Q3 FY2023 Earnings Call
TSLA · Preprocessing Report
2023-10-18
Quality
100%
64
Turns
9
Speakers
3
Sections
5
Exchanges
380
Claims
Quality issues

Entities by group 32

automakers 3
TeslacompanyGeneral MotorscompanyChryslercompany
company executives 1
Elon Muskperson
sell-side analysts 6
Vaibhav TanejapersonPierre FerragupersonRod LachepersonGeorge GianarikaspersonWilliam SteinpersonMartin Viechaperson
vehicle models 6
CybertruckproductModel YproductRAV4productModel 3productModel SproductModel Xproduct
autonomous driving software 2
Full Self-Driving (FSD)technologyAutopilottechnology
energy storage products 1
Megapackproduct
research firms 1
Wolfe Researchcompany
compute chips 1
H100product
autonomous driving 1
robotaxitechnology
banks 1
Credit Suissecompany
compute accelerators 1
GPUtechnology
robotics products 1
Optimusproduct
ai training infrastructure 1
Dojotechnology
vehicle sensors 1
radartechnology
vehicle sensing technology 1
Tesla-designed high-resolution radartechnology
Ungrouped 4
Austin, TexasotherGiga TexasotherUnited StatesotherFremont, Californiaother
REPORTING 53PROJECTING 25POSITIONING 134EXPLANATORY 78ANALYST 43

Topics 87

cybertruck×35vehicle×30cost×28factory×22fsd×12radar×12interest rate×10margin×8ai×6energy×6pricing×6megapack×6car×6financing×6bank×5outlook×5autonomy×4remote work×4credit×4qr code×4

Themes 251

production ramp×9cost×9reduction×7ramp×6deployment×5product×4model y in china×4mexico location×4autonomous driving×3next-gen×3timing×3effort×3parts×3uncertainty×3capacity×3resilience×3design×2cash flow contribution×2demand×2per vehicle×2sequential decline×2near-term increase×2operating×2vehicle pricing×2utility×2weekly usage×2follow-up×2factory idle time impact×2per-unit cost×2elasticity×2vehicle affordability×2ev charging×2work from home×2monthly payment affordability×2availability×2vehicle manufacturing efficiency×2loss×2workout preference×2mexico expansion×2austin footprint×2global buildout×1beta usage×1ai data growth×1training bottleneck×1version 12 outlook×1version 12 architecture×1data compression×1human perception×1capital investment×1valuation upside×1humanoid robots×1margin×1quarterly contribution×1excitement×1leadership×1production complexity×1best-product positioning and ramp challenges×1execution difficulty×1production difficulty×1car design×1scale-up difficulty×1new car companies×1expectations×1reservations×1pricing and demand×1real-world capability×1team quality×1vs production×1record profitability×1macro uncertainty×1planned downtime×1improvements×1factory downtimes×1vehicle reduction priority×1cybertruck development×1ai development×1funding investments×1free×1other segments becoming more prominent×1megapack deployment growth×1services and other momentum×1fleet growth×1monthly financing costs×1customer financing×1interest rates×1partner vehicle program×1model y monthly payment offer×1efficiency and growth investment strategy×1long term positioning×1production experience×1production restart×1unique complexity×1execution risk×1market launch difficulty×1newness difficulty×1smaller low-cost×1manufacturing simplification×1production rate×1automation×1lower cost×1brand appeal×1transport×1vehicle specification×1bells and whistles×1pricing and adoption×1value improvement with product performance×1robotaxi-level appeal×1degraded chauffeur-service mode×1hands-on eyes-on mode×1lower-cost tiers×1premium tier×1technical feasibility×1pricing and monetization×1autonomy economics×1ownership costs×1maintenance responsibility×1ownership overhead×1full capability×1economics×1utilization×1software-like economics×1quarterly performance×1sequential change and idle costs×1impact of factory ramp×1strong surprise in growth×1gross margin outlook×1gross margin factors×1factory ramp contribution×1performance×1quarterly deployment strength×1in transit×1rate of improvement from changes×1speed of improvement on existing model×1operational drivers×1upgrades×1output level×1ramp-up pressure×1near-term uncertainty×1daily monitoring×1reductions×1law of large numbers×1price elasticity×1consumer access×1financial stress×1consumer leverage×1consumer financial pressure×1worker earnings and affordability×1purchase financing constraints×1upfront and monthly affordability×1customer purchase constraints×1relative to rav4×1great car focus×1factory labor×1detachment from reality×1labor advantage×1sleeping on site×1strategic priority×1necessity×1affordability×1car financing×1pricing and financing×1monthly payment impact×1down payment and cash balance×1loan payment stability×1higher interest share×1tightening×1digital×1customer transition×1regional failure×1institution failure×1surprised reaction×1delinquency risk×1commercial distress×1credit card leverage×1credit card pricing×1credit card borrowing costs×1high interest burden×1future decline×1scale and utilization×1material cost reductions×1gigacasting impact×1exclusion×1experimental integration×1research program×1model rollout×1vision-only safety×1driver perception×1safety impact×1braking capability×1disambiguation issue×1sensor removal×1potential use×1manufacturing automation×1logistics and factory efficiency×1operations efficiency×1ongoing efforts×1ongoing cost-cutting efforts×1line-by-line efficiency review×1difficult execution×1aggressive×1internal×1quality control×1repair costs×1company framing×1pressure×1factory upgrades×1higher production×1cybertruck ramp×1functionality reduction×1diet×1mouse movement as workout×1mexico delay×1cagr guidance×1future growth×1mexico clarification×1indefinite delay×1rate headwind×1factory expansion timing×1construction timing×1historical context×1financial distress×1round×1payroll risk×1survival×1geopolitical uncertainty×1growth potential×1growth opportunity×1austin scaling×1talent constraint×1austin labor pool×1austin labor migration×1austin supply×1curiosity×1not bearish×1downturn risk×1macroeconomic conditions×1broad downturn impact×1storm impact×1declining rates×1management confidence×1executive outlook×1historical headwinds×1historical difficulty×1cyclicality×1economic sensitivity×1consumer need analogy×1essential goods analogy×1purchase optionality×1war-related headwind×1global conflict×1weak consumer demand×1

Key Metrics 61

cost×12interest rate×10production×9gross margin×8cost per vehicle×7margin×5price×5costs×4cost reduction×4monthly payment×4demand×4cash flow×3r&d expenses×3volume×3deployments×3volume production×2penetration×2usage hours×2per-unit cost×2vehicle cost×2improvement rate×2price elasticity×2miles driven×1data×1gpu count×1deployed gigawatt hours×1profit×1reservations×1vehicle deliveries×1deliveries×1profitability×1production rate×1material cost×1freight cost×1capital expenditure×1cash flow from operations×1operating cash flow×1free cash flow×1deployment×1financing costs×1monthly cost×1delivery volume×1units per minute×1value×1revenue×1hours×1energy storage deployments×1energy margin×1cost curve×1launch timing×1forecast×1income×1tax credit×1down payment×1cost per item×1savings×1cagr×1acreage×1headcount×1population×1interest rates×1

Entities 588

Tesla×256Elon Musk×147Vaibhav Taneja×49Cybertruck×36Full Self-Driving (FSD)×14Pierre Ferragu×13Rod Lache×9George Gianarikas×9Model Y×8Megapack×7Austin, Texas×7Wolfe Research×6H100×2William Stein×2robotaxi×2RAV4×2Credit Suisse×2Model 3×2Giga Texas×2Autopilot×1GPU×1Optimus×1Dojo×1United States×1Martin Viecha×1Fremont, California×1Model S×1Model X×1radar×1Tesla-designed high-resolution radar×1General Motors×1Chrysler×1

Business Segments 217

Automotive×200Energy Generation And Storage×13Services And Other×4

Sectors 112

automotive×31manufacturing×30artificial intelligence×13energy×13banking×5autonomous vehicles×4consumer finance×3semiconductor×2real estate×2consumer staples×2robotics×1insurance×1software×1electric vehicle×1restaurant×1logistics×1consumer discretionary×1

Regions 36

Mexico×15Austin×6China×4U.S.×2world×2Texas×2Global×1Berlin×1Fremont×1Switzerland×1Greater Austin area×1

Metadata Distributions

Sentiment
positive 69negative 60neutral 204
Temporality
backward 42forward 46current 245
Certainty
definitive 55confident 80moderate 136tentative 59speculative 3
Magnitude
major 9moderate 181minor 143
Direction
improvement 20decline 5flat 3mixed 1none 304
Time Horizon
immediate 43near_term 107medium_term 36long_term 5unspecified 142
Verifiability
quantitative 44event 24qualitative 265
Analyst Intent
probing 7challenging 3confirming 9seeking_detail 20seeking_guidance 4

Speakers

Executives
URUnidentified Company RepresentativeexecutiveEMElon MuskCEOVTVaibhav TanejaCFO
Analysts
CLColin LangananalystGGGeorge GianarikasanalystPFPierre FerraguanalystRLRod LacheanalystWSWilliam Steinanalyst
Other
MVMartin Viechair

Sections

TypeLabelSpeaker
prepared_remarksPrepared RemarksElon Musk, Vaibhav Taneja, Martin Viecha
qa_sessionQ&A Session—
closing_remarksClosing RemarksMartin Viecha

Q&A Exchanges 5

#AnalystFirmTurns
1
WSWilliam Stein
Truist10
2
PFPierre Ferragu
New Street Research8
3
RLRod Lache
Wolfe Research16
4
GGGeorge Gianarikas
Canaccord15
5
CLColin Langan
Wells Fargo11

Claim Taxonomy 333

REPORTING53
resultFinancial outcome for a completed period24
metricNon-financial quantitative fact16
operationalDiscrete completed event13
PROJECTING25
guidanceQuantitative expectation with number + time9
commitmentPromise with binary verifiable outcome12
targetLong-term aspirational quantitative goal4
POSITIONING134
strategyPriority, direction, or initiative87
competitiveCompany's position or advantages6
opportunityMarket condition framed as growth driver1
riskHeadwind, constraint, or uncertainty40
EXPLANATORY78
attributionWhy a specific outcome happened7
contextNon-company macro/industry fact71
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST43
questionInterrogative seeking information25
observationRestates a fact or data point10
concernFlags a risk or challenge4
estimateAnalyst's own projection or calculation2
sentimentOpinion, praise, or critique2

Transcript

Prepared Remarks
EM
Elon MuskCEOTesla
[Call Starts Abruptly]…of new factories and we believe there's still meaningful room for improvement there. Regarding Autopilot and AI, our vehicles are now driven over 0.5 billion miles with FSD beta, full self-driving beta, and that number is growing rapidly. We recently completed a 10,000 GPU cluster of H100s. We think probably bring it into operation faster than anyone's ever brought that much compute per unit time into production, since training is the fundamental limiting factor on progress with full self-driving and vehicle autonomy. We're also seeing significant promise with FSD version 12. This is the end-to-end AI where it's photon count in, controls out. Really you can think of it as there's just a large bitstream coming in and a tiny bitstream going out, compressing reality into a very small set of outputs, which is actually kind of how humans work. The vast majority of human data input is optics from our eyes. And so, we are like the car, photons in, controls out with neural nets, just neural nets in the middle. So, interesting to think about that. We'll continue to invest significantly in AI development, as this is really the mass game changer. And I mean success in this regard in the long-term I think has the potential to make Tesla the most valuable company in the world by far. If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it's not clear what the limit is.
Regarding energy storage, we deployed 4 gigawatt hours of energy of storage products in Q3. And as this business grows, the energy division is becoming our highest margin business. Energy and service now contribute over $0.5 billion to quarterly profit. The Cybertruck, I know a lot of people are excited about the Cybertruck.
I am too. I've driven the car. It's an amazing product.
I do want to emphasize that there will be enormous challenges in reaching volume production with the Cybertruck, and then in making a Cybertruck cash flow positive. This is simply normal for when you've got a product with a lot of new technology or any new vehicle, brand new vehicle program, but especially one that is as different and advanced as the Cybertruck, you will have problems proportionate to how many new things you're trying to solve at scale. So, I just want to emphasize that while I think this is potentially our best product ever and I think it is our best product ever, it is going to be — require immense work to reach volume production and be cash flow positive at a price that people can afford.
Often people do not understand what is truly hard. That's why I say prototypes are easy, production is hard. People think it's the idea, or you make a prototype, you design a car. And as soon as they're designing a car, it's just anyone can do it, it does require taste, it does require effort to design a prototype. But it's difficult to going from a prototype to volume production, it's like 10,000% harder to get to volume production than to make a prototype in the first place, and then it is even harder than that to reach positive cash flow. That is why there have not been new car startups that have been successful for a 100 years apart from Tesla. So, I just want to temper expectations for Cybertruck. It's a great product, but financially it will take, I don't know, a year to 18 months before it is a significant positive cash flow contributor. I wish there was some way for that to be different, but that's my best guess.
The demand is off the charts. We have over 1 million people who've reserved the car. So it's not a demand issue, but we have to make it and we need to make it at a price that people can afford, insanely difficult things. In conclusion, we continue to focus on ramping production while maintaining positive cash flow and we continue to target — expect to have around 1.8 million vehicle deliveries, as stated earlier this year.
The Tesla AI team is I think one of the world's best, and I think it is actually by far the world's best when it comes to real world AI. I'll say that again, Tesla has the best real world AI team on earth, period, and it's getting better.
And lastly, I wanted to thank all of our employees who are making a lot of extra effort during uncertain times. Thank you very much for your hard work and the impact that you're making.
strategy#1
metric#2
strategy#3
operational#4
commitment#5
context#6
strategy#7
strategy#8
strategy#9
context#10
context#11
context#12
strategy#13
competitive#14
strategy#15
operational#16
attribution#17
result#18
strategy#19
#20
strategy#21
strategy#22
guidance#23
context#24
competitive#25
context#26
context#27
context#28
context#29
result#30
context#31
strategy#32
guidance#33
guidance#34
strategy#35
metric#36
risk#37
guidance#38
competitive#39
competitive#40
#41
#42
MV
Martin ViechairTesla
Thank you very much, Elon. And our CFO, Vaibhav, has some opening remarks as well.
#43
#44
VT
Vaibhav TanejaCFOTesla
Thanks, Martin. Vehicle deliveries in Q3 outpaced production, and we had yet another record quarter of profitability in our energy business. Congratulations to the Tesla team for the continued focus on operational excellence as we navigate through a period of economic uncertainty, higher interest rates, and shifting consumer sentiment. As Elon mentioned, our Q3 operational and financial performance was impacted by planned downtimes for our factory upgrades. This was necessary to allow for further factory improvements and production rate increases. Despite such factory shutdowns, our cost per vehicle decreased to approximately $37,500. We saw sequential decreases in material cost and freight. Reducing the cost of our vehicles is our top priority.
On the operating expenses front, R&D expenses continued to rise due to Cybertruck prototype builds and pilot production testing combined with spend on AI technologies like full self-driving, Optimus and Dojo. We have and will continue to make investments in these areas, and hence our capital expenditure and R&D will continue to grow in the near term. However, our focus is to continue making investments through positive cash flow from operations. This year itself, we have generated operating cash flows of approximately [$8.9 billion] (ph) and free cash flows of approximately $2.3 billion. Our other businesses are becoming more prominent on a standalone basis with energy business leading the charge, primarily from the growth in Megapack deployments. Our services and other businesses on a year-on-year basis also continue to show positive momentum as we benefit from our growing fleet.
As regards our pricing strategy, in addition to what we have shared before, I want to elaborate that most car buying happens with one or other form of financing, and hence we also view pricing in terms of monthly costs for the customer. And therefore, as interest costs in the U.S. have risen substantially, it has required us to adjust the price of our vehicles to keep the monthly cost in parity. We've tried to offset such adjustments via focus on reducing costs. However, there is an inherent lag in cost reductions, which in turn impacts margins. To that extent, we recently announced a partner vehicle leasing program in the U.S. whereby you can get a standard Model Y for as low as $399 a month. In conclusion, as we navigate through a challenging economic environment, we're focused on reducing costs, maximizing delivery volumes, and continuing making investments in the future, in particular, AI and other next generation platform. We believe this strategy positions us well for the long term. Once again, I would like to thank the Tesla team for their efforts in the last quarter.
#45
metric#46
result#47
context#48
result#49
operational#50
attribution#51
result#52
result#53
result#54
strategy#55
result#56
result#57
guidance#58
guidance#59
guidance#60
result#61
result#62
strategy#63
attribution#64
strategy#65
attribution#66
strategy#67
strategy#68
attribution#69
attribution#70
risk#71
result#72
operational#73
strategy#74
strategy#75
strategy#76
#77
Q&A Session
Q&A 1/5
MV
Martin ViechairTesla
Thank you. Let's now go to analyst questions. The first question comes from Will Stein from Truist.
#78
#79
#80
WS
William SteinanalystTruist
We learned earlier on the call, it sounds like you don't think the truck will ramp to significant volume until its third year of production. Should we have a similar anticipation for the ramp of the next-gen platform, or is there any reason that we should be maybe more optimistic or pessimistic about the ramp profile there?
concern#81
question#82
EM
Elon MuskCEOTesla
Yes. I mean, to be clear, it's not really the third year of production. It's kind of like the 18th month of production is roughly my guess. So, it's just that they happen — it will happen — is that the — it starts this year, spans next year and gets to 2025.
So technically, there are three calendar years in there, but there's actually only 18 months, not three years. I would be very disappointed if it took us — and that would be shocking if it took us three years. But 18 months from initial deliveries to have — to reach volume and reach prosperity with an immense — I can't tell you how much the blood, sweat and tears level required to achieve that is just staggering. I have been through it many times. Then, here we go again.
#83
operational#84
operational#85
commitment#86
operational#87
commitment#88
target#89
strategy#90
commitment#91
WS
William SteinanalystTruist
Similar path for the next-gen platform?
question#92
UR
Unidentified Company RepresentativeexecutiveTesla
I mean, there's like unique complexity to Cybertruck.
strategy#93
EM
Elon MuskCEOTesla
Yes. I mean Cybertruck is — yes. I mean, we dug our own grave with Cybertruck. Nobody — generally, everybody digs a grave better than themselves.
And so it is — Cybertruck's one of those special products that comes along only once in a long while. And special products that come along once in a long while are just incredibly difficult to bring to market, to reach volume, to be prosperous. It's fundamental to the nature of the newness. So now the sort of high-volume, low-cost smaller vehicle is actually much more conventional.
#94
strategy#95
risk#96
context#97
strategy#98
context#99
risk#100
strategy#101
UR
Unidentified Company RepresentativeexecutiveTesla
Yes. In terms of like the technologies we're putting into it, we didn't have to invent full hard stainless steel or have mega 9,000-ton castings or the largest hot stamping in the world or new [Technical Difficulty] are quite in the same way as the Cybertruck. I think it will be quite a fast ramp. As I was just saying, we're doing everything possible to simplify that vehicle in order to achieve a units per minute level that is unheard of in the auto industry.
I mean, the single location makes it easier to automate. It also makes it lower cost. Yes, that's intrinsically lower cost.
#102
strategy#103
strategy#104
metric#105
strategy#106
strategy#107
strategy#108
EM
Elon MuskCEOTesla
Yes.
Let's be clear, it will be cool, but it's utilitarian. It's not meant to be — fill you with magic. It can get you from A to B. It will be still beautiful. But it's utility.
#109
strategy#110
strategy#111
strategy#112
strategy#113
strategy#114
UR
Unidentified Company RepresentativeexecutiveTesla
That's not 14 inches of [inaudible] suspension.
strategy#115
EM
Elon MuskCEOTesla
Yes. So I mean, the Cybertruck has a lot of bells and whistles.
#116
strategy#117
Q&A 2/5
MV
Martin ViechairTesla
All right. Thank you very much. Let's go to Pierre Ferragu from New Street Research.
#118
#119
#120
PF
Pierre FerraguanalystNew Street Research
I have first like a follow-up question on FSD and pricing and adoption. So, I agree with you that as FSD improves, we should see its value increasing.
But I guess, like the ultimate values of FSD, which is to be able to handle like a robotaxi is not going to necessarily interest everybody, and you have a bit of a degraded version that would be like a chauffeur service where the car drives by itself, but you still have to be in the car and around. And then there is like the hands-on — eyes-on version of the service. And I guess, there should be like much lower cost, lower feature kind of variance of the service that could have a very large penetration on your installed base and more expensive one that would remain at a lower penetration level. So, I'm just wondering if you're taking that — and last but not least, like the simplest version of FSD available and are going to work from a technical perspective, probably before like the ultimate robotaxi version can work if ever. And so I'm wondering how you take that into account and how you're thinking like the financial contribution of FSD over time and whether you could evolve your pricing along that kind of tiers to increase adoption.
observation#121
estimate#122
concern#123
observation#124
observation#125
observation#126
observation#127
question#128
question#129
EM
Elon MuskCEOTesla
Yes. A fully autonomous vehicle, I think, Pierre, your — sort of the economics of autonomous vehicle are truly astounding in a positive way. When you look at passenger vehicles today, they only get about 10 to 12 hours of usage per week. That's — if you drive 1.5-hour a day on average, that's roughly 10 hours a week out of 168 hours.
And then there's also you're going to have parking and insurance. You got to take care of the car. It's like there's a lot of overhead. So I mean, yes, it's like the economics of the system are just insanely positive given that the car — like all of the cars we're making and have made for a while, we believe, are capable of full autonomy. So then if you're able to say increase the utility of that car by a factor of 5, which only means that you're — it's being used for maybe 50 hours a week out of 168, so you still notice — you're still assuming — that still assumes less than 1/3 of the hours of the week is doing something useful. You've increased the value of that by 5, but it still costs the same, like you have something — then we're a hardware company with software margins.
#130
context#131
metric#132
metric#133
context#134
context#135
context#136
context#137
strategy#138
metric#139
result#140
MV
Martin ViechairTesla
Pierre, do you have a follow-up?
context#141
PF
Pierre FerraguanalystNew Street Research
Yes, I have actually a follow-up on different topic for you that I have if that's okay.
It's about like your gross margin in the quarter. Could you give us a sense of like in how the gross margin evolved sequentially, how much was the impact of idle cost? How much was like the sequential benefit, I imagine, of production ramping at Berlin and Austin? And then I saw like this massive jump in energy storage, very strong positive surprise. So, if you can give us the background on that and tell us how we should think about that gross margin going forward.
observation#142
question#143
question#144
question#145
sentiment#146
question#147
VT
Vaibhav TanejaCFOTesla
Thanks for the question. So, in terms of — you have few different aspects of your question.
So if I just look at from Q3 perspective, obviously, factory idle time had an impact. It did impact by — and I won't give you the exact percentage, but it had a decent impact for the quarter. And when you look at the other pieces, which we are trying to do, we did see certain of our other factories ramping up pretty well, right? And they actually contributed pretty well to the margin for this quarter. In fact, one of the factories came pretty close to in terms of per unit cost to where we are for our other established factory, which is Fremont. So that was a positive in the quarter.
When it comes to energy margins, Megapack deployment was the key driver there. And that product has done well. I mean, on the cost curve also, we've been able to do a lot there. But I do want to caution that Megapack deployments are a bit lumpy. So yes, we had a great quarter this period. But depending upon where we are trying to deploy that product in different markets, you would see periods where there would be downward pressure on deployment because of us trying to get the product to that base way…
#148
result#149
result#150
result#151
strategy#152
result#153
result#154
result#155
result#156
strategy#157
result#158
metric#159
metric#160
target#161
UR
Unidentified Company RepresentativeexecutiveTesla
Yes, product in transit. Yes.
operational#162
#163
VT
Vaibhav TanejaCFOTesla
Yes.
#164
Q&A 3/5
MV
Martin ViechairTesla
Okay. Thank you very much. Let's go to Rod Lache from Wolfe Research.
#165
#166
#167
RL
Rod LacheanalystWolfe Research
Really nice to see the rate of vehicle cost improvement despite the downtime that you took. You've taken now about $2,000 out of the average vehicle costs over the past year. Can you give us maybe a sense of the rate of improvement that you see from the changes that you alluded to, the factory changes you alluded to? Is there a way maybe to convey the speed of improvement on your existing product from here? And then related to that, can you share the timing of your next-gen — the lower-priced product that you talked about earlier this year?
sentiment#168
observation#169
question#170
question#171
question#172
VT
Vaibhav TanejaCFOTesla
Yes. So just in terms of product margins, there are lots of puts and takes when you look at this. There are certain things which we control, and there are certain things which we don't control. We get — we expect that we'll get some benefits from our cost reduction efforts, which are all underway. So on the other hand, we just finished our factory upgrades late in Q3. Some of these factories are still in the early ramp phase in Q4. We're still not up to where we want those factories to be. So, they will impact in the near term. Plus, like Elon mentioned, we're going to be ramping Cybertruck, which is going to be another headwind, which we will be dealing with. On top of all that, there's overall uncertainty in the macroeconomic environment, which even makes it harder to predict precisely as to where we land. But yes, this is something which — it's an evolving thing which we're observing every day and reacting to it on a daily basis.
#173
result#174
result#175
guidance#176
operational#177
operational#178
risk#179
risk#180
risk#181
risk#182
strategy#183
UR
Unidentified Company RepresentativeexecutiveTesla
I would just say that on the cost reduction efforts, like we are not — we are unflagging in our pursuit of additional cost downs for 2024. We do have a good pipeline of them and work on both the engineering side and the factory operations side. And our intention is to like maintain or exceed the trend that you saw, trying as hard as we possibly can.
strategy#184
strategy#185
strategy#186
RL
Rod LacheanalystWolfe Research
The timing of the next-gen product, can you share that?
question#187
EM
Elon MuskCEOTesla
Not at this time.
commitment#188
RL
Rod LacheanalystWolfe Research
Okay. And just as a follow-up, obviously, price is also a driver of demand, but that's obviously not happening in a vacuum. And you mentioned that — I think you mentioned that at some point during this call that you're also maybe hitting the law of large numbers on some of your products. Can you just share how you're thinking about price elasticity just at this point in this macro environment? And any thoughts along those lines?
#189
observation#190
concern#191
question#192
question#193
EM
Elon MuskCEOTesla
I think that there's very significant price elasticity. I mean, to be totally frank, if our car costs the same as a RAV4, nobody would buy a RAV4 or at least they're very unlikely to.
It's worth noting that a lot of these incentives, like the tax credit and whatnot, they're actually very difficult for the average person to access because they — most people do not have $10,000 or even $7,500, burning a hole in their bank account. A lot of — a large number of people are living paycheck to paycheck, and with a lot of debt. They've got credit card debt, mortgage debt. So, that's reality for most people. It's sometimes difficult for people who are high income and I'd say high to be like someone who's earning over $200,000 a year to understand what life is like for someone who is earning $50,000 or $60,000 or $70,000 a year, which is most people. So like for a lot of people, like this tax credit just — they can't front $7,500 for 18 months or even 6 months to get — for the tax credit, and they actually don't, in some case, even have that $7,500 in taxes. So, it's really just the best regard to people is how much money do they have to pay immediately and how much per month.
That's it. I think you stop right there. And our car is still much more expensive than a RAV4 when you look at it that way.
context#194
context#195
context#196
context#197
context#198
context#199
metric#200
metric#201
strategy#202
context#203
#204
risk#205
VT
Vaibhav TanejaCFOTesla
Now one other thing which I'll add, when you look at car buying in general, we're trying to get to the next set of EV adapters.
strategy#206
EM
Elon MuskCEOTesla
Not an EV adapter. Just who wants a great car.
strategy#207
strategy#208
VT
Vaibhav TanejaCFOTesla
Exactly.
#209
EM
Elon MuskCEOTesla
It's not — so now you get things like — honestly, I would say it's like — somewhat correlates with why doesn't everyone work from home crowd. I'm like — I mean this is like some real Marie Antoinette vibes from people who say why is there no work from home. Like what about all the people that have to come to the factory and fill the cars or that all people that have to go to the restaurant and make your food and deliver your food. It's like what are you talking about, you — I mean, how detached from reality does the work from home crowd have to be? While they take advantage of all those who do — who cannot work from home. So, I mean, you have to say like why did I sleep in the factory so many times, because it mattered.
So I just can't emphasize again how important cost is. It's not an optional thing for most people, it is a necessary thing. We have to make our cars more affordable that people can buy it. And I keep harping on this interest thing, but I mean it just raises the cost of the car. I mean, we're looking an internal analysis, which we think is more or less on track that when you look at the cost — or the price reductions we've made in, say, the Model Y and you compare that to how much people's monthly payment has risen due to interest rates, the price of the Model Y is almost unchanged.
context#210
context#211
context#212
context#213
context#214
context#215
strategy#216
context#217
strategy#218
risk#219
result#220
VT
Vaibhav TanejaCFOTesla
If you factor in the…
strategy#221
EM
Elon MuskCEOTesla
Yes, which is what I'm trying to say.
The thing that matters is the monthly — it's how much money do they have to put down and do they literally have that in their bank account or their check balance and then what is the monthly payment. And it doesn't matter how — if that monthly payment is principal interest or whatever, it's just a number, and that number has to not cause their bank account to go negative. That's it. So going from near zero interest rates to kind of the current very high interest rates, the actual monthly payment is basically the same. It's just a bunch more of it is going to interest.
And there are some incremental challenges beyond that, which is the difficulty of getting credit at all has increased. And so, the number of people who simply cannot get credit, period, even if they've got a job and everything is solid, the banks are a little gun-shy on handing out credit given that a bunch of them kicked the bucket earlier this year.
#222
context#223
context#224
context#225
#226
context#227
context#228
risk#229
risk#230
UR
Unidentified Company RepresentativeexecutiveTesla
There's also just fewer options, even if they planned out credit, there's fewer banks to go there.
risk#231
EM
Elon MuskCEOTesla
Digital banks still exist. Well, if your bank does not exist, you have to establish a relationship with a new bank. And so a lot of regional banks are died, and I mean even Credit Suisse, I mean, geez, that was a shocker. A 160-year-old-ish Swiss institution, it doesn't exist anymore. That's mind blowing. And I think there's still quite a few shoes to drop on the bad credit situation.
I mean, commercial real estate obviously is in terrible shape. Credit card debt has been rising significantly. The credit card interest rates are usurious. It's over 20% interest rates, meaning like — which over time is just it becomes obviously extremely punishing because if somebody's paying 20% interest on their credit cards, means they cannot pay them off. If you can't pay them off and you're still accruing interest of 20%, you're at best headed to a bad place.
context#232
context#233
context#234
context#235
context#236
risk#237
risk#238
risk#239
risk#240
metric#241
risk#242
Q&A 4/5
MV
Martin ViechairTesla
Thank you. Let's go to next question from George from Canaccord.
#243
#244
GG
George GianarikasanalystCanaccord
Just to focus on the cost per vehicle coming down in future quarters as you discussed in your written remarks. I'm curious as to what the levers of that could be. Is it more scale, more factory utilization? Is it material cost reductions? Are there things like gigacasting?
I mean, can you just kind of give us some data points to give us confidence if that's going to come down over time. And if I can sneak one in, please, there are press reports — and I know how perilous it is to believe some of these. But, they say that you've included radar as an option in some Model Ys in China. And I'm just here to ask if that's true. And if so, why?
observation#245
question#246
question#247
question#248
question#249
question#250
observation#251
question#252
question#253
question#254
EM
Elon MuskCEOTesla
We've not included radar. We have radar as — a Tesla designed radar is an experiment in Model S and X. That's it. We'll see whether that experiment is worth it, but there are no plans to integrate radar into 3 and Y. Just as humans drive well, and in fact, an excellent human driver can drive with amazing safety simply with their eyes, the car will far exceed the average human safety just with vision, far, far, far because, I mean, the car is looking at all directions all at once. We don't have eyes at the back of our head. And the computer never gets tired and never gets distracted, get drunk, hopefully. And so, radar is — what really matters is how much does it affect the probability of an accident.
And in order for the radar to be effective, you have to be able to do radar-only braking — you have to do actions that are radar-only. Otherwise, you get this disambiguation problem between vision and radar. That's why we actually turned off the radar in cars historically that we had shipped, all 3 and Y used to have radar, but we turned it off because the radar actually generated more noise than signal. Now the Tesla designed radar is a high-resolution radar that has some potential to be useful, but the jury is still very much out on whether that is in fact the case.
strategy#255
strategy#256
competitive#257
strategy#258
context#259
context#260
context#261
context#262
context#263
context#264
risk#265
strategy#266
UR
Unidentified Company RepresentativeexecutiveTesla
On the cost question, I guess, from the vehicle side, like as Drew mentioned earlier, we are always trying to engineer our products to be cheaper to make and more efficient to make. That comes obviously on the engineering side as we come up with new innovations but as well on the supply chain side. With our partners, we work with them to automate some of their lines and move their bottlenecks and their high cost as well. On the logistics side, getting parts to the factory, it's not like a one thing that — you have to check cost everywhere and we do it ruthlessly at all times. Operations efficiency. All of the above.
strategy#267
strategy#268
strategy#269
strategy#270
strategy#271
strategy#272
VT
Vaibhav TanejaCFOTesla
Yes. I would say there's a whole laundry list of things, which we are chasing. We internally call it the cost attack, where we're literally going line by line and saying how can we make it better. And it's a grind.
#273
risk#274
strategy#275
risk#276
EM
Elon MuskCEOTesla
It's a grind. It's like Game of Thrones but pennies.
I mean first approximation, if you've got a $40,000 car, and roughly 10,000 items in that car, that means each thing, on average, costs $4. So in order to get the cost down, say, by 10%, you have to get $0.40 out of each part on average. It is a game of pennies.
strategy#277
strategy#278
metric#279
target#280
strategy#281
UR
Unidentified Company RepresentativeexecutiveTesla
We play it.
strategy#282
EM
Elon MuskCEOTesla
Willingly, yes.
We've done it many, many times. And even something as simple as like a sticker, like there's too many stickers internally in the car that nobody ever sees. There's something as simple as a QR code. You may think, well, putting a QR code on a part. Why don't just put them on there, it's like, well, are we actually going to use that QR code?
#283
strategy#284
strategy#285
strategy#286
commitment#287
strategy#288
UR
Unidentified Company RepresentativeexecutiveTesla
That's a penny.
metric#289
EM
Elon MuskCEOTesla
Yes, exactly. And then inevitably, sometimes the QR code doesn't go on properly or you can't read it properly, and it stops the line.
#290
context#291
UR
Unidentified Company RepresentativeexecutiveTesla
More than a penny.
context#292
EM
Elon MuskCEOTesla
Yes, absolutely. So chipping away, with — I mean it is trying to — it does feel like digging a tunnel with a spoon at times.
#293
strategy#294
UR
Unidentified Company RepresentativeexecutiveTesla
Very much escaping prison.
competitive#295
VT
Vaibhav TanejaCFOTesla
On top of it, like we said, we did some factory upgrades, so we expect volume to go up. That would also bring some savings from higher production. But then on the flip side, we're going to be ramping a new product like Cybertruck, which we talked about. So, yes, so those are the real puts and takes what we are working for.
target#296
guidance#297
operational#298
strategy#299
EM
Elon MuskCEOTesla
Yes. But there's not like some accidently some brick of gold that we go left in the car, unfortunately. And it's — we're trying to be very rigorous about improving the quality and capability of the car because it's like any fool can reduce the cost of a car by making it worse and just deleting functionality and capability and that's how I call this sort of any fool — like if you want to like lose weight and you'd say, well, I need to lose over 15 pounds right away, well, you could chop your arm off, but then you're sitting with one arm. You're still fat. So sort of like yes, you actually have to eat less food and work out. That's the actual way. It's not super fun because food is delicious.
And personally, I'm not — I don't love working out. I wish I did, but I don't. Unless moving the mouse consists of working out, in which case, I love moving the mouse.
#300
strategy#301
strategy#302
context#303
context#304
context#305
context#306
context#307
context#308
context#309
Q&A 5/5
MV
Martin ViechairTesla
All right. Let's go to Colin Langan from Wells Fargo.
#310
#311
CL
Colin LangananalystWells Fargo
You said in the commentary that you're not going full tilt on the plant in Mexico until there are signs that the economy is strong. Can you continue at a 50% CAGR without that plant? And where would that come from? And any color on what you mean sort of not going full tilt? Could that plant get delayed indefinitely, or what are you are kind of talking about?
concern#312
question#313
estimate#314
question#315
question#316
EM
Elon MuskCEOTesla
No, we're definitely making the factory in Mexico. We feel very good about that. We put a lot of effort into looking at different locations, and we feel very good about that location, and we are going to build a factory there, and it's going to be great. The question is really just one of timing.
And there's going to be a broken record on the interest front. It's just the interest rates have to come down. Like, if interest rates keep rising, you just fundamentally reduce affordability. It is just the same as increasing the price of the car. So I just don't have visibility into it. If you can tell me what the interest rates are, I can tell you when we should build the factory. We're going to build it.
And I mean think we'll start the initial phases of construction next year. But I am still somewhat scarred by 2009 when General Motors and Chrysler went bankrupt. While that's now 14 years ago, it's — that is seared into my mind with a branding iron because Tesla was just hanging on by a thread during that entire time and with — I mean, we closed a financing round in 2008 at 6 p.m. December 24th, Christmas Eve. And if we had not closed that financing round, we would have bounced payroll two days after Christmas. So we actually closed that around the last hour, the last day that it was possible, stressful to say the least, and then barely made it through 2009.
So, I'm like — I want to just — I don't want to be going at top speed into uncertainty. A lot of wars going on in the world obviously as well, so — and we have room here.
commitment#317
strategy#318
strategy#319
commitment#320
strategy#321
risk#322
risk#323
risk#324
risk#325
risk#326
commitment#327
commitment#328
commitment#329
context#330
risk#331
operational#332
commitment#333
operational#334
strategy#335
risk#336
strategy#337
UR
Unidentified Company RepresentativeexecutiveTesla
Like in Giga Texas.
You said we still have room in this building. It's not full with Cybertruck and the line. There's plenty of growth opportunities still to have inside the building where our team already is.
strategy#338
strategy#339
strategy#340
strategy#341
EM
Elon MuskCEOTesla
We also have 2,000 acres here.
metric#342
UR
Unidentified Company RepresentativeexecutiveTesla
There's also…
#343
EM
Elon MuskCEOTesla
We're actually only occupying a tiny corner of the land that we have. We could technically do all the scaling, research just here. So, personnel is our biggest challenge and the greater Austin area only has — generously the greater Austin area only has 2 million people. So people are moving here and they're willing to move here, but there is somewhat of a housing crisis. They got to live somewhere. So I don't know.
I mean, I'm just curious. Like I just — I'm not saying things will be bad. I'm just saying they might be.
And I think like Tesla is an incredibly capable ship, but we need to make sure like as — if the macroeconomic conditions are stormy, even if the best ship is still going to have tough times, the weaker ships will sink. We're not going to sink. But even a great ship in a storm has challenges. Now that storm will apply to everyone, not just to us and not just to auto industry. It will apply to everyone, I think. So apart from necessary sort of staples, like food and stuff. So I just — I don't know. If interest rates start coming down, we will accelerate.
strategy#344
strategy#345
risk#346
metric#347
risk#348
risk#349
context#350
context#351
context#352
risk#353
risk#354
strategy#355
risk#356
risk#357
risk#358
opportunity#359
risk#360
attribution#361
MV
Martin ViechairTesla
All right.
#362
EM
Elon MuskCEOTesla
If anybody's got any guesses on this, I'd love to be less wrong. And I apologize if I'm perhaps more paranoid than I should be because that might also be the case because I am — I have PTSD from 2009, big time. And in 2017 through 2019 were not a picnic either. That was very tough going. So the auto industry is also somewhat cyclic because people hesitate to buy a new car if there's uncertainty in the economy. So it's car companies do very well in good economic times, and they don't do as well in tough economic times.
So, it's just — whereas if somebody is selling bread, then I think that people still eat bread. Yes, we need bread. We need food all time. But new car, you don't have to have…
strategy#363
context#364
risk#365
risk#366
context#367
context#368
context#369
context#370
context#371
context#372
VT
Vaibhav TanejaCFOTesla
Especially if there are wars going on and then that impacts your sentiment.
risk#373
EM
Elon MuskCEOTesla
Yes. I mean people are reading about wars all over the world. Buying a new car tends to not be front of mind.
#374
context#375
context#376
Closing Remarks
MV
Martin ViechairTesla
All right. Unfortunately, that's all the time we have today. Thank you very much for all of your good questions, and we'll see you again in three months. Thank you very much.
#377
#378
#379
#380