Q3 FY2022 Earnings Call
TSLA · Preprocessing Report
2022-10-19
Quality
100%
86
Turns
11
Speakers
4
Sections
7
Exchanges
406
Claims
Quality issues

Entities by group 40

company executives 5
Elon MuskpersonZachary KirkhornpersonAndrew BaglinopersonColin LanganpersonColin Ruschperson
analysts 3
Adam JonaspersonPierre FerragupersonGeorge Gianarikasperson
driver assistance software 1
Full Self-Drivingproduct
vehicle lineup 2
Model YproductCybertruckproduct
consumer technology peers 3
ApplecompanyGooglecompanyAlphabetcompany
sell-side analysts 2
Toni SacconaghipersonWilliam Steinperson
manufacturing plants 3
Giga TexascompanyGiga BerlincompanyGiga Austincompany
neurotechnology 1
Neuralinkcompany
robotics 1
Optimusproduct
energy companies 1
Saudi Aramcocompany
semiconductor peers 1
NVIDIAcompany
energy storage products 2
MegapackproductPowerwallproduct
government agencies 2
White HousecompanyU.S. Department of the Treasurycompany
sell-side firms 1
Canaccordcompany
central banking 1
Federal Reservecompany
investors 1
Cathie Woodperson
investor 1
Ark Investcompany
Ungrouped 9
TeslacompanyBattery DayeventTwittercompanyIRAotherUnited StatesotherAI DayeventSpaceXcompanySemiproductMartinperson
REPORTING 58PROJECTING 46POSITIONING 145EXPLANATORY 41ANALYST 38

Topics 80

battery×47self-driving×30commodities×16gross×13research×12production×9permitting×8delivery×7buyback×7valuation×7cost×7model y×7dojo×7factory×6market capitalization×6operating×6earnings×5strategy×5logistics×5lithium×5

Themes 238

production×134680×10regulatory×5timeline×5vertical integration×4cost reduction×4full self-driving×4free cash flow×3relative to apple×3pricing×3outlook×3reliability×3index latency×3reduction×3nvidia comparison for neuralink training×3operating margin×2q4 guidance×2weekly output×2talent attraction×2vehicle demand×2share repurchase questions×2long-term performance×2surpassing apple and saudi aramco×2ramp costs×2energy business×2outbound constraints×2quarterly timing concentration×2regional builds×2manufacturing capacity×2government policy×2expedited×2launch timing×2autonomous driving×2u.s. manufacturing×2supply chain×2as a share of revenue×2old work×2capital efficiency×2copper and steel futures×2shanghai spot market×2combining businesses×2design and development×2battery day×2manufacturing improvement×2texas×2structural×2commercial success×2autonomy×2q3 recap×1record quarter×1year-end momentum×1berlin ramp×1rapid ramp×1traction×1output growth×1record output at fremont×1fremont output increase×1event×1prototype demonstration×1software update×1beta mileage×1ai day×1ai talent×1research interest×1beta release×1beta access×1immediate availability×1safety×1wide beta threshold×1q4 outlook×1future capacity×1factory utilization×1margin strength×1vehicle penetration×1fleet size×1market penetration×1board discussion×1board support×1capital return guidance×1board approval pending×1expected execution×1long-term focus×1apple comparison×1apple benchmark×1strategic delivery×1future upside×1comparative upside×1upside potential×1growth potential×1exciting×1launch progress×1future outlook×1team capabilities×1employee recognition×1record vehicle and storage deployments×1gaap operating×1automotive gross×1operating leverage×1auto gross margin excluding regulatory credits×1vehicle production×1macroeconomic headwinds×1raw materials, logistics and foreign exchange pressure×1outbound capacity×1delivery batching×1annual growth×1risks×1growth outlook×1in transit×1ramp cost impact×1maintaining margins×1call logistics×1flexibility×1constraints×1self-imposed limits×1outsourcing vs integration×1insourcing×1permitting law×1under $100 billion×1mineral projects×1energy transition×1environmental impact×1mining×1fast-track×1logical approach×1positive reception×1effort×1financial details×1battery cell redesign×1operational improvements×1required for output×1call clarity×1update request×1automation level×1software release timing×1driving capability×1level 4/5 definition×1readiness×1driverless readiness×1driver intervention×1hands-off driving×1eligibility×1sourcing requirements×1domestic supply requirement×1incentives×1sourcing threshold×1sourcing rules×1sourcing requirement×1ira eligibility threshold×1ira thresholds×1scale effects×1r&d and sales investment×1absolute growth×1growth efficiency×1growth vs expenses×1efficiency improvement×1capital allocation×1investment capacity×1program count×1cash gauge×1engineering talent×1product output×1spending to shipment×1assembly line analogy×1process consistency×1where top people are working×1attracting smart engineers×1capital spending×1cost discipline×1spending efficiency×1cash investment×1productivity×1annual event×1global adjustments×1price watching×1expected price declines×1battery-grade prices×1input prices×1cost easing×1price stabilization×1decline×1current levels×1deflation×1data availability×1searchability of data×1fed policy×1prices and inflation×1cost increases×1price pass-through lag×1index lag×1policy decisions×1front visibility×1peak and decline×1input cost inflation×1improvement outlook×1timing of savings×1ownership stakes×1single holding company×1overlap across companies×1not an investor×1manufacturing-led leadership×1portfolio×1uncertainty×1consolidation×1company potential×1potential×1valuation×1connection check×1program update×1manufacturing scale-up×1surprise×1upbeat outlook×1execution amid opex concerns×1talent retention×1hiring market×1on-site facilities×1refinery×1lithium×1yield improvements×1technical reduction×1acceleration×1speed improvement×1simplicity and scale×1cost target×1deployment×1semis delivery×1model y production×1cybertruck ramp×1allocation×1battery cells×1mileage×1product performance×1competition×1future challenges×1supply constraint×1product success×1gpu competitiveness×1architecture strategy×1execution dependence×1

Key Metrics 66

production×13market capitalization×10operating margin×8operating expenses×7commodity prices×5deliveries×4share repurchases×4terawatt hour×4cost×4free cash flow×3demand×3margin×3reliability×3tax credit×3r&d spending×3ramp speed×3full autonomy×3production rate×2output×2safety×2market cap×2gross margin×2gross profit×2capital expenditure×2regulatory approval×2cash flow×2future prices×2aluminum prices×2container cost×2production capacity×2yield×2cost per kilowatt hour×2miles driven×1safety gap×1sales×1market share×1vehicle fleet×1fleet share×1battery production capacity×1battery production×1profitability×1capacity×1outbound logistics×1costs×1production growth×1delivery growth×1driver intervention×1interventions per mile×1sourcing×1operating leverage×1number of r&d programs×1cash×1r&d productivity×1prices×1lithium price×1shipping costs×1shipping rates×1inflation×1commodity costs×1valuation×1manufacturing costs×1ramp progress×1cycle time×1miles×1supply×1rate of improvement×1

Entities 653

Tesla×283Elon Musk×151Zachary Kirkhorn×46Andrew Baglino×26Full Self-Driving×15Battery Day×10Model Y×10Adam Jonas×8Twitter×7Apple×7IRA×7Colin Langan×6Neuralink×6Cybertruck×5United States×5Pierre Ferragu×5Toni Sacconaghi×5Giga Texas×4AI Day×4Optimus×4Saudi Aramco×4SpaceX×4NVIDIA×4George Gianarikas×3Google×3William Stein×3Giga Berlin×2Canaccord×2Federal Reserve×2Semi×2Giga Austin×1Megapack×1Powerwall×1White House×1U.S. Department of the Treasury×1Colin Rusch×1Cathie Wood×1Ark Invest×1Alphabet×1Martin×1

Business Segments 131

Automotive×126Energy Generation And Storage×5

Sectors 87

battery manufacturing×22artificial intelligence×11logistics×10software×7semiconductors×7energy×6mining×6autonomous vehicles×6automotive×3consumer internet×3robotics×2environmental services×1financial services×1chemicals×1cloud computing×1

Regions 51

Texas×12Berlin×9Austin×9U.S.×5Fremont×4United States×4Shanghai×3Europe×2North America×1global×1Corpus Christi×1

Metadata Distributions

Sentiment
positive 111negative 26neutral 191
Temporality
backward 48forward 77current 203
Certainty
definitive 54confident 98moderate 111tentative 61speculative 4
Magnitude
major 16moderate 193minor 119
Direction
improvement 24decline 8mixed 4none 292
Time Horizon
immediate 58near_term 108medium_term 30long_term 12unspecified 120
Verifiability
quantitative 58event 23qualitative 247
Analyst Intent
probing 14challenging 1confirming 2seeking_detail 20seeking_guidance 1

Speakers

Executives
EMElon MuskCEOABAndrew BaglinoexecutiveZKZachary KirkhornCFO
Analysts
AJAdam JonasanalystCLColin LangananalystCRColin RuschanalystGGGeorge GianarikasanalystPFPierre 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

Q&A Exchanges 7

#AnalystFirmTurns
1
AJAdam Jonas
Morgan Stanley8
2
CLColin Langan
Wells Fargo10
3
CRColin Rusch
Oppenheimer12
4
GGGeorge Gianarikas
Canaccord16
5
PFPierre Ferragu
New Street Research20
6
TSToni Sacconaghi
Bernstein11
7
WSWilliam Stein
Truist3

Claim Taxonomy 328

REPORTING58
resultFinancial outcome for a completed period27
metricNon-financial quantitative fact16
operationalDiscrete completed event15
PROJECTING46
guidanceQuantitative expectation with number + time18
commitmentPromise with binary verifiable outcome23
targetLong-term aspirational quantitative goal5
POSITIONING145
strategyPriority, direction, or initiative116
competitiveCompany's position or advantages7
opportunityMarket condition framed as growth driver10
riskHeadwind, constraint, or uncertainty12
EXPLANATORY41
attributionWhy a specific outcome happened5
contextNon-company macro/industry fact36
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST38
questionInterrogative seeking information31
observationRestates a fact or data point5
concernFlags a risk or challenge1
estimateAnalyst's own projection or calculation0
sentimentOpinion, praise, or critique1

Transcript

Preamble
MV
Martin ViechairTesla
Good afternoon, everyone and welcome to Tesla's Third 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 Q3 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 the 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 Q&A session 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
EM
Elon MuskCEOTesla
Thank you, Martin. So just to do a Q3 recap. Q3 was another record quarter on many levels. We had our industry-leading operating margin reach 17%. And our free cash flow surpassed $3 billion in Q3 and approached $9 billion in the past 12 months.
As our factories ramp, we're looking forward to a record-breaking Q4. So it really, knock on wood, looks like we'll have an epic end of year. So, Q4 is looking extremely good. On the production ramp, Giga Berlin achieved another milestone of 2,000 cars made in a week with very good quality and is ramping rapidly. Giga Austin or Giga Texas should reach this milestone very soon. And in fact, just yesterday, we extrapolated yesterday's build rate, it would be 2,000. Our production of 4680 cells has tripled in Q3 compared to the previous quarter. We are finally gaining rapid traction on the 4680 cell. And its output is growing rapidly, and we expect it to start incorporating in cars and having it be a significant portion of our production here in Texas in the coming months. We also have our second generation of manufacturing equipment for 4680 cells in Texas, which continues to show great progress along with our original pilot line in Fremont. The Fremont factory team once again reached record production in Q3. And we intend to keep raising production in Fremont. Regarding Autopilot, at the end of September, we hosted our second AI Day and drove the first prototype of our Optimus robot, released updates on our training computer and high range improvements of full self-driving software. Our vehicles have now driven nearly 60 miles in full self-driving Beta mode, and this number continues to grow exponentially. Our goal with that AI Day was to [post] (ph) recruiting, and we've seen a massive influx of world-class artificial intelligence engineer and scientist resume. So, it generated a tremendous amount of interest from some of the best AI researchers in the world. I can't emphasize the importance of this enough because I think finally it has become clear to the smartest AI technologists in the world that Tesla is among the very best.
So, this quarter, we expect to go to a wide release of full self-driving Beta in North America. So, anyone who has ordered a full self-driving Beta — full self-driving, will have access to the FSD Beta program this year, probably about a month from now. So — and then obviously, any new — anyone who buys a car and purchases a full self-driving option, will immediately have that available to them. So, the safety that we're seeing when the car is in FSD mode is actually significantly greater than the safety we're seeing when it is not, which is a key threshold for going to a wide Beta.
Let's see, with respect to demand. We've got a lot of questions about demand in recent weeks. I can't emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far into future as we can see. So, the factories are running at full speed, and we're delivering every car we make and keeping operating margins strong. We are still a very small percentage of the total vehicles on the road. Of the 2 billion cars and trucks on the road, we only have about 3.5 million. So, we've got a long way to go to even reach 1% of the global fleet. Let's see. Based on many — what people — based on many things, but certainly questions I get on Twitter about buybacks. And I think every one of our Board members has gotten questions about buybacks. We've debated the buyback idea extensively at the Board level. The Board generally thinks that it makes sense to do a buyback. But we want to work through the right process to do a buyback, but it's certainly possible for us to do a buyback on the order of $5 billion to $10 billion, even in the downside scenario next year, even — given if next year is a very difficult year, we still have the ability to do a $5 billion to $10 billion buyback. This is obviously pending Board review and approval. So, it's likely that we'll do some meaningful buyback.
So, in conclusion, while the market themes revolve around the short term, it's very important to focus on the long term. I can't emphasize this enough with investors and I think long-time investors, obviously recognize it with Tesla. You have your sort of local ups and downs, but long-term trend has been extremely good. And several years ago, I said, I think on an earnings call, and I thought it was possible for Tesla to be worth more than Apple, which was then the highest market cap company, I think, in the market. And Apple at that time, I think it was around $700 billion. And I said it required incredible execution, at least some luck, and we did indeed achieve that. Tesla went, in fact, or passed Apple's market cap at the time. And now, I'm of the opinion that we can far exceed Apple's current market cap. In fact, I see a potential path for Tesla to be worth more than Apple and Saudi Aramco combined.
So, now that doesn't mean it will happen or that will be easy. In fact, I think it will be very difficult. It will require a lot of work, some very creative new products, manage expansion and always the luck. But for the first time, I am seeing — I see a way for Tesla to be — let's say, roughly twice the value of Saudi Aramco. And I think that's — I haven't quite seen that yet. I mean, this is the first time I've seen that potential. So, we have an incredible product portfolio. I think we've got the most exciting product portfolio of any company on earth, some of which you've heard about, some of which you haven't.
We're in the final lap for Cybertruck. We're building a Cybertruck line here at Giga Texas [inaudible] and making a lot of progress in the robotaxi platform design. And then, with respect to batteries, we're moving as fast as possible to have — to achieve 1,000 gigawatt hours a year of production capacity in the United States, vertically integrated, anode-cathode, [inaudible] refining, we're moving at top speed to do that. So I think it's an incredibly exciting future and really an unprecedented future. None of this would be possible without the incredible team that we have here at Tesla. So, I'd like to give a huge shout-out to all of our factory employees, engineers, executives and the whole Tesla team. You guys rock. You're the ones making it happen.
Thank you. Thank you, everyone.
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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. Just to continue on Elon's theme, I just want to thank and congratulate the Tesla team for achieving record vehicle deliveries, production and storage deployments in the third quarter. On automotive profitability, our GAAP operating margin was 17.2% with automotive gross margin at 27.9%. Operating margin is one of our best yet, with improvements in operating leverage. However, Austin and Berlin ramp costs weighed on our margins, particularly if you compare it to Q1. Removing regulatory credits and Austin and Berlin, our operating margins would have been our strongest yet and auto gross margin would have been nearly 30%. Note that while small and growing, each car we build in Austin and Berlin is contributing positively to profitability. We also continue to experience margin headwinds associated with macroeconomic conditions, as we've discussed at length on prior calls.
In particular, raw materials, logistics and foreign exchange was a big part of this past quarter. On energy profitability, we achieved our strongest gross profit yet for this business, driven primarily by record volumes of our Megapack and Powerwall products. Our free cash flows were also a record despite an increase in cars in transit at the end of the quarter, which has a negative impact on working capital. Specifically on cars in transit, as noted in our press release on October 2nd, we've started to experience limits on outbound logistics capacity which we didn't anticipate. This issue is particularly present for ships from Shanghai to Europe and local trucking within certain parts of the U.S. and Europe. Our historical operating pattern of batch building by delivery region leads to extreme concentrations of outbound logistics needs in the final weeks of each quarter. Just to put this in perspective, roughly two-thirds of our Q3 deliveries occurred in September and one-third in the final two weeks. As a result, we've begun to smooth the regional builds throughout the quarter to reduce our peak needs for outbound logistics.
We expect this to simplify our operations, reduce costs and improve the experience of our customers. As we look ahead, our plans show that we're on track for the 50% annual growth in production this year, although we are tracking supply chain risks which are beyond our control. On the delivery side, we do expect to be just under 50% growth due to an increase in the cars in transit at the end of the year, as noted, just above. This means that, again, you should expect a gap between production and deliveries in Q4, and those cars in transit will be delivered shortly to their customers upon arrival to their destination in Q1. Austin and Berlin ramp costs will continue to weigh on margins, although we expect the impact to be less than what we saw in Q3. And as Elon mentioned, we are continuing to build as many cars as possible while also maintaining strong operating margins. Thank you.
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Q&A Session
Q&A 1/7
MV
Martin ViechairTesla
Thank you.
Let's go to analyst questions next. The first question comes from Adam Jonas from Morgan Stanley. Adam, go ahead and unmute.
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AJ
Adam JonasanalystMorgan Stanley
Great. Can you hear me?
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question#120
MV
Martin ViechairTesla
Yes.
#121
EM
Elon MuskCEOTesla
Yes.
#122
AJ
Adam JonasanalystMorgan Stanley
So Elon, would you consider vertically integrating into mining? That's my first question.
question#123
#124
EM
Elon MuskCEOTesla
We'll do whatever we have to. Whatever the limiting factor is, we'll do. We do not personally constrain ourselves. We don't particularly integrate just for the hell of particularly integrating. Like if there was a great supplier who's better than us or we think actively is very good, or even where the economics of comparative advantage suggest that we should use that supplier, even if we could beat them, but we could use our resources to do something else that will be more productive, then we would in source in that case. But if we have to go mine, we will mine.
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AJ
Adam JonasanalystMorgan Stanley
Okay. Thanks, Elon. My follow-up is 1 terawatt hour of manufacturing in the United States, vertically integrated. I guess, my question is, what would need to change with U.S. permitting laws to allow that? Kind of what would be your message to this administration or next? And do you think you could do a terawatt hour? What's the going price of that? Can you do that for under $100 billion in the States? Thanks.
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EM
Elon MuskCEOTesla
Well, I mean, I think the message to the government would be that there should be — I should say, we've actually had conversations with a number of senior government leaders, White House, Congress and whatnot.
And the suggestion that we have is that there should be an expedited permitting process for anything which is critical to a sustainable energy future. So, it doesn't make sense to put like a coal mine and a sustainable energy battery like lithium mine in the same category. Coal does not in the future, lithium does. And by the way, you can extract lithium with almost no disturbance to the local environment. So, it's not actually ugly, nasty mine situation.
So, I would recommend expedited permitting would really be helpful. Basically, a fast track environmentally — I think in sense fast track things that are important for the environment and humanity for sure. That seems logical. And the reception has been positive. So, we'll see if something happens with that.
I think probably on this earnings call, we're not ready to go into financial details of the — what it will take to get there. But what we are seeing is practical improvements as we redesign the whole supply chain and all of the elements that go into battery cell. We're figuring out dramatic efficiencies. And I think we'll — net result which would be that the capital required to achieve that level of output will be much less than what people think.
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Q&A 2/7
MV
Martin ViechairTesla
Thank you very much. Let's go to the next question from Colin Langan from Wells Fargo. Colin, go ahead and unmute.
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CL
Colin LangananalystWells Fargo
Can you hear me now?
question#159
MV
Martin ViechairTesla
Yes, we can hear you.
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CL
Colin LangananalystWells Fargo
Okay. Sorry about that. Any update on full self-driving? I think you had said a couple of quarters ago, it would be available by the end of the year. Is that still possible? Is it — would it still be like a Level 4 or Level 5 that you're talking about? And are there any sort of regulatory hurdles you'd have to think about?
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EM
Elon MuskCEOTesla
We — as I said earlier, we're expecting to release the full self-driving software to anyone who orders the package by the end of this year. So, a separate matter as to will it have regulatory approval. It won't have regulatory approval at that time. But the car will be able to take you from your home to your work, your friend's house, to the grocery store without you touching wheel. So, it's looking very good.
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CL
Colin LangananalystWells Fargo
And it would mean like Level 4, Level 5 kind of traditional definition you're talking about?
question#173
EM
Elon MuskCEOTesla
Well, there's - this debate is like what's the — what are the interventions per mile and maybe safety interventions per mile.
Like we're not saying that that's quite ready to have no one behind the wheel. It's just that you will almost never have to touch the control, vehicle controllers. So, like when I came to Giga Texas from Brent's house, I never touched any of the controls already here. And then there is a longer process of like called the march of nines of like how many nines reliability do you need before you could really be comfortable saying that the car could drive with no one in it. And that's some subjectivity as to how many nines you need.
But I think we'll be pretty close to having enough nines that you're going to have no one in the car by the end of this year. And certainly, without a question, that's whatever in my mind next year. I think we'll also have an update next year to be able to show to regulators that the car is safer much so than the average human.
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CL
Colin LangananalystWells Fargo
Got it. And just as a follow-up. You mentioned in the prior questions about IRA. I mean, it sounded like you thought you could get — can you get all of it? I mean, because my interpretation is like the production credits, battery component credits for buyers seems very likely for you guys. Is the sourcing part of it possible? Because that seems like a pretty tough hurdle given how much has to be sourced from the U.S.
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AB
Andrew BaglinoexecutiveTesla
Yes.
So, we have a cross-functional team that's looking very closely. As you mentioned, the sourcing threshold increases by the year. So, we're looking at all options and also getting some clarification from Treasury. That's — it's important to say that's only a fraction of the other credits. We do manufacture ourselves in the U.S. We manufacture the modules in the U.S. So, that's a pretty thin. So yes, we feel confident that we'll have a path as these incentives — as the threshold sort of increases by the year.
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EM
Elon MuskCEOTesla
Yes. We'll meet those thresholds..
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Q&A 3/7
MV
Martin ViechairTesla
Thank you. The next question comes from Colin Rusch from Oppenheimer.
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CR
Colin RuschanalystOppenheimer
The operating leverage has been pretty impressive here. And I'm curious about areas where you could invest in an incremental way, whether it's on the R&D side or on the sales side to accelerate growth or cost reduction, or should we be thinking about this level of spend on a go-forward basis and some significant operating leverage as you scale up from here?
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question#204
ZK
Zachary KirkhornCFOTesla
Yes.
I mean, our operating leverage has improved quite a bit. It's the lowest this quarter, I think, ever, and by a decent amount, OpEx as a percentage of revenue. I mean, our forecast is that it will keep reducing. I mean, I think the way to think about it is our total amount of operating expenses will slowly tick up as the company grows. It's very hard to keep it flat with the rapid growth of the Company, but it's growing much slower. So some amount of growth there, but the top line of the business is growing so quickly. So, I think there continues to be enormous opportunity to improve the overhead efficiency of the business, and we're seeing it.
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guidance#209
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EM
Elon MuskCEOTesla
Yes. Look, we are in the — at least for now, quite in a good position of — we're investing in everything we can think of to possibly invest in, and we're still generating cash. So, I guess, it gets a pretty good place to be.
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ZK
Zachary KirkhornCFOTesla
Yes. I mean, how many R&D programs are we running in parallel right now?
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Elon MuskCEOTesla
People don't even know old R&D stuff for that. There are some of it, but a bunch of it.
strategy#218
strategy#219
ZK
Zachary KirkhornCFOTesla
I also don't think cash is a good gauge of how much R&D you're doing.
strategy#220
EM
Elon MuskCEOTesla
No. It isn't because like it's not like — it's not like engineers — they're not generic. So it's just like if you could you spend $5 billion or $10 billion, that will like — that your actual R&D — useful product ship will be proportionate to that. It's just not true. Engineers on — coming off some assembly line like cookies or something.
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result#223
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ZK
Zachary KirkhornCFOTesla
Until we get optimistic.
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EM
Elon MuskCEOTesla
Get optimistic. Don't change things. What matters is where are the most brilliant people working? And Tesla remains the — Tesla and SpaceX are two companies where the smartest engineers want to work.
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ZK
Zachary KirkhornCFOTesla
I mean, like we don't have to spend billions of dollars to invest in the future and invent the future. Engineers are also cost conscious. And we don't just burn the money out the window when we're trying to do R&D. I wouldn't stop looking at like R&D as a cash investment for…
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EM
Elon MuskCEOTesla
I think 1 nickel Tesla is frankly worth an infinite number of dollars. You could have like a — almost same the number of credit shares and they would not be able to do work 1 nickel of Tesla we can do. You can't make it up in volume.
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Q&A 4/7
MV
Martin ViechairTesla
Okay. Thank you very much. Let's go to the next question from George at Canaccord.
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GG
George GianarikasanalystCanaccord
I think, at your Annual Shareholders' event, where Elon mentioned that the prices of many of the materials used in your production have started to come off the boil. If that continues, does that give you an opportunity to adjust prices globally after several increases? Thanks.
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EM
Elon MuskCEOTesla
Well, we're looking at the prices of — prices closely. I mean, obviously, anyone can just Google what the price of — future price of copper or steel is going to be. It's just like one Google Search away. And everyone can see that the commodities on a go-forward basis are on a dropping a lot.
But in electric vehicles, things like battery-grade lithium are still crazy expensive. So, we've got a mixture of things where prices are dropping and things where prices are increasing.
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AB
Andrew BaglinoexecutiveTesla
Yes. I would say quarter-over-quarter, steel — aluminum has stopped anywhere between 17% to 20% at the same time on the battery side.
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ZK
Zachary KirkhornCFOTesla
And cost of shipping has come down tremendously. Like last year, the cost of a container on the spot market from Shanghai got as high as $20,000.
And now it's $3,500, $3,600. It's that kind of reality. We're seeing deflation in a lot of commodities with a few exceptions as Elon mentioned on batteries.
result#252
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opportunity#256
EM
Elon MuskCEOTesla
There's more deflation than inflation.
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ZK
Zachary KirkhornCFOTesla
Definitely.
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EM
Elon MuskCEOTesla
And again, this is publicly available information. Anyone could just Google it. And I think Cathie Wood at Ark Invest is making this point over and over again, to the Fed and the Fed is not listening because they're looking at the rearview mirror instead of looking out the front windshield.
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ZK
Zachary KirkhornCFOTesla
Yes. Just to add a little bit more context. So, commodity increases were the highest in Q3 that we've seen over the last two years. And so, when indexes change, it does take time before they fully reflect.
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EM
Elon MuskCEOTesla
Yes. There's latency.
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ZK
Zachary KirkhornCFOTesla
Yes. There's latency.
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EM
Elon MuskCEOTesla
That's why I say that the Fed's decisions make sense if you're looking out through the rearview mirror, but not if you look out the windshield. And actually we've got front windshield.
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ZK
Zachary KirkhornCFOTesla
Yes.
And so what — at least of what we know so far, the peak on the commodity side in Q3 — I say peak, hopefully, it stays the peak, hopefully, it starts to come down. There is a small amount of production that we're seeing going into our Q4 cost structure from steel and aluminum primarily, but it's less than 10% of the total increases we've seen so far. So we're optimistic here based upon what we're seeing on the indexes for some of our cost structure that this will start to come in over time. But I just want to set expectations that there's not some windfall of cost reduction in this space coming in Q4, maybe some as we go into next year.
context#272
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guidance#276
EM
Elon MuskCEOTesla
Yes. We'll probably see some cost reduction in 2023. I'll be surprised if we did not.
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guidance#279
GG
George GianarikasanalystCanaccord
And just as a follow-up, this is for Elon. With your pending acquisition of Twitter and your stakes in SpaceX and Neuralink and Tesla, how much would the combined companies benefit from operating under a single super structure, if at all, like a Google Alphabet?
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EM
Elon MuskCEOTesla
It's not clear to me what the overlap is. It's not zero, but it's — I think we're reaching.
I'm not worried about it. I'm not an investor. I'm an engineer and a manufacturing person and a technologist. So, I actually work and design and develop products. That's what I do.
So, it's not a — we're not going to have a portfolio sort of investments over it. So, I don't know. I don't see obvious sort of some — get combined under an umbrella, at least right now. So, I am excited about the Twitter situation because obviously another part incredibly well. And I think it's massive that this sort of languished for a long time, but has an incredible potential. Although, obviously, myself and the other investors are obviously overpaying for Twitter right now, the long-term potential for Twitter, in my view, is, in order of magnitude, greater than its current value.
context#282
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opportunity#294
Q&A 5/7
MV
Martin ViechairTesla
Let's go to the next question from Pierre Ferragu from New Street Research.
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Pierre FerraguanalystNew Street Research
Can you hear me, guys?
question#296
MV
Martin ViechairTesla
Yes, we can hear you now.
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PF
Pierre FerraguanalystNew Street Research
Great. I'd love to have another update on 4680, Drew. So last time we talked about it, there were — it was a question about like scaling up with manufacturing and there were still a few things to get right. Is it fair to say that now you are at scale, and it's just a question of logistics to get bigger? So, that's question number one. And then, question number two, on the kind of like innovation and cost reduction and efficiency improvements kind of path that you described at the battery day, where are we today? And how much time is it going to take to deliver all the potential you outlined then?
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AB
Andrew BaglinoexecutiveTesla
Well, I'll take the second question first. At Battery Day, we showed a time line out to 2026 for all of the ideas we had proposed and had shared with everybody then.
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Elon MuskCEOTesla
Yes, I'd be surprised. I think we'll do better than that.
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AB
Andrew BaglinoexecutiveTesla
Yes.
I mean, but just that's the rough — just give to you all — it's on that order. It's not like a month. It's not six months. It's years. And we are executing on all of those different ideas pretty aggressively in parallel with the OpEx that some people think isn't enough, but we're getting it done.
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commitment#311
commitment#312
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EM
Elon MuskCEOTesla
I mean, I'm turning down.
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Andrew BaglinoexecutiveTesla
Yes, yes. We're great talent, like we find someone awesome, we bring them into the company. And people shouldn't believe we are turning people away.
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EM
Elon MuskCEOTesla
Yes. I mean, it's a hot pond but we're solving it. And I think — we still feel confident that 4680 will be the most competitive battery cell in the world.
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AB
Andrew BaglinoexecutiveTesla
It's the whole system around it, right? It's not necessarily a specific form factor. It's the attention to detail on how to bring costs out of the manufacturing process — or remove processing steps.
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EM
Elon MuskCEOTesla
And all the way down from the mine to the cell.
result#325
AB
Andrew BaglinoexecutiveTesla
Yes, exactly.
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EM
Elon MuskCEOTesla
Many steps along the way.
context#327
AB
Andrew BaglinoexecutiveTesla
Yes. And for those who watched the YouTube videos, like our on-site cathode facilities coming together, I'm really excited about that, which is a part of the plan that we discussed on Battery Day.
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EM
Elon MuskCEOTesla
Yes. We're also building lithium refinery.
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AB
Andrew BaglinoexecutiveTesla
In Corpus Christi. So, we're making — putting our money where our mouths are and all the various efforts that we discussed on Battery Day. On the technical challenges and the ramp question, which is your first question of 4680, no ramp is ever easy even at the end when you're 80% to the end, like it's still very challenging to get to the end. And that sort of leaning out of yields, the final cycle time to achieve target. You mentioned logistics. It's not something that we're specifically focused on, I guess, but eventually could be a problem as we're talking about hundreds of gigawatt hours at different sites across the United States. But I would never sit here and say we have no challenges remaining, but we've made a lot of progress reducing technical risk in many areas.
Cycle times have dramatically improved. Yield has dramatically improved. And just walking the line here in Texas, like Martin was walking it yesterday, made some comments to me.
You really see the acceleration around you. And we've made a ton of simplifications moving from the Fremont factory to Texas, and it's coming to play in speed of ramp here. And of course, that's on one line of many here in Texas. So it's not like factory to factory. It's a multiplication of both, simplicity and scale. So yes, we're excited about where it's headed.
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EM
Elon MuskCEOTesla
Yes. And I think, once we are fully integrated, I think we still do see a path to hold roughly $70 a kilowatt hour cell — $70 per kilowatt hour cell, before any incentive.
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AB
Andrew BaglinoexecutiveTesla
Before incentive.
guidance#350
EM
Elon MuskCEOTesla
Before incentive.
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Q&A 6/7
MV
Martin ViechairTesla
Thank you. And the next question comes from Toni Sacconaghi from Bernstein.
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TS
Toni SacconaghianalystBernstein
I just wanted to follow up on the 4680 cells and where we are seeing them deployed today. So, are those in the Semis that are being delivered on December 1st? Are we seeing them in Model Ys that are being produced out of Austin?
And is — do you anticipate 4680 being a gating factor for Cybertruck ramp later this year? And how do you balance the need for 4680 across Semi, Cybertruck and potentially Model Y in 2023? And I have a follow-up, please.
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#359
EM
Elon MuskCEOTesla
Okay. The Semi doesn't use 4680s. Yes. We are making Model Ys. Some of the Model Ys coming out of Giga Texas are 4680. And I think, Drew, the car you drive around is 4680 Model Y?
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AB
Andrew BaglinoexecutiveTesla
Yes. 10,000 miles.
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Elon MuskCEOTesla
10,000 miles. Pretty good.
metric#367
strategy#368
AB
Andrew BaglinoexecutiveTesla
No problems yet.
strategy#369
EM
Elon MuskCEOTesla
Yes. Structural pack.
#370
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AB
Andrew BaglinoexecutiveTesla
Structural pack.
strategy#372
EM
Elon MuskCEOTesla
Yes. And yes, I mean — and our output 4680 is growing exponentially.
But it's worth bearing in mind like there are entire highly competitive companies that are very smart that all they do is make battery cells. This is simply one segment of Tesla. So, it's not a total…
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AB
Andrew BaglinoexecutiveTesla
No, there aren't — there are challenges still ahead that we have not yet surpassed. No doubt.
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Elon MuskCEOTesla
We don't anticipate this being anything — like Cybertruck or anything else.
risk#380
Q&A 7/7
MV
Martin ViechairTesla
Okay. Thank you. And the last question comes from William Stein from Truist.
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WS
William SteinanalystTruist
I guess, I'll go at one that I asked last time, Elon, which is your expectation for the likelihood of commercial success in each of the three major AI endeavors. FSD, sort of as imagined without a driver, the training computer and, of course, Optimus.
question#384
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EM
Elon MuskCEOTesla
We'll achieve full self-driving full autonomy — I look at that occurring is 100%. And I think we'll — we're almost there. And then, of course, we've got to prove it to regulators and get the regulatory approvals, which is outside of our control. But anyone who's driving full self-driving cars — has full self-driving Beta in the car, you can see the rate of improvement. You can just experience for yourself that we are, in fact, getting there. In fact, we almost are there.
And so, we're probably — achieving that 100%. The Optimus, probably of that being a successful product, I think, it's also extremely high given enough time, 100%.
Dojo, just maybe more of a question around Dojo, like can we be competitive with NVIDIA GPUs even as NVIDIA continues to rapidly evolve their GPUs. So the jury is out on Dojo. Dojo team, they can outperform NVIDIA for Neuralink training. The jury's out. We will probably know — I don't know, next year, if that's true or not.
But we think we'll probably — we think it's — this is — the architecture of Dojo is the right architecture to win. Yes. It depends on how well we execute in that architecture.
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Closing Remarks
MV
Martin ViechairTesla
Thank you very much. I think, unfortunately, it's all the time that we have today. So, thank you so much for your great questions, and look forward to talking to you in about three months from now. Thank you, and have a good day.
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Elon MuskCEOTesla
Thanks, everyone.
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