a little bit about the pricing strategy around FSD, and as you get closer to this full functionality rolling out and the increased cycle times, how you see that evolving through the balance of this year and into 2023?
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Elon MuskCEOTesla
Yes.
We will increase the price of FSD sometime later this year. I think probably just before we go to quiet Beta or Beta is anyone who wants to use the Beta software with all the caveats associated with that can use it. Then it would make sense to increase the price of FSD. The value of FSD is, I think extremely high and not well understood by most people. It is basically currently ridiculously cheap, assuming FSD materializes, which is well.
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CR
Colin RuschanalystOppenheimer
Great. And then sorry to belabor a little bit on battery materials side. But in terms of some of the suppliers and the contaminants, can you be a little bit more specific around some of the elements that you guys see in some of your supply chain that can prove troublesome yields for the 4680s, particularly around lithium and potential contaminants in either hydroxide, the carbonates that you guys end up seeing real issues with as you move into production?
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Zachary KirkhornCFOTesla
Yes. I don't really think we have anything to comment on, yes, the purity specs of lithium on this call right now, yes.
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Elon MuskCEOTesla
Yes. The contaminants from the 4680 are not a factor, which is not an issue.
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Q&A 4/5
MV
Martin ViechairTesla
Okay. Thank you very much. The next question comes from Toni Sacconaghi from Bernstein. Tony, go ahead please.
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TS
Toni SacconaghianalystBernstein
Yes. Thank you for taking my question. I have two as well. In response to the question around demand, I think Zach, you said maybe a little, and Elon, you said maybe some indication that you might see some pressure on demand.
And I am wondering if that is really just speculation or whether there is any empirical data that you saw in the last month, whether it would be cancellations or order lead times that led you to make that comment. I think anecdotally, if you squint, the lead times have gotten a little lower over the last four months in both China and the U.S. That's really the only visibility investors have. So, I am wondering if you could maybe elaborate on whether that's really just you are sort of anticipating there could be some impact because of high prices or whether they are something anecdotally or quantitatively that you could point to, please?
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EM
Elon MuskCEOTesla
No. I mean I think we have said this now for many years, I know has proven true. Tesla does not have a demand problem, we have a production problem. And we have almost always had it's a very rare exception it's always been a production problem. I think that will remain the case.
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TS
Toni SacconaghianalystBernstein
So, there is a denominator and a numerator and like, you increase production?
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Elon MuskCEOTesla
Yes, absolutely. As we increase production, more demand is needed obviously.
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Andrew BaglinoexecutiveTesla
No, it's more just like you can't look at the backlog and state much about demand because we are doing a lot on the other side to change the production.
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Elon MuskCEOTesla
We are trying to make the backlog lower, not longer.
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Andrew BaglinoexecutiveTesla
Building factories and building more…
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Elon MuskCEOTesla
We don't want a long backlog. That's annoying. It would be like go to a restaurant and you order a burger and you have to wait three hours and like, that's annoying. You want to get your burger right away.
Same with the car. So, we want that lead times to reduce.
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TS
Toni SacconaghianalystBernstein
Okay. Thank you. Now I was just trying to follow-up on the fact that you both said that maybe we are seeing demand be impacted a little bit, and that was the spirit of the question, maybe…
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EM
Elon MuskCEOTesla
We don't have like — like because we see daily orders from around the world for our cars, it's actually — it is like a mood barometer of people's confidence in the economy. But one can't read too much into it because things can vary a great deal from one day to the next. Consumer sentiment is all over the map. So, it's — manage price, frankly. But we have so much excess demand.
That is really just not an issue for us. It might be an issue for some other companies but it is not an issue for us.
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TS
Toni SacconaghianalystBernstein
Okay. Thank you.
Elon, I am just wondering, a question for you. Tesla has obviously changed dramatically in the last 3 years from near life or death to a company with consistent cash flow and industry-leading margins. I am wondering if you can comment on your personal role in the company and whether you see that changing in terms of your role, your commitment and time spent at the company over the next 3 years or 4 years. I think you said a few calls ago, you wouldn't be on calls unless there is something unusual and you have been on every call since then. I am wondering how…
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EM
Elon MuskCEOTesla
I do a lot of unusual things, let's face it. Basically, if there is only good news, I won't be on the call. But if you have like a tough situation like COVID shutdowns in China, then I think I will be on the call — relatively speaking, if there is bad news. And we have this good news, then I won't be on the call. But I am committed to the long — I mean I will work at Tesla as long as I can usefully advance the cause of sustainability and autonomy.
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Q&A 5/5
MV
Martin ViechairTesla
Fantastic. Thank you very much. The next question comes from William Stein. Please go ahead and un-mute yourself.
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WS
William Steinanalyst
Great. Thank you very much for taking my question. Elon, in the past, you have given some assessment as to the likelihood that you can achieve success in some of the more interesting AI-oriented efforts, not only FSD, but also Dojo and Optimus. Perhaps you can give an updated view on those.
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Elon MuskCEOTesla
Well, I don't want to steal thunder from AI Day. So, I think we will have some exciting news on AI Day that I think will be further ahead than probably most people think. But I don't want to — I would love to answer you, but I think we will leave that excitement for AI Day.
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William Steinanalyst
Okay. And perhaps a follow-up if I can. We have heard a lot from others and certainly to some degree from you all about the shortages in semiconductors, in particular. We have seen some big, important customers of that type of product decide to sort of leverage the ecosystems that exist to make some of their own in those categories. I am wondering to what degree you are doing that. That's outside of Dojo in terms of the — I guess on the inference side, you are certainly doing that in the car, but what about sort of the more mundane areas like microcontrollers and the like? Is there any internal effort to improve supply chain and maybe improve other performance aspects?
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EM
Elon MuskCEOTesla
Well, there is what we have done, we have been working with our suppliers side. We don't currently intend to make chips ourselves. We don't think there will be a need to make chips, but we have been working closely with a number of suppliers.
Actually just met with one of our key supplier CEOs right before this call. We had a great meeting. They are going to make major investments in some of the critical chips and components that we need in the car. And I would actually like to take a moment to thank our key suppliers once again for supporting us through difficult times.
And they really went above and beyond to support us. So, to all our suppliers out there, thanks very much.
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AB
Andrew BaglinoexecutiveTesla
Yes. And I guess just maybe we don't talk about it very often, but we do have a lot of custom silicon in the vehicle already. Microcontrollers, yes, some, battery management, yes, some, power electronics, yes, some. So, we try to go after where there is actually a technical advantage. And in the future, I think we are going to look at where there is a supplier…
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EM
Elon MuskCEOTesla
Even now where there are supply chain issues with our Tier 1s and Tier 2s, get into it with us on the engineering side when we find solutions, whether it's alternative chips or changing the entire structure of this pack to make it work.
And I think that's an advantage we have that many other OEs just simply cannot. I think Tesla is as much a software company as it is a hardware company. And so one of the ways that we have been able to address supply chain issues on the chip front is by rewriting software to be able to use different chips, or in some cases, achieve dual use of a single chip, which is even better. And actually, quite frankly, the chip shortage has served as a forcing function for us to reduce the number of chips in the car. Yes, turns out we had more chips than we needed. But that's a testament to our software team that we are able to roll a new chip into the car, write a whole new patch of software for that chip and — without interrupting production.
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AB
Andrew BaglinoexecutiveTesla
Yes. And our goal is as we mature and scale the platforms to integrate more functionality into fewer chips, like that is the way that it's gone with laptops and phones. It's going that way in cars. And we are trying to do that wherever it makes sense to do it as quickly as we can.
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Elon MuskCEOTesla
From a supply chain standpoint, do we — what do you think about the chips and whatnot?
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Andrew BaglinoexecutiveTesla
Yes. I think — I mean from a high level, instead of designing and building our own microcontrollers, we are partnering with key partners that understand the architectural requirements and they will take the specs and design something for us. We have done that, to your point, Drew, on the battery sensing space. We have got some application-specific ICs. But yes, integrating, reducing the number of components, it makes supply chain easier, but it also makes the reliability of the end product better because there is less failure points. So, that's always been the mantra.
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Lars MoravyexecutiveTesla
And at times, we have also got the wafer level and try to consume less to achieve the same functionality. So, that's something also that we have been looking at in some of the constrained modules that we have faced in the last six months.
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Closing Remarks
WS
William Steinanalyst
Thank you.
MV
Martin ViechairTesla
Fantastic.
Well, thank you very much. I appreciate all of your questions. Unfortunately, this is all the time we have this quarter, and we will speak to you again in three months' time. Thank you very much, and goodbye.
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Elon MuskCEOTesla
Bye.
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