Q4 FY2023 Earnings Call
TSLA · Preprocessing Report
2024-01-24
Quality
100%
85
Turns
11
Speakers
4
Sections
4
Exchanges
376
Claims
Quality issues

Entities by group 32

automotive and energy 1
Teslacompany
company executives 4
Elon MuskpersonLars MoravypersonKarn BudhirajpersonAndrew Baglinoperson
analysts 5
Pierre FerragupersonColin LanganpersonAdam JonaspersonDan LevypersonMartin Viechaperson
other 1
Vaibhav Tanejaperson
driver assistance software 1
Full Self-Drivingproduct
AI compute hardware 3
Hardware 5technologyHardware 3technologyHardware 4technology
electric vehicles 2
CybertruckproductRoadsterproduct
electric and gas vehicles 3
Toyota CorollaproductHonda CivicproductToyota RAV4product
semiconductor suppliers 1
Nvidiacompany
charging networks 1
Superchargerproduct
in-vehicle communication 1
CAN bustechnology
manufacturing facilities 2
GigafactorycompanyMegafactorycompany
vehicle financing 1
Partner Leasing Programproduct
autonomous robots 1
Optimusproduct
computer vision suppliers 1
Mobileyecompany
autonomous mobility service 1
Robotaxiproduct
sell-side analysts 1
Wells Fargocompany
Ungrouped 2
Fremont, CAotherS&P 500other
REPORTING 50PROJECTING 14POSITIONING 155EXPLANATORY 47ANALYST 39

Topics 87

cost×35vehicle×28dojo×15factory×13tax×12market×12artificial intelligence×10production×8voltage×7hardware×6model 3×6compute×6delivery×5storage×5growth×5full self-driving×5manufacturing×5chip×5valuation×4customer×4

Themes 242

reduction×8cost reduction×648 volts×6next-generation×5pricing×5addressable size×4record production×3most valuable company×3per car decline×3vehicle architecture×3learning curve×32023×2fremont transformation×2replacement with neural nets×2inference efficiency×2execution×2valuation allowance release×2auto gross×2growth×2annual decline×2microelectronics-style improvement×2industry comparison×2vehicle technology×2vehicle capability×2cost comparison×2penetration×2product strategy×2lab×2day timing×2copying pattern×248-volt architecture×2ai×2graphics×2long shot×2high-risk high-payoff×2record annual volume×1matched guidance×1annualized run rate×1q4 run rate×1production volume×1highest output×1bay area location×1location×1local impact×1acquisition condition×1productivity leadership×1community impact×1quality×1workforce pride×1global best seller×1delivery milestone×1deliveries in 2023×1deliveries growth×1year-over-year growth×1future growth outlook×1faster growth than automotive×1free cash flow×1record spending×12024 outlook×1two-wave transition×1version 12 release×1end-to-end ai×1control architecture×1customer rollout×1rollout scale×1path planning and vehicle controls×1hardware 3 aging×1global availability×1update×1vehicle improvements×1refinement and range×1test drive×1new model×1steady progress×1low-cost next-generation×1new products×1announcement timing×1automotive innovation×1competitive advantage×1manufacturing technology×1manufacturing location×1global manufacturing rollout×1factory expansion×1factory site selection×1record deliveries and deployments×1record 2023 output×1staying through a challenging year×1resolve and dedication×1liquidity×1tax benefit×1book tax rate guidance×1per-unit costs×1digital campaigns×1acquisition phase×1first-time buyers×1new customer acquisition×1total cost of ownership×1upfront cost×1campaign optimization×1u.s. items×1point-of-sale benefit×1purchase discount×1partner leasing rates×1upfront recognition×1deployments growth×1revenue growth×1business outgrowth×1production ramp×1fleet growth contribution×1fleet-based increase×1output and cost efficiency×12024 guidance×1foundation for growth×1support×1ongoing reduction×1commodity tailwind×1commodity headwind×1additional savings×1supply chain savings×1cost discipline×1optimization×1scale benefits×1savings×1product improvement×1design improvement×1improvements across vehicles×1computerized×1compute platform improvement×1cost trend×1between growth periods×1at current price points and run rate×1uncertain size×1hard to estimate×1automotive opportunity×1ev share×1ev market×1addressable market×1affordability×1unit volume×1strategy shift×1event timing×1presentation disclosure×1idea copying×1disclosure caution×1product update×1later this year×1recruiting and repositioning×1china oems in western markets×1china oem expansion and growth saturation×1china oem collaboration in western markets×1chinese competition×1tariff barriers×1trade barriers×1competitive strength×1partnership opportunity×1partner access×1network access×1technology licensing×1next-gen gating factors×1manufacturing and powertrain initiatives×1initiative status×1next-gen platform and cost reductions×1cybertruck gating×1scale and process validation×1manufacturing validation phase×1vehicle safety×1copper reduction×1vehicle networking×1slow communication×1vehicle communications speed×148 volt architecture×1vehicle modernization×1laptop comparison×1design, manufacturing, testing and launch×1program framing×1lead times×1manufacturing equipment×1equipment sourcing×1validation×1equipment design validation×1exception point×1next-gen manufacturing×1next-gen car production×1absence of mention×1status and role in fsd training×1procurement×1definition×1neural net processing×1legacy computing term×1training constrained×1inference reduction×1efficiency benchmark×1model efficiency×1data requirements×1dual path with nvidia×1low-probability program×1not a sure thing×1training jobs×1scaling up×1potential×1strategic viability×1program development×1future potential×1in-car inference×1design completion×1hardware versioning×1supplier lineage×1generation improvements×1in-car ai tasks×1compute availability×1competitive scale×1analyst question×1quarterly target×1capacity limit×1capacity constraint×1hourly increase×1carryover into next year×1raw material benefits×1vehicle output×1wage increases×1expense reduction×1further reduction×1no specific target×1design-side savings×1material cycle time×1future reductions×1tailwind×1aluminum and steel tailwinds×1commodity tailwinds×1efficiency improvement×1average reduction×1early scale×1trajectory×1market leadership×1s&p 500 level×1trending below 10%×1s&p 500 benchmark×1change next year and cash impact×1cash tax guidance×1book tax accounting×1accounting change×1nols and accruals×1

Key Metrics 54

cost×12tax rate×7market share×6deliveries×5revenue×5cogs per car×5cost reduction×5voltage×5costs×5production×4addressable market×4price×4free cash flow×3gross margin×3compute×3production volume×3production and deliveries×2run rate×2productivity×2growth×2efficiency×2capital expenditure×2cost savings×2inbound logistics cost×2addressable market size×2wage rate×2cash taxes×2output×1capex×1vehicles×1hardware efficiency×1inference efficiency×1range×1market capitalization×1net income×1valuation allowance×1per-unit cost×1first-time buyers×1demand×1buyer credit×1purchase price reduction×1lease rate×1deployments×1average selling price×1unit sales×1cost reductions×1copper use×1bandwidth×1lead time×1orders×1training effort×1compute hours×1cycle time×1book taxes×1

Entities 544

Tesla×276Elon Musk×110Vaibhav Taneja×36Lars Moravy×19Pierre Ferragu×12Colin Langan×9Karn Budhiraj×8Full Self-Driving×7Adam Jonas×7Dan Levy×7Fremont, CA×6Andrew Baglino×5Cybertruck×4Nvidia×4S&P 500×3Supercharger×3CAN bus×3Hardware 5×3Hardware 3×2Partner Leasing Program×2Roadster×2Toyota Corolla×2Honda Civic×2Optimus×2Hardware 4×2Martin Viecha×2Gigafactory×1Megafactory×1Toyota RAV4×1Mobileye×1Robotaxi×1Wells Fargo×1

Business Segments 190

Automotive×176Energy Generation And Storage×12Services And Other×2

Sectors 81

automotive×30artificial intelligence×20energy×13electric vehicle×7battery×3software×1advertising×1marketing×1consumer electronics×1microprocessor×1power electronics×1robotics×1metals & mining×1

Regions 29

Fremont×7China×5North America×4San Francisco Bay area×2U.S.×2Western markets×2Americas×1Austin×1Texas×1Mexico×1Lathrop×1Europe×1United States×1

Metadata Distributions

Sentiment
positive 92negative 15neutral 198
Temporality
backward 53forward 43current 209
Certainty
definitive 54confident 91moderate 116tentative 42speculative 2
Magnitude
major 21moderate 138minor 146
Direction
improvement 35decline 5flat 1mixed 3none 261
Time Horizon
immediate 40near_term 70medium_term 35long_term 8unspecified 152
Verifiability
quantitative 47event 21qualitative 237
Analyst Intent
probing 9challenging 5confirming 1seeking_detail 21seeking_guidance 3

Speakers

Executives
ABAndrew BaglinoexecutiveEMElon MuskCEOKBKarn BudhirajexecutiveLMLars MoravyexecutiveVTVaibhav TanejaCFO
Analysts
AJAdam JonasanalystCLColin LangananalystDLDan LevyanalystPFPierre Ferraguanalyst
Other
MVMartin ViechairURUnidentified Company Representativeunknown

Sections

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

Q&A Exchanges 4

#AnalystFirmTurns
1
PFPierre Ferragu
New Street Research27
2
AJAdam Jonas
Morgan Stanley9
3
DLDan Levy
Barclays27
4
CLColin Langan
Wells Fargo16

Claim Taxonomy 305

REPORTING50
resultFinancial outcome for a completed period18
metricNon-financial quantitative fact13
operationalDiscrete completed event19
PROJECTING14
guidanceQuantitative expectation with number + time4
commitmentPromise with binary verifiable outcome9
targetLong-term aspirational quantitative goal1
POSITIONING155
strategyPriority, direction, or initiative123
competitiveCompany's position or advantages12
opportunityMarket condition framed as growth driver8
riskHeadwind, constraint, or uncertainty12
EXPLANATORY47
attributionWhy a specific outcome happened4
contextNon-company macro/industry fact43
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST39
questionInterrogative seeking information18
observationRestates a fact or data point13
concernFlags a risk or challenge4
estimateAnalyst's own projection or calculation1
sentimentOpinion, praise, or critique3

Transcript

Preamble
MV
Martin ViechairTesla
Good afternoon, everyone, and welcome to Tesla's Fourth Quarter 2023 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations, and I'm joined today by Elon Musk, Vaibhav Taneja, and a number of other executives. Our Q4 results were announced at about 3.00 pm Central Time in the Update Deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today's call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue.
But before we jump into Q&A, Elon has some opening remarks. Elon?
Prepared Remarks
EM
Elon MuskCEOTesla
Thank you. So the Tesla team did an incredible job in 2023. We achieved record production and deliveries of over 1.8 million vehicles in line with our official guidance. And in Q4, we were producing vehicles at an annualized run rate of almost 2 million cars a year. This is really a phenomenal achievement. Looking at just the Fremont factory alone, we made 560,000 cars. This is a record.
In fact, it's the highest output of automotive plants in North America. And people are often surprised that the highest output factory, car factory in North America is in the San Francisco Bay area. It's a little counterintuitive, perhaps. And it's really had an incredibly positive impact on that entire area. What would have been a rundown strip mall is the highest productivity car plant in the Americas. Think about that. It was derelict when we got it, and now it's the most productive plant in this entire part of the world.
And it's enriched the community in so many different ways. It's really a gem. So I'm super proud of the people that work there.
Model Y became the best-selling vehicle globally, as predicted. The best-selling vehicle of any kind, not just electric vehicles with over 1.2 million units delivered. The energy storage business delivered nearly 15 gigawatt hours of batteries in 2023, compared to 6.5 gigawatt hours the year before. So tremendous year-over-year growth, triple-digits. And yeah, I think we'll continue to see very strong growth in storage, as predicted. I said for many years that the storage business would grow much faster than the car business, and it is doing that.
Free cash flow remains strong at $4.4 billion in 2023, in spite of record spending on future projects. So we had record CapEx expenses as well as record R&D. This brings us to 2024. There's a lot to look forward to in 2024. Tesla is currently between two major growth waves. We're focused on making sure that our next growth wave, driven by next-gen vehicle, energy storage, full self-driving, other projects, is executed as well as possible. For full self-driving, we've released Version 12, which is a complete architectural rewrite compared to prior versions. This is end-to-end artificial intelligence. So another bit nets basically photons in and controls out, and it really is quite a profound difference. This is currently just with employees and a few customers, but we will be rolling out to all customers in the U.S. who request full self-driving in the weeks to come. That's over 400,000 vehicles in North America. So this is the first-time AI is being used, not just for object perception, but for path planning and vehicle controls. We replaced 330,000 lines of C++ code with neural nets.
It's really quite remarkable. Yeah, sort of, as a side note, I think Tesla is probably the most efficient company in the world for AI inference. Out of necessity, we've actually had to be extremely good at getting the most out of hardware, because Hardware 3 at this point is several years old. So I think we're quite far ahead of any other company in the world in terms of AI and inference efficiency, which is going to be a very important metric in the future in many arenas.
So, the new Model 3 is now available globally. So we did an updated Model 3. While the car looks similar, a lot of work has gone into the vehicle to make it better in every way. It is significantly quieter, more refined, better equipped, has longer range and many other improvements, and I recommend taking it for a test drive. If you have not driven a Model 3 in a long time, you should really try the new one. So, steady improvements. And we're very far along on our next-generation low-cost vehicle. This is an earnings call, not a product announcement. So there'll no doubt be many questions that try to ask us about new product, new products coming. But we reserve product announcements for product announcements not earning calls.
So — but we're very excited about this, and this is really going to be profound, not just in its design of the vehicle itself, but in the design of the manufacturing system. This is a revolutionary manufacturing system significantly, far more advanced than any other automotive manufacturing system in the world, by a significant margin. Several years ago, I said, perhaps the most important competitive characteristic of Tesla in the future will be manufacturing technology and you will really see that come to bear with our next-gen vehicle. The first manufacturing location for this will be at our Gigafactory and headquarters in Austin, Texas, and then we'll follow that up with other locations around the world. Probably the factory we'll build in Mexico will be second, and then we'll be looking to identify a third location, perhaps by the end of this year or early next outside of North America. In conclusion, we had a great year with record production, record deliveries, and a strong free cash flow in spite of a very high interest rate environment. And we are focused on exciting new projects that will — I think, ultimately if we execute on all these things, and it is very hard to do all these things, it's not a sure thing. But I do see a path where Tesla could one day be the most valuable company in the world. I do emphasize that is not an easy path and a very difficult one, but it is now in the set of possible outcomes and previously I would not have thought it is in the set of possible outcomes.
And thank you, again to all of our investors, our employees, and our suppliers for a strong year, and looking forward to a great 2024 and years to come. Thank you.
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MV
Martin ViechairTesla
Thank you. And our CFO, Vaibhav has some opening remarks as well.
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VT
Vaibhav TanejaCFOTesla
Thanks, Martin. Good afternoon, everyone.
As Elon mentioned, we had a record year in terms of both production and deliveries for our auto business as well as record deployments in our energy business. This was achieved despite 2023 being a challenging year in terms of higher interest rates and higher inflation. Big thanks to our customer for being with us through this challenging period. I would also like to thank the whole Tesla team for their resolve and dedication throughout.
In terms of 2023 financials, we ended the year with over $96 billion of revenue and generated $4.4 billion of free cash flow to end the year with over $29 billion of cash and investments on hand. Our 2023 GAAP net income was impacted by the recognition of one-time non-cash benefit of $5.9 billion from the release of valuation allowance on certain deferred tax assets. This was due to our recent history of sustained profitability and is similar to several other companies who have recently gone through a similar change in their account. Accordingly, starting with Q1, our book tax rate will now be more in line with other companies in the S&P 500. In our vehicle business, we continue to see improvements in our per unit cost despite us being in the early phase of Cybertruck ramp. As a result, our auto gross margin improved sequentially. That said, predicting auto gross margins is extremely challenging since there are many moving parts to this equation, some of which are out of our control like the change in tariffs or local incentives to name a few. While the teams are focused on cost reductions, we are approaching the limits within our current platforms. On the demand front, as promised, we made investments in digital campaigns in 2023.
We fully appreciate the importance of customer education as we are still in a customer acquisition phase. Our data suggests that around 90% of our vehicle buyers in 2023 never owned a Tesla before. We are being creative in figuring out ways to bring in new customers and educate them about the benefits of owning a Tesla versus gas-powered vehicles. The key among them being total cost of ownership. This concept is mostly overlooked for just the upfront cost. We will be rigorous in evaluating our campaigns, curating the content, and optimizing spend accordingly to support the overall demand. There are two additional things I would like to mention as it relates to the US market. First, for customers who qualify for the IRA buyer credit, we now offer that as a point-of-sale benefit for Model Y, which means an immediate reduction of $7,500 at the time of purchase to the end customer. Secondly, we continue to offer very attractive lease rates for Model 3 and Y using our Partner Leasing Program. Note that the sales under this program are recognized as upfront revenue and reported within automotive sales.
Our energy storage business had another record year with deployments more than doubling and revenues increasing by more than 50%. This business is poised to again surpass our auto business in terms of growth rate in 2024. This has been in the works for quite some time with us laying the foundation a few years back by building our Megafactory in Lathrop. I would like to thank the whole Tesla Energy team for their efforts to make this a reality. Our services and others business also started contributing meaningfully to our results and our fleets — as our fleet grows. As we expected the fleet-based revenues from supercharging, used cars, and services continue to increase. For 2024, our focus is to continue growing our output, continuing our cost reduction efforts, and increasing investments in our future growth initiatives.
Accordingly, we are currently expecting our capital expenditure for 2024 to be in excess of $10 billion. We believe this would be critical in helping us lay the foundation for the next phase of growth. Once again, I would like to thank everybody at Tesla, our investors, and our suppliers for being with us in this journey. We can open it up to questions, Martin.
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Q&A Session
Q&A 1/4
MV
Martin ViechairTesla
Thank you.
Let's go to analyst questions. The first question comes from Pierre Ferragu from New Street Research. Pierre, go ahead, please. Feel free to unmute. Pierre, can you hear us?
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PF
Pierre FerraguanalystNew Street Research
Okay. Wow. It's really tough to find the unmute button on Team's guide. I'm sorry for being late. So, yes, my question would on the cost reduction, you've talked about it already a lot.
And if I look at it, over the last like, five, six quarters, on average, the COGS per car has been coming down, like, more than 2% sequentially, on average. So that means you are, like, on a trajectory of COGS per car going down 10% a year. So that's probably, like, unheard of in the auto industry. I don't think any car manufacturer ever achieved that. But that's very mundane, and it's a good performance, but it's a very normal performance in a lot of other manufacturing industry, like microelectronics or consumer electronics. And so I'd love to hear your thoughts about whether you consider yourself closer to the latter to, like, a microeconomics business where you have this ability to actually always improve costs. You have more control on how things are pulled together into your cars, and you see yourself sustainably taking costs down with that kind of pace or do you think your ability to take down cost is actually going to become more like in line with the rest in the industry over time?
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VT
Vaibhav TanejaCFOTesla
Yeah. I think I covered this in a pretty lengthy detail, even in my opening remarks and in a previous question. But to just further clarify, we are constantly looking for what we can do to reduce cost. Like I said, it's a game of pennies. We've talked about it before as well. And the team is constantly going and checking, where can we reduce the cost further. And do I believe that we will have the same pace which you've seen over the past few years?
Probably not, because remember, we were coming out with a period wherein commodity prices were rising, so then we did see benefits coming from that. So those are more or less taken care of. But there is more which we're still chasing. And I would say a big kudos goes to the team out here at Tesla, both the engineering team as well as the supply chain team, because every time we give them a challenge, they go gangbusters to try and figure out whatever they can to take out further cost. But yes, I would — like I said, I would want to caution that do not project the previous cost reduction at the same pace completely in the future, because with our current platform, we are getting to a place wherein there are limitations.
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KB
Karn BudhirajexecutiveTesla
Yeah. The increased scale also sort of helps us there.
As we introduce new products, we have the opportunity to go renegotiate existing suppliers for better pricing. We're looking at every penny, like Vaibhav and Elon mentioned. Just to give you an example, our inbound logistics cost has come down by 22% year-over-year. And this is because of optimization on using returnable packaging as opposed to cardboard, which is even better for the environment, optimizing trucking routes, negotiating better pricing with shipping companies, with trucking companies, going with full truckloads and just doing that, sort of.
The bigger we become, the more we put thought into these things and the more efficient we become as a result of it. So those work streams are going to continue.
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UR
Unidentified Company RepresentativeunknownTesla
And we are also getting into the tiers of supply chain to see if there are opportunities, getting into the tier 2, tier 3, tier 4 levels, and then negotiate those pricing as well to get more efficiency out of the system.
KB
Karn BudhirajexecutiveTesla
And then on the design side, we're not static, right, like, especially in areas where the technology is still improving rapidly. Power electronics is a great example. We continue to bring improvements there that are like fundamentals, sort of driven from the device up, that result in cost reductions, generation over generation. And they don't only go into the new vehicles, they come to the old vehicles as well. So that's closer to what you were talking about with the microelectronic space. Some of that exists in the vehicle.
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LM
Lars MoravyexecutiveTesla
Yeah. Certainly our car is more computer than car in many ways and has a lot of new tech over the last 100 years of automotive production that everyone's trying to scrape pennies from.
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EM
Elon MuskCEOTesla
We have a crazy amount of compute in our cars compared to anyone else. It's like orders of magnitude.
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KB
Karn BudhirajexecutiveTesla
And we get to ride that down, right?
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EM
Elon MuskCEOTesla
1,000 times more. Some nutty number.
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KB
Karn BudhirajexecutiveTesla
I mean, if I just look at the main microcontroller that makes the motor truck go, for example, when I think about what it costs when we stuck it in a roadster in 2006, it costs now. There's no comparison. So we've definitely been riding that electronics cost wave.
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EM
Elon MuskCEOTesla
Yeah.
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LM
Lars MoravyexecutiveTesla
And then even on the like non — what you call traditional vehicle side, we do things that no other automakers do to bring cost down through breaking down the way structures are built and the way we put our cars together. And I think that mindset that we have is very much closer to the microprocessor or power electronics industry than the automotive industry.
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MV
Martin ViechairTesla
Thank you. Pierre, do you have a follow-up?
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PF
Pierre FerraguanalystNew Street Research
Great. Yes, a quick one. You mentioned this phase in which you are between two big growth periods. I'd love to hear you about what you consider the size of your addressable market. With the portfolio you have today, like the three, the Y, the X, and the S, what's your estimate of your addressable market? You're shipping like, probably about like a 2 million unit run rate today and given the price points of these cars, what kind of market share of what you address with these cars do you think you've already achieved today?
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EM
Elon MuskCEOTesla
I don't know, if anybody — I actually don't think we have a firm idea of this. That's hard to say exactly.
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VT
Vaibhav TanejaCFOTesla
Yeah. This — I won't say there's — I mean, one way to think about it is look at the automotive industry as well. EVs still contribute a very small market share. So, yes, our goal is to try and take as much market share out of that pie. But do I have a specific number to give you? I don't think we can say that with certainty.
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AB
Andrew BaglinoexecutiveTesla
And it's a growing pie as well.
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VT
Vaibhav TanejaCFOTesla
Exactly
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AB
Andrew BaglinoexecutiveTesla
It's like its 9% today, but it could be 20% in a couple of years or in the future.
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EM
Elon MuskCEOTesla
Yeah.
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AB
Andrew BaglinoexecutiveTesla
Certainly, like the way we've looked at it, and we've always said this, it's not about how many EVs we sell. It's how many great cars you can sell, how many vehicles you can sell. And that market is 100 million a year, and we're barely 2% of that. I still think there's 98% more to get.
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EM
Elon MuskCEOTesla
I mean, it's worth noting that if you look at, say, the average selling price of the other top-selling vehicles in the world, they are much lower priced than a Model Y.
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Andrew BaglinoexecutiveTesla
Yeah.
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Elon MuskCEOTesla
So like Toyota RAV4.
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Andrew BaglinoexecutiveTesla
Corolla.
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Elon MuskCEOTesla
Corolla, Honda Civic, that kind of thing.
They're much lower priced than ours. So people are really stretching their wallets to be able to afford a Tesla. It's quite a difficult thing for them to do, and remarkable that it's the best-selling car in unit volume, despite being much more expensive than other high-volume cars.
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Q&A 2/4
MV
Martin ViechairTesla
Thank you. Let's go to the next analyst. The next question comes from Adam Jonas from Morgan Stanley.
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Adam JonasanalystMorgan Stanley
Hey, everybody. So I can't wait to see the Optimus lab. I'm sure everybody on this call feels the same way.
Your last AI Day, Elon, was September 2022. Can we expect a Tesla AI Day this year? It seems like a lot has changed in that realm. And is this year the time?
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Elon MuskCEOTesla
Yeah, it's a good question. We have found that when we do these AI Days, some of our competitors literally look at what we do on a frame-by-frame basis.
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Adam JonasanalystMorgan Stanley
They do.
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Elon MuskCEOTesla
And then we find these things being copied.
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Karn BudhirajexecutiveTesla
Same thing with Battery Day.
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Elon MuskCEOTesla
Same thing with Battery Day. So we have to be a little cautious about revealing the exact recipe of the secret sauce. But I think some kind of update would be good to do. I'll talk it over with the team, and yeah, I think we might do something later this year. Our main goal with these AI Day things is recruiting and to sort of change the perception of Tesla as people thinking of Tesla as a car company when they should be thinking of Tesla as an AI robotics company.
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AJ
Adam JonasanalystMorgan Stanley
Maybe as a follow-up. Elon, I'd love your thoughts on the topic of China-based OEMs expanding into Western markets. As the China market kind of gets saturated and there's a tremendous growth in the supply, how much success should Tesla investors allow for this competition to achieve in Western markets? And can you envision a scenario where Tesla could partner with a Chinese OEM to help accelerate sustainable transport in markets like Europe and the United States? Thanks.
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Elon MuskCEOTesla
Well, our observation is generally that the Chinese car companies are the most competitive car companies in the world. So I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think if there are not trade barriers established, they will pretty much demolish most other car companies in the world.
So they're extremely good. We don't see an obvious opportunity to partner. Certainly, we're happy to, except on the supercharger front. We're obviously happy to give any electric car company access to our supercharger network. We're also happy to license full self-driving, perhaps license other technologies, and anything that could be helpful in advancing the sustainable energy revolution.
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Q&A 3/4
MV
Martin ViechairTesla
Thank you. And the next question comes from Dan Levy from Barclays.
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Dan LevyanalystBarclays
Hi. Good evening. Thank you for taking the questions. First, I'm wondering if you can just walk through some of the gating factors required to unlock your next-gen platform. You talked about a number of cost initiatives back at the Investor Day a year ago, things in manufacturing and powertrain. Maybe you can just give us a sense of where these initiatives stand. And do you believe — we know that there's a number of new features and technologies in Cybertruck, things like 48 volts architecture, really employing your 4680 batteries. To what extent do you think Cybertruck is really a proving ground for the next-gen platform and is really going to be a gating factor to unlocking the cost reductions needed for the next-gen platform?
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Lars MoravyexecutiveTesla
Yeah, I don't think that anything on Cybertruck should be considered gating for the next-gen platform.
We're obviously doing a lot of manufacturing innovation, as Elon said, for a next-generation vehicle. When you do something at that scale, you have to prove it out. You don't just throw it on the line and just build it. So we're going through those validation phases for all those new manufacturing technologies now. Sure, 48 volts was definitely something we wanted to carry forward, and it's something we hope the industry adopts as well. We're also open to partnering.
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Elon MuskCEOTesla
Yeah. 48 volts.
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Lars MoravyexecutiveTesla
On that if everyone wants to do that.
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Elon MuskCEOTesla
Certainly. Man, the people that really know that this is like the inside baseball thing. But man, 48, it's so high time that the water industry moved from the 12 — the random number of 12 volts to 48 volts.
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Lars MoravyexecutiveTesla
Random number of 48 volts.
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Elon MuskCEOTesla
Yeah. Well, it's much less random.
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LM
Lars MoravyexecutiveTesla
Slightly less random based on human injury, but…
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EM
Elon MuskCEOTesla
I mean dramatically reduces the amount of copper you need in the vehicle and also moving to sort of higher bandwidth communications, sort of ethernet level communications versus CAN Bus, which is pretty…
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LM
Lars MoravyexecutiveTesla
Pretty slow.
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EM
Elon MuskCEOTesla
Pretty slow. So it's really just bringing cars to…
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LM
Lars MoravyexecutiveTesla
The 21st century.
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Elon MuskCEOTesla
Yeah, pretty much.
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Lars MoravyexecutiveTesla
So, certainly like…
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Elon MuskCEOTesla
It's not exact — it's like normal for a laptop. Yeah.
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Lars MoravyexecutiveTesla
Certainly bringing that like is an evolution in our architectures of vehicles, but it's not gating by any means. The gating work is just to finish the design and manufacturing of the car, test them out and get them going.
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Karn BudhirajexecutiveTesla
Yeah, programs and execution mode, right?
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Lars MoravyexecutiveTesla
Yeah.
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Karn BudhirajexecutiveTesla
So it's talking about like, tooling lead time, manufacturing equipment lead time, factory lead time, and executing those programs.
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Elon MuskCEOTesla
There's a lot of specialized machines that make the machine for a next-gen vehicle. So these are not machines you can just order from anyone. You have to design a machine that has never existed to build a car in a way that has never existed.
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Karn BudhirajexecutiveTesla
Yeah. So you don't just have like a design validation phase, but you have an equipment design validation phase as well.
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Elon MuskCEOTesla
It does make it very hard to copy us because you have to copy the machine that makes the machine that makes the machine.
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Lars MoravyexecutiveTesla
Talk about tiers.
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Elon MuskCEOTesla
Yeah, exactly. Manufacturing exception. So I do think it's quite a powerful sustainable advantage because there just is no place to go to order the machines that make our next-gen car that don't exist.
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DL
Dan LevyanalystBarclays
Great. Thank you. As a follow-up, your release does not mention Dojo. So if you could just provide us an update on where Dojo stands and at what point you expect Dojo to be a resource in improving FSD or do you think that you now have sufficient supply of Nvidia GPUs needed for the training of the system?
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Elon MuskCEOTesla
I mean, the AI hardware question is, that is a deep one. So we're obviously hedging our bets here with significant orders of Nvidia GPUs. Or GPU is the wrong word. There really needs to be — there's no — it doesn't — you can't produce graphics, so that's what. It's not a graphics processing unit. Neural net processing unit or something like that. Yeah. GPU is a funny word, like Vestigial. A lot of our progress in self-driving is training limited, something that's important with training, it's much like a human. The more effort you put into training, the less effort you need in inference. So just like a person, if you train in a subject, sort of classic 10,000 hours, the less mental effort it takes to do something. If you remember when you first started to drive, how much of your mental capacity it took to drive. It was — you had to be focused completely on driving. Then after you've been driving for many years, it only takes a little bit of your mind to drive and you can think about other things and still drive safely.
So the more training you do, the more efficient it is at the inference level. So we do need a lot of training. And we're pursuing the dual path of Nvidia and Dojo. But I would think of Dojo as a long shot. It's a long shot worth taking because the payoff is potentially very high. But it's not something that is a high probability. It's not like a sure thing at all. It's a high-risk, high-payoff program. Dojo is working, and it is doing training jobs, and we are scaling it up, and we have plans for Dojo 1.5, Dojo 2, Dojo 3, and whatnot. So I think it's got potential, but I can't emphasize enough. High risk, high payoff. So I think it still makes sense given the — even if it's a low probability of success — I'm laboring the subject. It's a very interesting program. It has the potential for something special. There's also our inference hardware in the car.
So we're now on what's called Hardware 4, but it's actually Version 2 of the Tesla-designed AI inference chip. And we're about to complete design of — the terminology is a bit confusing. We're about to complete design of Hardware 5, which is actually Version 3 of the Tesla-designed chip. Because the Version 1 was Mobileye, Version 2 was Nvidia, and then Version 3 was Tesla. And we're making gigantic improvements from Hardware 3 to Hardware 4 to Hardware 5.
I mean, there's a potentially interesting play where when cars are not in use in the future that the in-car computer can do generalized AI tasks, can run a sort of GPT-4 or GPT-3 or something like that. If you've got tens of millions of vehicles out there, even in a robotaxi scenario where they're in heavy use, maybe they're used 50 out of 168 hours, that still leaves well over 100 hours of time available — of compute hours. It's possible with the right architectural decisions that Tesla may in the future have more compute than everyone else combined.
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Q&A 4/4
MV
Martin ViechairTesla
Thank you. The next question comes from Colin Langan from Wells Fargo.
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CL
Colin LangananalystWells Fargo
Great. Thanks for taking my questions. As we're thinking about going into 2024, the press release talks about hitting 36,000 or slightly above in Q4. And the comments in the release talk about approaching the natural limits.
And it sounds like you're continuing to try to whittle that away, but that sort of implies there's not much left. In addition, you have the hourly wage increase. I guess we'll add to that into next year.
And I thought you said raw material costs are kind or — that benefit is sort of almost played out. So is there an opportunity to continue to go below the 36,000, or should we kind of be modeling that it kind of stays at this level into '24?
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VT
Vaibhav TanejaCFOTesla
We are definitely aware of the cost increases which are coming through because of the wage increases. But like I said, we keep looking at other cost opportunities and try and figure out where else can we cut down.
So there is definitely more opportunity to bring down costs further. I won't specifically guide to a number which we will try and get to, but there's definitely more opportunity there.
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AB
Andrew BaglinoexecutiveTesla
Yeah. We're chasing lots of cost opportunities on the design side still for 2024, north of eight figures is what we're just in my organization, and Lars has got a bunch. And then from a commodities perspective, it's such a long cycle time through the whole material supply chain that even with what we've already seen to this point…
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Vaibhav TanejaCFOTesla
There's more to come.
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Andrew BaglinoexecutiveTesla
There's more to come on commodities reductions.
strategy#347
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Lars MoravyexecutiveTesla
And there's still some tailwind left on the commodities.
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AB
Andrew BaglinoexecutiveTesla
That's what I mean.
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Lars MoravyexecutiveTesla
Aluminum and steel.
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AB
Andrew BaglinoexecutiveTesla
Yeah and battery material.
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EM
Elon MuskCEOTesla
It boggles my mind to think that if we make a 1% improvement in costs, that's $1 billion. So it's like, on average, if we reduce the cost by one penny, $1 billion.
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AB
Andrew BaglinoexecutiveTesla
What?
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EM
Elon MuskCEOTesla
And we started off that long ago that we were only making like 10 cars a week. And yeah, so where does it lead ultimately? With good execution, like I said, it's not a slam dunk, but if we execute very well, I think Tesla could be the most valuable company in the world.
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MV
Martin ViechairTesla
Thank you, Colin. Do you have a follow-up question?
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CL
Colin LangananalystWells Fargo
Yeah. Just a quick follow-up. In the commentary, you mentioned the taxes would go to the S&P 500 level. I think you've been trending slightly below 10%. S&P, I think, is typically 25%-ish. Is that going to — should we expect that to jump right up next year when we're modeling next year or would it be like a gradual change over the next few years and any cash impact from that tax change as well that we should be considering?
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VT
Vaibhav TanejaCFOTesla
Yeah.
So there's no impact on cash taxes from the release of the valuation amounts, which I spoke about. What it does is, it's how you account for taxes on your books? So it's basically an accounting change wherein there are certain jurisdictions because we had enough NOLs, etc., wherein we didn't have to accrue book taxes. Now that the valuation allowance has been released and we have recognized deferred tax assets on the books, that means your tax rate immediately goes up.
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Closing Remarks
MV
Martin ViechairTesla
Okay. I think that's all the time we have for today. Thank you so much for all of your questions, and we'll speak to you again in three months. Thank you. Bye-bye.
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Elon MuskCEOTesla
Thank you.
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