Elon Musk:

Thank you. So to recap, we saw large adoption exploration in EVs, and then a bit of a hangover as others struggle to make compelling EVs. So there are quite a few competing electric vehicles that have entered the market. And mostly they’ve not done well, but they’ve discounted their EVs very substantially, which has made it a bit more difficult for Tesla. We don’t see this as long-term issue, but really -- fairly short-term. And we still obviously firmly believe that EVs are best for customers and that the world is headed for a fully electrified transport, not just the cars, but also aircrafts and boats. Despite many challenges the Tesla team did a great job executing and we did achieve record quarterly revenues. Energy storage deployments reached an all-time high in Q2, leading to record profits for the energy business. And we are investing in many future projects, including AI training and inference and great deal of infrastructure to support future products. We won't get too much into the product roadmap here, because that is reserved for product announcement events. But we are on track to deliver a more affordable model in the first half of next year. The big -- really by far the biggest differentiator for Tesla is autonomy. In addition to that, we've scale economies and we're the most efficient electric vehicle producer in the world. So, this, anyway -- while others are pursuing different parts of the AI robotic stack, we are pursuing all of them. This allows for better cost control, more scale, quicker time to market, and a superior product, applying not to -- not just to autonomous vehicles, but to autonomous humanoid robots like Optimus. Regarding Full Self-Driving and Robotaxi, we've made a lot of progress with Full Self-Driving in Q2 and with version 12.5 beginning rollout, we think customers will experience a step change improvement in how well supervised full self-driving works. Version 12.5 has 5x the parameters of 12.4 and will finally merge the highway and city stacks. So the highway stack is still at this point is pretty old. So often the issues people encounter are on highway, but with 12.5, we are finally merged the two stacks. I still find that most people actually don't know how good the system is, and I would encourage anyone to understand the system better, to simply try it out and let the car drive you around. One of the things we're going to be doing just to make sure people actually understand the capabilities of the car is when delivering a new car and when picking up a car for service to just show people how to use it and just drive them around the block. Once people use it at all they tend to continue using it. So it's very compelling. And then this I think will be a massive demand driver, even unsupervised full self-driving will be a massive demand driver. And as we increase the miles between intervention, it will transition from supervised full self-driving to unsupervised full self-driving, and we can unlock massive potential in [V3] (ph). We postponed the sort of Robotaxi the sort of product unveil by a couple of months where it were -- it shifted to 10/10 to the 10th October -end because I wanted to make some important changes that I think would improve the vehicle -- sort of Robotaxi, the thing that we are -- the main thing that we are going to show and we are also going to show off a couple of other things. So moving it back a few months allowed us to improve the Robotaxi as well as add in a couple other things for the product unveil. We're also nearing completion of the South expansion of Giga Texas, which will house our largest training cluster to date. So it will be an incremental for 50,000 H100s plus 20,000 of our hardware 4 AI5 Tesla AI computer. With Optimus, Optimus is already performing tasks in our factory. And we expect to have Optimus production Version 1 in limited production starting early next year. This will be for Tesla consumption. It's just better for us to iron out the issues ourselves. But we expect to have several thousand Optimus robots produced and doing useful things by the end of next year in the Tesla factories. And then in 2026, ramping up production quite a bit, and at that point we'll be providing Optimus robots to outside customers. That will be Production Version 2 of Optimus. For the energy business, this is growing faster than anything else. This is -- we are really demand constrained rather than production constrained. So we are ramping up production in our U.S. factory as well as building the Megapack factory in China that should roughly double our output, maybe more than double -- maybe triple potentially. So in conclusion, we are super excited about the progress across the board. We are changing the energy system, how people move around, how people approach the economy. The undertaking is massive, but I think the future is incredibly bright. I really just can't emphasize just the importance of autonomy for the vehicle side and for Optimus. Although the numbers sound crazy, I think Tesla producing at volume with unsupervised FSD essentially enabling the fleet to operate like a giant autonomous fleet. And it takes the valuation, I think, to some pretty crazy number. ARK Invest thinks, on the order of $5 trillion, I think they are probably not wrong. And long-term Optimus, I think, it achieves a valuation several times that number. I want to thank the Tesla team for a strong execution and looking forward to exciting years ahead.

Vaibhav Taneja:

Thanks. As Elon mentioned, the Tesla team rose to the occasion yet again and delivered on all fronts with some notable records. In addition to those records, we saw our automotive deliveries go sequentially. I would like to thank the entire Tesla team for their efforts in delivering a great quarter. On the auto business front, affordability remains a top of mind for customers, and in response in Q2, we offered attractive financing options to offset sustained high interest rates. These programs had an impact on revenue per unit in the quarter. These impacts will persist into Q3 as we have already launched similar programs. We are now offering extremely competitive financing rates in most parts of the world. This is the best time to buy a Tesla, I mean, if you are waiting on the sidelines, come out and get your car. We had a record quarter on regulatory credits, revenues, and as well. On net, our auto margins remained flat sequentially. It is important to note that the demand for regulatory credits is dependent on other OEMs plans for the kind of vehicles they are manufacturing and selling as well as changes in regulations. We pride ourselves to be the company with the most American-made cars and are continuing our journey to further localize our supply chain, not just in the U.S., but in Europe and China as well for the respective factories. As always, our focus is on providing the most compelling products at a reasonable price. We have stepped up our efforts to provide more trims that have estimated range of more than 300 miles on a single charge. We believe this, along with the expansion of our supercharging network, is the right strategy to combat range anxiety. Since the revision of FSD pricing in North America, we've seen production rates increase meaningfully and expect this to be a driver of vehicle sales as the feature set improves further. Cost per vehicle declined sequentially when we removed the impact of Cybertruck. While we are experiencing material costs trending down, note that there is latency on the cost side and such reductions would show up in the P&L when the vehicles built with these materials get delivered. Additionally, as we get into the second half of the year, it is important to note that we are still ramping Cybertruck and Model 3 and are also getting impacted by varying amounts of tariffs on both raw materials and finished goods. While our teams are working feverishly to offset these, unfortunately it may have an impact on the cost in the near-term. We previously talked about the potential of the energy business and now feel excited that the foundation that was laid over time is bearing the expected results. Energy storage deployments more than doubled with contribution not just from Megapack, but also Powerwall, resulting in record revenues and profit for the energy business. Energy storage backlog is strong. As discussed before, deployments will fluctuate from period to period with some quarters seeing large increases and others seeing a decline. Recognition of storage gigawatt hours is dependent on a variety of factors, including logistics timing as we send units from a single factory to markets across the world, customer readiness and in case of EPC projects on construction activities. Moving on to the other parts of the business, service and other gross profits also improved sequentially from the improvement in service utilization and growth in our collision repair business. The impact of our recent reorg is reflected in restructuring other - on the income statement. Just to level set, this was about $622 million of charge, which got recorded in the period. And I want people to remember that we've called it out separately on the financials. Sequentially, our operating expenses excluding surcharges reduced despite an increase in spend for AI-related activities and higher legal and other costs. On the CapEx front, while we saw a sequential decline in Q2, we still expect the year to be over $10 billion in CapEx as we increase our spend to bring a 50k GPU cluster online. This new cluster will immensely increase our capabilities to scale FSD and other AI initiatives. We reverted to positive free cash flow of $1.3 billion in Q2. This was despite restructuring payments being made in the quarter and we ended the quarter with over $30 billion of cash and investments. Once again, we've begun the journey towards the next phase for the company with the building blocks being placed. It will take some time, but will be a rewarding experience for everyone involved. Once again, I would like to thank the entire Tesla team for their efforts.

Elon Musk:

With respect to Roadster, we've completed most of the engineering. And I think there's still some upgrades we want to make to it, but we expect to be in production with Roadster next year. It will be something special, like the whole thing [Indiscernible].

Elon Musk:

I guess that, that's really just a question of when can we expect the first -- or when can we do unsupervised full self-driving. It's difficult, obviously, my predictions on this have been overly optimistic in the past. So I mean, based on the current trend, it seems as though we should get miles between interventions to be high enough that -- to be far enough in excess of humans that you could do unsupervised possibly by the end of this year. I would be shocked if we cannot do it next year. So next year seems highly probable to me based on [quite simply] (ph) plus the points of the curve of miles between intervention. That trend exceeds humans for sure next year, so yes.

Elon Musk:

I think we want to limit product announcements to when we have a special -- specific product announcement event, rather than earnings calls.

Lars Moravy:

Yes, 4680 production ramped strongly in Q2, delivering 51% more cells than Q1 while reducing COGS significantly. We currently produce more than 1,400 Cybertrucks of 4680 cells per week, and we'll continue to ramp output as we drive cost down further towards the cost parity target we set for the end of the year. We've built our first validation Cybertruck with dry cathode process made on our mass production equipment, which is a huge technical milestone and we're super proud of that. We're on track for production launch with dry cathode in Q4, and this will enable cell cost to be significantly below available alternatives, which was the original goal of the 4680 program.

Elon Musk:

Yes, so Dojo, I should preface this by saying I'm incredibly impressed by NVIDIA's execution and the capability of their hardware. And what we are seeing is that the demand for NVIDIA hardware is so high that it's often difficult to get the GPUs. And there just seems this, I guess I'm quite concerned about actually being able to get state-of-the-art NVIDIA GPUs when we want them. And I think this therefore requires that we put a lot more effort on Dojo in order to have -- in order to ensure that we've got the training capability that we need. So we are going to double down on Dojo, and we do see a path to being competitive with NVIDIA with Dojo. And I think we kind of have no choice because the demand for NVIDIA is so high and the -- it's obviously their obligation essentially to raise the price of GPUs to whatever the market will bear, which is very high. So, I think we've really got to make Dojo work and we will.

Elon Musk:

There's -- Optimus is intended to be a generalized humanoid robot with a lot of intelligence. So it's like saying what kind of accessories will be offered with a human. It's just really intended to be able to be backward compatible with human tasks. So it would use any accessories that a human would use. Yes.

Elon Musk:

We are doing some advertising, so, want to say something?

Travis Axelrod:

Great. Thank you very much. The next question is on energy growth, which we already covered in opening remarks, so we'll move on to the next one. What is the updated timeline for Giga Mexico and what will be the primary vehicles produced initially?

Travis Axelrod:

All right. Thank you.

Travis Axelrod:

Great. Thank you. Just a couple more. Is Tesla still in talks with an OEM to license FSD?

Travis Axelrod:

All right. Thank you. And the last one, any updates on investing in xAI and integrating Grok into Tesla software?

Travis Axelrod:

All right. Thanks very much. And now we will move on to analyst questions. The first question comes from Will Stein from Truist. Will, please go ahead and unmute yourself.

Elon Musk:

Yes, I mean, I think you're referring to a very -- like an old article, regarding GPUs. I think that's like 6 or 7 months old. At Tesla, we had no place to try them on, so it would've been a waste of Tesla capital because we would just have to order H100 and have no place to try them on. So it was just -- there was -- this wasn't a, let's pick xAI of Tesla. There's -- there was no -- the Tesla data centers were full. There was no place to actually put them. The -- we've been working 24/7 to complete the South extension on the Tesla Giga factory in Texas. That South extension is what will house 50,000 H100s and we're beginning to move the H100 server racks into place there. But we really needed -- we needed that to complete physically. You can't just order compute -- order GPUs and turn them on, you need a data center, it's not possible. So I want to be clear, that was in Tesla's interest, not contrary to Tesla's interest. Does Tesla no good to have GPUs that it can't turn on. That South extension is able to take GPUs, which is really just this week. We are moving the GPUs in there and we'll bring them online. With regard to xAI, there are a few that only want to work on AGI. So what I was finding was that when trying to recruit people to Tesla, they were only interested in working on AGI and not on Tesla's specific problems and they want to start -- do a start-up. So it was a case of either they go to a start-up or -- and I am involved or they do a start-up and I am not involved. Those are the two choices. This wasn't they would come to Tesla. They were not going to come to Tesla under any circumstances. So, yes.

Elon Musk:

Yes. And once again, I want to just repeat myself here. I tried to recruit them to Tesla, including to say like, you can work on AGI, I if you want and they refused. Only then was xAI created.

Elon Musk:

I don't want to get into details of product announcements. And we have to be careful of the Osborne effect here. So, if you start announcing some great thing, it affects our near-term sales. We're going to make great products in future just like we have in the past, end of story.

Ben Kallo:

Hi. Thanks for taking my question. When we think about revenue contribution and with energy growing so quickly and Optimus on the come, how do we think about the overall segments longer term? And then do you think that auto revenue will fall below 50% of your overall revenue? And then my follow-up is just on the last call you talked about, distributed compute on your new hardware. Could you just update us and talk a little bit more about that, the timeline for it and how you would reward customers for letting you use their compute power and their cars? Thanks.

Ben Kallo:

On the distributed compute?

Travis Axelrod:

All right. Thank you. The next question comes from Alex Potter from Piper Alex. Alex, please go ahead and unmute yourself.

Elon Musk:

Yes. The OEMs not real fast. There's not really a sensor suite, it's just cameras. But they would have to integrate our AI computer and have cameras with a 360 degree view. And at least the gateway, like the what talks to the internet, and communicates with the Tesla system, what that you need kind of a gateway computer too. So it's really gateway computer with the cellular and Wi-Fi connectivity, the Tesla AI computer, and seven cameras, or not cameras, again, a 360 degree view. But this will -- given the speed at which, the auto industry moves, it would be several years before you would see this in volume.

Elon Musk:

And the kind of deals that are obviously relevant are only if, some OEM is willing to do this in a million cars a year or something significant. It's not -- if it's like 10,000 or a 100,000 cars a year. We can just make that ourselves.

Dan Levy:

Hi, good evening. Thanks for taking the questions. First, wanted to start with a question on Shanghai. You've leveraged Shanghai as an export center really due its low cost, and that makes sense. But maybe you can just give us a sense of, of how the strategy changes, if at all, given, the implementation of tariffs in Europe. Also to what extent, your import of batteries from China into the U.S., how that might change given the tariffs. Thank you.

Dan Levy:

Great. Thanks. Yes, thank you. As a follow-up, wanted to ask about the Robotaxi strategy and specifically the shareholder deck here notes that the release is going to be -- one of the gating factors is regulatory approval. So maybe you could help us understand which regulations specifically are the ones that we should be looking for? Is it FMVSS, that's standard? And then to what extent does the strategy shift? You've done with FSD more of a nationwide, no boundary approach. Is the Robotaxi approach one that's more geofenced, so to speak, and is more driven by a state by state approach?

Travis Axelrod:

Thank you. Just to …

Travis Axelrod:

In terms of like, as Elon said, in terms of regulatory approval, the vehicles are governed by FMVSS in U.S., which is the same across all 50 states. The road rules are the same across all 50 states. So creating a generalized solution gives us the best opportunity to deploy in all 50 states, reasonably. Of course there are state and even local and municipal level regulations that may apply to, being a transportation company or deploying taxes. But as far as getting the vehicle on the road, that's all federal and that's very much in line with what you was just suggesting about the data and the vehicle itself.

Elon Musk:

Yes. To, to that end of the show, it's like, we can go as humans to other countries and drive with some reasonable amount of assessment in those countries. And that's how you design the FSC software. Yes, exactly.

George Gianarikas:

Hi, everyone. Thank you for taking my questions. Maybe just to expand on the regulatory question for a second. And I could be comparing apples and oranges, but GM canceled their pedal less, wheel less vehicle. And according to the company this morning, their decision was driven by uncertainty about the regulatory environment. And from what we understand, and again, maybe I'm wrong here, but the Robotaxi that has been shown at least in images of the public is also pedal less and wheel less. Is there a different regulatory concern just if you deploy a vehicle like that that doesn't have pedal -- pedals or a wheel, and that may not be different from just regular FSD on a traditional Tesla vehicle. Thank you.

George Gianarikas:

Right. And maybe just as a follow-up, I think you mentioned, that FSD take rates were up materially after you reduced the price. Is there any way you can help us quantify what that means Exactly? Thank you.

Elon Musk:

Well, we are fixing the sunglasses thing. It's coming soon. So you will be able to drive -- you'll be able to have sunglasses on and have the car drive.

Elon Musk:

So -- but there's number of times I've talked with smart people who like live in New York or maybe downtown Boston and don't ever drive and then ask me about FSD, I'm like, you can just get a car and try it. And if you're not doing that, you have no idea what's going on.

Ferragu Pierre:

Hey, guys. Thank you for taking my question. So it's on Robotaxi again, and I completely get it that with a universal solution, we will get like regulatory approval, we'll get there eventually clicking up miles and compute, et cetera. And my question is more, how you think about deployments, because I'm still like, I'm thinking once you have a car that can drive everywhere, that can replace me, it can replace a taxi, but then to do the right hailing service, you need a certain scale. And that means a lot of cars on the road and so you need an infrastructure to just maintain the cars, take care of them, et cetera. And so my question is, are you already working on that? Do you have already an idea of what, like your plan to deploy looks like? And is that like a test Tesla only plan or are you looking at partners, local partners, global partners to do that? And I'll have a quick follow-up.

Ferragu Pierre:

Okay. And do you think that scale is like progressively so you can start in a city with just a handful of cars and you grow the number of cars over time? Or do you think there is like a critical mass you need to get to, to be able to offer like a service that is of competitive quality compared to what like the -- like Uber would be typically delivering already?

Travis Axelrod:

Thank you. Our next question comes from Colin from Oppenheimer. Colin, please unmute yourself.

Vaibhav Taneja:

So, I mean, we are working with a large set of players in the market and our pipeline is actually pretty long. And there's actually very -- there's actually long end in terms of where you enter into a contract where delivery started -- starts happening. And so far we have good pricing leverage. And now Mike, chime in on this too.

Vaibhav Taneja:

Yes, and again, the aspect which people miss do not fully understand is that there's also a whole software stack, which comes with from Megapack, right? And that is a unique proposition which we -- which is only available to us, and we are using it with other stuff too, but that gives us a much more of an edge as compared to the competition.

Unidentified Company Representative:

Yes, and we're not really seeing saturation for like, on a global scale. There's little pockets of saturation in different markets, but we're more seeing that there's markets opening up given demand on the grid just continues to increase more than anyone expects. So that just opens up markets, really across the world in different pockets.

Colin Rusch:

Yes. Thanks. And then the follow-up here is 4680 process technology and the role to role process. There's some news around your equipment suppliers. Can you talk about how far along you are in, in potentially qualifying an incremental supplier around some of that, those critical process technology steps?

Elon Musk:

Yes. I, I think people don't understand just how much demand there will be for grid storage. They really just like the [indiscernible] I think are underestimating this demand by probably orders magnitude. So that the actual energy, total energy output of, say the U.S grid is if the power plants can operate a steady state is at least two to three times, the amount of energy it currently produces, because there are a huge gap. There's a huge difference in the -- from peak to trough in terms of energy of power generation. So in order for a grid to not have blackouts, it must be able to support the load at the worst minute of the worst day of the year, the coldest or hottest day, which means that for the rest of the time, the rest of the year, it's got massive excess power generation capability, but it has no way to store that energy. Once you add battery packs, you can now run the power plants at steady state. Steady state means that basically any given grid anywhere in the world can produce in terms of cumulative energy in the course of the year, at least twice what it is currently producing in some cases, maybe three times.

Colin Langan:

Oh, great. Thanks for taking my questions. Do you hear me?

Colin Langan:

Yes. Sorry. I guess when we are going to ask, if Trump wins, there's a higher chance that IRA could get cut. I think Elon, you had commented online that Tesla doesn't survive on EV subsidies. But when Tesla lose a lot of support if IRA goes away? I think model Y3 and Y get IRA help for customers, and I think your batteries get production tax credits. So, just one, can you clarify if the end, if IRA ends, would it be a negative for your profitability in the near-term? Why might it not be a negative? And then, any framing of the current support you get, IRA-related?

Vaibhav Taneja:

Yes, I mean, I'll add this just to clarify a few things that -- at the end of the day, when we are looking at our business, we've always been looking at it whether or not IRA is there and we want our business to grow healthy without having any subsidies coming in, whichever way you look at it. And that's the way we have always modeled everything. And that is the way internally also even when we are looking at battery costs, yes, I --, there are manufacturing credits which we get, but we always drive ourselves to say, okay, what if there is no higher benefit and how do we operate in that kind of an environment? And like Elon said, we definitely have a big advantage as compared to a competition on that front. We've delivered it and you can see it in the numbers over the years. Like, so there is you cannot ignore the fundamental size of the business. And then on top of it, once you add autonomy to it, like even said, it becomes meaningless to you think about the short-term.

Elon Musk:

That's excellent.

Elon Musk:

Thanks, Martin. So to recap in Q1 we navigated several unforeseen challenges as well as the ramp of the updated Model 3 in Fremont. There was, as we all have seen, the EV adoption rate globally is under pressure and a lot of other auto manufacturers are pulling back on EVs and pursuing plug-in hybrids instead. We believe this is not the right strategy and electric vehicles will ultimately dominate the market. Despite these challenges, the Tesla team did a great job executing in a tough environment and energy storage deployments, the Megapack in particular, reached an all time high in Q1, leading to record profitability for the energy business, and that looks likely to continue to increase in the quarters and years ahead. It will increase. We actually know that it will, so significantly faster than the car business as we expected. We also continue to expand our AI training capacity in Q1, more than doubling our training compute sequentially. In terms of the new product roadmap, there has been a lot of talk about our upcoming vehicle line in the next – in the past several weeks. We've updated our future vehicle lineup to accelerate the launch of new models ahead, previously mentioned startup production in the second half of 2025, so we expect it to be more like the early 2025, if not late this year. These new vehicles, including more affordable models, will use aspects of the next generation platform as well as aspects of our current platforms, and will be able to produce on the same manufacturing lines as our current vehicle lineup. So it's not contingent on any new factory or massive new production line. It'll be made on our current production lines much more efficiently. And we think this should allow us to get to over 3 million vehicles of capacity when realized to the full extent. Regarding FSD Version 12, which is the pure AI-based self-driving, if you haven't experienced this, I strongly urge you to try it out. It's profound and the rate of improvement is rapid so – and we've now turned that on for all cars with the cameras and inference computer and everything from Hardware 3 on in North America. And so it's been pushed out to, I think, around 1.8 million vehicles and we're seeing about half of people use it so far and that percentage is increasing with each passing week. So we now have over 300 billion miles that have been driven with FSD V12. Since the launch of full self-driving, supervised full self-driving, it's become very clear that the vision-based approach with end to end neural networks is the right solution for scalable autonomy. It's really how humans drive. Our entire road network is designed for biological neural nets and eyes. So naturally cameras and digital neural nets are the solution to our current road system. To make it more accessible, we've reduced the subscription price to $99 a month, so it's easy to try out. And as we've announced, we'll be showcasing our purpose-built robotaxi, or Cybercab, in August. Yes. Regarding AI compute, over the past few months, we've been actively working on expanding Tesla's core AI infrastructure. For a while there, we were training constrained in our progress. We are, at this point, no longer training constrained and so we're making rapid progress. We've installed and commissioned, meaning they're actually working 35,000 H100 computers or GPUs, GPU is wrong word, they need a new word. I always feel like a wince when I say GPU because it's not – GPU stands – G stands for graphics, and it doesn't do graphics. But anyway roughly 35,000 H100s are active, and we expect that to be probably 85,000 or thereabouts by the end of this year and training, just for training. We are making sure that we're being as efficient as possible in our training. It's not just about the number of H100s, but how efficiently they're used. So in conclusion, we're super excited about our autonomy road map. I think it should be obvious to anyone who's driving Version 12 and it tells that that it is only a matter of time before we exceed the reliability of humans and not much time with that. And we're really headed for an electric vehicle, an autonomous future. And I'll go back to something I said several years ago that in the future, gasoline cars that are not autonomous will be like riding a horse and using a flip phone. And that will become very obvious in hindsight. We continue to make the necessary investments that will drive growth and profits for Tesla in the future, and I wanted to thank the Tesla team for incredible execution during this period and look forward to everything that we have planned ahead. Thanks.

Vaibhav Taneja:

Thanks. It's important to acknowledge what Elon said, from our auto business perspective. We did see a seasonal decline in revenues quarter-over-quarter and those were primarily because of seasonality, uncertain macroeconomic environment and the other reasons, which Elon had mentioned earlier. Auto margins declined from 18.9% to 18.5%. Excluding the impact of Cybertruck, the impact of pricing actions was largely offset by reductions in per unit costs and the recognition of revenue from Autopark feature for certain vehicles in the U.S. that previously did not have that functionality. Additionally, while we did experience higher cost due to the ramp of Model 3 in Fremont and disruptions in Berlin, these costs were largely offset by cost reduction initiatives. In fact, if we exclude Cybertruck and Fremont Model 3 ramp costs, the revenue from Autopark, auto margins improved slightly. Currently normalized Model Y cost per vehicle in Austin and Berlin are already very close to that of Fremont. Our ability to reduce costs without sacrificing on quality was due to the amazing efforts of the team, in executing Tesla's relentless pursuit of efficiency across the business. We've also witnessed that as other OEMs are pulling back on their investments in EV, there is increasing appetite for credits, and that means a steady stream of revenue for us. Obviously, seeing others pull back from EV is not the future we want. We would prefer it the whole industry went all in. On the demand front, we've undertaken a variety of initiatives, including lowering the price of both the purchase and subscription options for FSD launching extremely attractive leasing specials for the Model 3 in the U.S. for $299 a month and offering attractive financing options in certain markets. We believe that our awareness activities, paired with attractive financing, will go a long way in expanding our reach and driving demand for our products. Our Energy business continues to make meaningful progress with margins reaching a record of 24.6%. We expect the energy storage deployments for 2024 to grow at least 75% higher from 2023. And accordingly, this business will begin contributing significantly to our overall profitability. Note that there is a bit of lumpiness in our storage deployments due to a variety of factors that are outside of our control, so deployments may fluctuate quarter-over-quarter. On the operating expense front, we saw a sequential increase from our AI initiatives, continued investment in future projects, marketing and other activities. We had negative free cash flow of $2.5 billion in the first quarter. The primary driver of this was an increase in inventory from a mismatch between builds and deliveries as discussed before, and our elevated spend on CapEx across various initiatives, including AI compute. We expect the inventory build to reverse in the second quarter and free cash flow to return to positive again. As we prepare the company for the next phase of growth, we had to make the hard but necessary decision to reduce our head count by over 10%. The savings generated are expected to be well in excess of $1 billion on an annual run rate basis. We are also getting hyper focused on CapEx efficiency and utilizing our installed capacity in a more efficient manner. The savings from these initiatives, including our cost reductions will help improve our overall profitability and ultimately enable us to increase the scale of our investments in AI. In conclusion, the future is extremely bright and the journey to get there while challenging will be extremely rewarding. Once again, I would like to thank the whole Tesla team for delivering great results. And we can open it up to Q&A.

Lars Moravy :

Sure. 4680 production increased about 18% to 20% from Q4 reaching greater than 1K a week for Cybertruck, which is about 7 gigawatt hours per year as we posted on X. We expect to stay ahead of the Cybertruck ramp with the cell production throughout Q2 as we ramp the third of four lines in Phase 1, while maintaining multiple weeks of cell inventory to make sure we're ahead of the ramp. Because we're ramping, COGS continues to drop rapidly week-over-week driven by yield improvements throughout the lines and production volume increases. So our goal, and we expect to do this is to beat supplier cost of nickel-based cells by the end of the year.

Elon Musk:

We are able to do simple factory tasks or at least, I should say, factory tasks in the lab. In terms of – we do think we will have Optimus in limited production in the natural factory itself, doing useful tasks before the end of this year. And then I think we may be able to sell it externally by the end of next year. These are just guesses. As I've said before, I think Optimus will be more valuable than everything else combined. Because if you've got a sentient humanoid robots that is able to navigate reality and do tasks at request, there is no meaningful limit to the size of the economy. So that's what is going to happen. And I think Tesla is best positioned of any humanoid robot maker to be able to reach volume production with efficient inference on the robot itself. I mean this perhaps is a point that is worth emphasizing Tesla's AI inference efficiency is vastly better than any other company. There is no company even close to the inference efficiency of Tesla. We've had to do that because we were constrained by the inference hardware in the car, we didn't have a choice. But that will pay dividends in many ways.

Elon Musk:

Sure.

Ashok Elluswamy:

Yes. It's actually been pretty helpful that other autonomous car companies have been cutting a path through the regulatory jungle, which is absurd. That's actually quite helpful. And they have obviously been operating in San Francisco for a while. I think they got approval for City of LA. So these approvals are happening rapidly. I think if you've got at scale, a statistically significant amount of data that shows conclusively that the autonomous car has, let's say, half the accident rate of a human-driven car, I think, that's difficult to ignore because at that point, stopping autonomy means killing people. So I actually do not think that there will be significant regulatory barriers provided there was conclusive data that the autonomous car is safer than a human-driven car. And in my view, this will be much like elevators. Elevators used to be operated by a guy with relay switch. But sometimes that guy would get tired or drunk or just make a mistake, and shatter somebody in half between floors. So we just get an elevator and press button, we don't think about it. In fact, it's kind of weird if somebody is standing there with a relay switch. And that will be how cars work. You just summon the car using your phone, you get in, it takes you to a destination, you get out.

Elon Musk:

You don't even think about it. Just like an elevator, it takes you to your floor. That's it. Don't think about how the elevator is working or anything like that. And something I should clarify is that Tesla will be operating the fleet. So you can think of like how Tesla, think of it’s like some combination of Airbnb and Uber, meaning that there will be some number of cars that Tesla owns itself and operates in the fleet. There will be some number of cars and then there'll be a bunch of cars where they're owned by the end user. That end user can add or subtract their car to the fleet whenever they want, and they can decide if they want to only let the car be used by friends and family or only by 5-star users or by anyone at any time they could have the car come back to them and be exclusively theirs, like an Airbnb. You could rent out your guest room or not, any time you want. So as our fleet grows, we have 7 million cars going to – 9 million cars going to, eventually tens of millions of cars worldwide. With a constant feedback loop, every time something goes wrong, that gets added to the training data and you get this training flywheel happening in the same way that Google Search has the sort of flywheel, it's very difficult to compete with Google because people are constantly doing searches and clicking and Google is getting that feedback loop. It’s the same with Tesla. But at a scale that is maybe difficult to comprehend, but ultimately, it will be tens of millions. I think there's also some potential here for an AWS element down the road where if we've got very powerful inference because we've got a Hardware 3 in the cars, but now all cars are being made with Hardware 4. Hardware 5 is pretty much designed and should be in cars, hopefully towards the end of next year. And there's a potential to run – when the car is not moving to actually run distributed inference. So kind of like AWS, but distributed inference. Like it takes a lot of computers to train an AI model, but many orders of magnitude less compute to run it. So if you can imagine future, perhaps where there's a fleet of 100 million Teslas, and on average, they've got like maybe a kilowatt of inference compute. That's 100 gigawatts of inference compute distributed all around the world. It's pretty hard to put together 100 gigawatts of AI compute. And even in an autonomous future where the car is, perhaps, used instead of being used 10 hours a week, it is used 50 hours a week. That still leaves over 100 hours a week where the car inference computer could be doing something else. And it seems like it will be a waste not to use it.

Ashok Elluswamy:

Yes, we have multiple tiers of validating the safety in any given week, we train hundreds of neural networks that can produce different trajectories for how to drive the car, we replay them through the millions of clips that we have already collected from our users and our own QA. Those are like critical events, like someone jumping out in front or like other critical events that we have gathered database over many, many years, and we replay through all of them to make sure that we are net improving safety. And on top of it, we have simulation systems that also try to recreate this and test this in closed loop fashion. And some of this is validated, we give it to our own QA drivers. We have hundreds of them in different cities, in San Francisco, Los Angeles, Austin, New York, a lot of different locations. They are also driving this and collecting real-world miles, and we have an estimate of what are the critical events, are they a net improvement compared to the previous week’s builds. And once we have confidence that the build is a net improvement, then we start shipping to early users, like 2,000 employees initially that they would like it to build, they will give feedback on like if it's an improvement there or they're noting some new issues that we did not capture in our own QA process. And only after all of this is validated, then we go to external customers. And even when we go external, we have like live dashboards of monitoring every critical event that's happening in the fleet sorted by the criticality of it. So we are having a constant pulse on the build quality and the safety improvement along the way. And then any failures like Elon alluded to, we get the data back, add it to the training and that improves the model in the next cycle. So we have this like constant feedback loop of issues, fixes, evaluations and then rinse and repeat. And especially with the new V12 architecture, all of this is automatically improving without requiring much engineering interventions in the sense that engineers don't have to be creative in like how they code the algorithms. It's mostly learning on its own based on data. So you see that, okay, every failure or like this is how a person shows, this is how you drive this intersection or something like that, they get the data back. We add it to the neural network, and it learns from that trained data automatically instead of some engineers saying that, oh, here, you must rotate the steering wheel by this much or something like that. There's no hard inference conditions, it's everything is neural network, it's very soft, it's probabilistic. So it will adapt its probability distribution based on the new data that it's getting.

Ashok Elluswamy:

Yes. In terms of scaling laws, people in the AI community generally talk about model scaling laws where they increase the model size a lot and then their corresponding gains in performance, but we have also figured out scaling laws and other access in addition to the model side scaling, making also data scaling. You can increase the amount of data you use to train the neural network and that also gives similar gains and you can also scale up by training compute, you can train it for much longer or make more GPUs or more Dojo nodes and that also gives better performance, and you can also have architecture scaling where you count with better architectures that for the same amount of compute for produce better results. So a combination of model size scaling, data scaling, training compute scaling and the architecture scaling, we can basically extract like, okay, with the continue scaling based on this – at this ratio, we can sort of predict future performance. Obviously, it takes time to do the experiments because it takes a few weeks to train, it takes a few weeks to collect tens of millions of video clips and process all of them, but you can estimate what’s going to be the future progress based on the trends that we have seen in the past, and they’re generally held true based on past data.

Lars Moravy:

I think we – Elon mentioned it in the opening remarks. But as you mentioned, we’re updating our future vehicle lineup to accelerate the launch of our low-cost vehicles in a more CapEx efficient way. That’s our mission to get the most affordable cars to customers as fast as possible. These new vehicles we built on our existing lines and open capacity, and that’s a major shift to utilize all our capacity with marginal CapEx before we go spend high CapEx to do anything.

Lars Moravy:

5 million cars?

Lars Moravy:

A little less?

Martin Viecha:

Thank you. The next question is, what is the progress of Cybertruck ramp?

Martin Viecha:

Okay. Thank you. The next question, have any of the legacy automakers contacted Tesla about possibly licensing FSD in the future?

Martin Viecha:

Thank you. The next question is about the robotaxi unveil. Elon already talked about that. So we’ll have to wait till August. The following question is about the next-generation vehicle. We already talked about that. So let’s go to the semi. What is the time line for scaling semi?

Lars Moravy:

So we’re finalizing the engineering of the semi to enable like a super cost-effective high-volume production with our learnings from our fleet and our pilot fleet and Pepsi’s fleet, which we are expanding this year marginally. In parallel, as we showed in the shareholders’ deck, we have started construction on the factory in Reno. Our first vehicles are planned for late 2025 with external customers starting in 2026.

Lars Moravy:

Yes.

Unidentified Company Representative:

Yes. Yes, Lathrop is ramping as planned. We have our second GA line allowing us to increase our exit rate from 20 gigawatt hours per year to – at the start of this year to 40 gigawatt hours per year by the end of the year, that lines commissioned. There’s really nothing limiting the ramp. Its given the longer sales cycles for these large projects, we typically have order visibility 12 months to 24 months prior to ship dates. So we’re able to plan – the build plan several quarters in advance. So this allows us to ramp the factory to align with the business and order growth. Lastly, we’d like to thank our customers globally for their trust in Tesla as a partner for these incredible projects.

Tony Sacconaghi:

Thank you for taking the question. I was just wondering if you can elaborate a little bit more on kind of the new vehicles that you talked about today. Are these like tweaks on existing models, given that they’re going to be running on the same lines? Are these like new models? And how should we think about them in the context of like the Model 3 Highland update, what will these models be like relative to that? And given the quick time frame, Model 3 Highland has required a lot of work and a lot of retooling. Maybe you can help put that all in context. Thank you, and I have a follow-up, please.

Tony Sacconaghi:

It’s a more personal one for you, Elon, which is that you’re leading many important companies right now. Maybe you can just talk about where your heart is at in terms of your interests and do you expect to lessen your involvement with Tesla at any point over the next three years?

Martin Viecha:

Okay. Thank you. Let’s go to Adam Jonas from Morgan Stanley. Adam, please go ahead and unmute.

Elon Musk:

No, I think we'll have higher sales this year than last year.

Elon Musk:

I mean, I don't know what our competitors could do, except we've done relatively better than they have. If you look at the drop in our competitors in China sales versus our drop in sales, our drop was less than theirs. So we're doing well. But I think Cathy Wood said it best, like really, we should be thought of as an AI or robotics company. If you value Tesla as just like an auto company, you just have to – fundamentally, it's just the wrong framework and it will come to be. If you ask the wrong question, then the right answer is impossible. So I mean, if somebody doesn't believe Tesla is going to solve autonomy, I think they should not be an investor in the company. Like, that is – but we will and we are. And then you have a car that goes from 10 hours of use a week, like 1.5 hours a day to probably 50%, but it costs the same.

Elon Musk:

Yes. If you've not tried the FSD 12.3, and like I said, 12.4 is going to be significantly better and 12.5 even better than that. And we have visibility into those things. Then you really don't understand what's going on. It's not possible.

Ashok Elluswamy:

Yes. This is all in addition to Tesla – the overall AI community is just like increasing – like, improving rapidly.

Martin Viecha:

Okay, thank you. The next question comes from Alex Potter from Piper Sandler. Alex, please go ahead and unmute.

Elon Musk:

Well, I think no matter what Tesla, even if I got kidnapped by aliens tomorrow, Tesla will solve autonomy, maybe a little slower, but it would solve autonomy for vehicles at least. I don't know if it would winon with respect to Optimus or with respect to future products, but it would that there's enough momentum for Tesla to solve autonomy even if I disappeared for vehicles. Yes, there's a whole range of things we can do in the future beyond that. I'll be more reticent with respect to Optimus, if we have a super-sentient humanoid robot that can follow you indoors and that you can escape, we're talking terminator-level risk. And yes, I'd be uncomfortable with. If there's not some meaningful level of influence over how that is deployed. And if there's shareholders have an opportunity to ratify or reratify the sort of competition because I can't say that. That is a fact. They have an opportunity. And yes, we'll see. If the company generates a lot of positive cash flow, we could obviously buy back shares.

Vaibhav Taneja:

So like we said, we've done these headcount reductions across the board. And as companies grow over time, there are certain redundancies. There's some duplication of efforts, which happens in certain areas. So you need to go back and look at where all these pockets are, get rid of it. So we're basically going through that exercise wherein we're like, hey, how do we set this company right for the next phase of growth. And the way to think about it is any tree which grows, it needs pruning. This is the pruning exercise which we went through. And at the end of it, we'll be much stronger and much more resilient to deal with the future because the future is really bright. Like I said in my opening remarks, we just have to get through this period and get there.

Alex Potter:

But you shed the tail.

Martin Viecha:

Thank you. Let's go to Mark Delaney from Goldman Sachs. Mark please go ahead and unmute.

Elon Musk:

Well, I think we just need to – it just needs to be obvious that our approach is the right approach. And I think it is. I think we've now with 12.3, if you just have the car drive you around; it is obvious that our solution with a relatively low-cost inference computer and standard cameras can achieve self-driving. No LiDARs, no radars, no ultrasonic nothing.

Elon Musk:

Yes. So it really just be a case of having them use the same cameras and inference computer and licensing our software. But once it becomes obvious that if you don't have this in a car, nobody wants your car. It's a smart car. I still remember in, back when Nokia was king of the hill, Yes, crushing. And they certainly come out with a smartphone that was basically a break with limited functionality. And then the iPhone and Android, people still do not understand that all the phones are going to be that way. There's not going to be any flip [ph] phones. If there will be a niche product.

Elon Musk:

Yes, no even exactly. When is the last time you saw a home phone.

Elon Musk:

Yes, the hotels have them. Yes. So the people don't understand all cars will need to be smart cars, or you will not sell or the car will not – nobody would buy it. Once that becomes obvious, I think licensing becomes not optional.

Elon Musk:

Yes, absolutely, it is. License it or nobody will buy your car.

Elon Musk:

Yes.

Elon Musk:

Yes, I mean, really a deal signed now would result in it being in a car probably three years.

Elon Musk:

Yes. That's like lightening basically.

Elon Musk:

Yes. So I wouldn't be surprise if we do sign a deal. I think we have a good chance we do sign a deal this year, maybe more than one. But yes, it would be probably three years before it's integrated with a car. Even though all you need is cameras and our inference computer. So just talking about a massive design change.

Elon Musk:

Yes.

Mark Delaney:

Yes, very helpful. Thank you. My follow-up was to better understand Tesla's approach to pricing going forward. Previously, the company had said that the price reductions were driving incremental demand with how affordable the cars have become, especially for vehicles that have access to IRA credits and some of the leasing offers that Tesla has in place. Do you still see meaningful incremental price reductions as making sense from here for the existing products? And can the company meaningfully lower prices from here and also stay free cash flow positive on an annual basis with the current product set? Thanks.

Lars Moravy:

I think Vaibhav said it in his opening remarks, like our cost down efforts, we basically were offsetting the price cut like we’re trying to give it back to the customers.

Lars Moravy:

More accessible.

Lars Moravy:

But also make kick as cost that people want to buy.

Vaibhav Taneja:

Yes. And in fact, like I said in my opening remarks also, like the revised – the updated Model 3 is a fantastic car. I don’t think people fully even understand that lot of engineering effort which has gone and Lars and team have actually put out videos explaining how much the car is different. I mean it looks and feels different. Not only it looks and feels different. We’ve added so much value to it, but you can lease it for like as low as $299 a month.

Vaibhav Taneja:

Yes.

Unidentified Analyst:

Hi, thank you for taking my question. First, could you please help us understand some of the timing of launching FSD in additional geographies, including maybe clarifying your recent comment about China? Thank you.

Unidentified Analyst:

And FSD new markets?

Vaibhav Taneja:

The basics of driving are basically same everywhere like car is a car, the traffic lights, road is the road. Yes.

Vaibhav Taneja:

Exactly. There are some road rules that you need to follow. And in China, you shouldn’t cross over a solid line to do a lane change. In U.S. it’s a recommendation I think. In China, you get fined heavily if you do that. We have to do some more actions, but it’s mostly smaller reduction. It’s not like the entire change or type or something.

Martin Viecha:

Hey, George, do you have a follow-up?

Vaibhav Taneja:

Yes. I think we did cover this a little bit in the opening remarks to you. Q1 had a lot of different things which are happening. Seasonality was a big one, continued pressure from the macroeconomic environment. We had attacks at our factory. We had Red Sea attacks, we are ramping Model 3, we’re ramping Cybertruck. All these things are happening. I mean, it almost feels like a culmination of all those activities in a constrained period. And that gives us that confidence that, hey, we don’t expect these things to recur.

Vaibhav Taneja:

Yes.

Elon Musk:

Yes, exactly. It’s just – if you’ve got cars that are sitting on ships, they obviously cannot delivered to people. And if you’ve got the excess demand for Model 3 and Model Y in one market, but you don’t have it there. It’s quite a – it’s extremely complex logistics situation. So I’d say also the – we did overcomplicate the sales process, which we’ve just in the past week or so have greatly simplified. So it became far too complex to buy a Tesla, whereas it should just be you can buy the car in under a minute. So we’re getting back to that you can buy a Tesla in under an minute interface from what was quite complex.

Colin Rusch:

Thanks so much, guys. Given the pursuit of Tesla really as a leader in AI for the physical world, in your comments around distributed inference, can you talk about what that approach is unlocking beyond what’s happening in the vehicle right now?

Ashok Elluswamy:

Yes. Like Elon mentioned like the car even when it's a full robotaxi it's probably going to be used 150 hours a week.

Ashok Elluswamy:

Yes. It could be more or less, but then there's certainly going to be some hours left for charging and cleaning and maintenance in that world, you can do a lot of other workloads, even right now we are seeing, for example, these LLM companies have these like batch workloads where they send a bunch of documents and those run through pretty large neural networks and take a lot of compute to chunk through those workloads. And now that we have already paid for this compute in these cars, it might be wise to use them and not let them be idle, be like buying a lot of expensive machinery and leaving to them idle. Like we don't want that, we want to use the computer as much as possible and close to like basically 100% of the time to make it a use of it.

Ashok Elluswamy:

Monetize it

Ashok Elluswamy:

Exactly.

Ashok Elluswamy:

Yes, probably because it takes a lot of intelligence to drive the car anyway. And when it's not driving the car, you just put this intelligence to other uses, solving scientific problems or answer in terms of someone else.

Ashok Elluswamy:

Yes. And unlike laptops and our cell phones, it is totally under Tesla's control. So it's easier to distribute the workload across different nodes as opposed to asking users for permission on their own cell phones to be very tedious.

Ashok Elluswamy:

Yes, exactly. The battery is also...

Ashok Elluswamy:

Yes.

Lars Moravy:

Yes. We got built in like liquid cold thermal management.

Lars Moravy:

Exactly for data centers, it's already there in the car.

Ashok Elluswamy:

Yes. I mean that distributed power and cooling, people underestimate that costs a lot of money.

Elon Musk:

Yes.

Elon Musk:

We're making good progress on that. But I don't think it's super important for at least in the near term. As Lars said, we think it will be exceed the competitiveness of suppliers by the end of this year and then we'll continue to improve.

Elon Musk:

Yes.

Elon Musk:

Yes. I mean a big part of the 4680, Tesla doing internal cells was a hedge against what would happen with our suppliers because for a while they are it was very difficult because every big carmaker put in massive battery orders, and so the price per kilowatt hour of lithium-ion batteries went to crazy numbers, crazy levels.

Elon Musk:

Yes, just bonkers. So like, okay, we've got to have some hedge here to deal with cost per kilowatt hours of numbers that were double what we anticipated. If we have an internal cell production, then we have that hedge against demand shocks, we have too much demand. That's really the way to think about it. It's not like we want to take on a whole bunch of problems just for the hell of it. We did the cell program in order to address the crazy increase in cost per kilowatt hour from our suppliers due to gigantic orders placed by every carmaker on earth.

Elon Musk:

Well, I want to say again, we'd just like to strongly recommend that anyone who is, I guess, thinking about the Tesla stock should really drive FSD 12.3. It really – you can't – it's impossible to understand the company if you do not do this.

Shreyas Patil:

Thanks so much. Just Elon, during the Investor Day last year, you mentioned that auto COGS per unit for the next-gen vehicle would decline by 50% versus the current three and Y. I think that was implying something around $20,000 of COGS. About one-third of that was coming from the on-box manufacturing process. But I'm curious if you see an opportunity that the – some of the other drivers around powertrain cost reduction or material cost savings, would those be largely transferable to some of the new products that you're now talking about introducing?

Shreyas Patil:

Okay. Great. And then just on that topic of 4680 cells, I know you mentioned it, you really thought of it more as like a hedge against rising battery costs from other OEMs. But it seems even today, it seems like you would have a cost advantage against some of those other automakers. And I'm wondering, given the rationalizing of your vehicle manufacturing plans that you're talking about now, if there's an opportunity to maybe convert the 4680 cells and maybe sell those to other automakers and really generate an additional revenue stream. I'm just curious if you have any thoughts about that.

Vaibhav Taneja:

Yes. In addition to what Elon, this is kind of in addition to what Elon said, about 4680, what 4680 did for us from a supply chain perspective was help us understand the supply chain that's upstream of our cell suppliers. So a lot of the deals that we had struck for 4680, we can also supply those materials to our partners, help reducing the overall cost back to Tesla. So we're basically inserting ourselves in the upstream supply chain by doing that. So that's also been beneficial in reducing the overall pricing in addition to the excess capacity that these suppliers have.

Vaibhav Taneja:

Comical name.

Vaibhav Taneja:

Independent retirement account.

Vaibhav Taneja:

Which is why it's important that we have both internet [ph] cells and vendor cells that hedge against all of this.

Elon Musk:

Yes. Well, I mean the reason I reached out to you was because I thought your analysis of Tesla was the best that I had seen.

Elon Musk:

So, thank you for helping Tesla to get to where it is today over seven years. It's been a pleasure working with you.

Vaibhav Taneja:

Thanks.

Elon Musk:

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.

Vaibhav Taneja:

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.

Elon Musk:

I mean, I would certainly say things with they should be taken with a grain of salt, since I am often optimistic. I don't want to blow your minds, but I'm often optimistic regarding time. But our current schedule shows that we will start production towards the end of 2025. So sometime in the second half. That's just what our current schedule says. But there's a lot of new technology like a tremendous amount of new revolutionary manufacturing technology here. The reason I wanted to put this new revolutionary manufacturing line at Giga Texas was because we really need the engineers to be living on the line. This is not sort of off the shelf, just works type of thing. And it's just a lot easier for Tesla engineering to live online if it's in Austin versus elsewhere. So -- but we are currently expecting to start production second half next year. That will be a challenging production ramp. Like, as I can emphasize we'll be sleeping on the line practically. In fact, not practically. We will be. But I am confident that once it is going, it will be head and shoulders above any other manufacturing technology that exists anywhere in the world. It's next level. So it's always difficult to predict what that S-curve of manufacturing looks like. So it always starts off real slow, and then it grows exponentially. So -- and predicting that intermediate S-curve is difficult, so I don't know. It's hard to say what the unit volume would be next year. We're not going to make any predictions on that front, but it does seem quite likely that we will start production next year.

Elon Musk:

Karn?

Elon Musk:

It's a hard problem.

Elon Musk:

There are entire companies where all they do is make battery cells. That's, like, all they do.

Elon Musk:

We do a lot of other things, and we got a lot of breakthrough technologies that take time to figure out with 46. It's not just that it's a 46 millimeter diameter by 80 millimeter [Indiscernible] cell. That's just the dimensions. There's tremendous amount of new technology in the cell itself.

Elon Musk:

Yes, exactly.

Elon Musk:

But we also do want to emphasize that we also expect to ramp orders from our suppliers.

Elon Musk:

So this is not about replacing our suppliers, it's about supplementing our suppliers.

Elon Musk:

So we are very appreciative of our suppliers. Panasonic, obviously, is our longest supplier. They're an amazing company. We've got CATL, we've got LG and BYD.

Elon Musk:

Yeah, I guess. Let me explain what my concern is here, which is that I see a path to creating an artificial intelligence and robotics juggernaut of truly immense capability and power. And my concern would be, I don't want to control it. But if I have so little influence over the company at that stage that I could sort of be voted out by some sort of random shareholder advisory firm. We've had a lot of challenges with institutional shareholder services, ISS, I call them ISIS, and Glass Lewis, which -- and there's a lot of activists that basically infiltrate those organizations and have strange ideas about what should be done. So I want to have enough to be influential. Like, if we could do a dual-class stock, that would be ideal. I'm not looking for additional economics. I just want to be an effective steward of very powerful technology. And the reason I just sort of roughly picked approximately 25% was that's not so much that I can control the company, even if I go bonkers and if I'm, like, mad, they can throw me out. But it's enough that I have a strong influence. That's what I'm aiming for, is a strong influence, but not control. If there's some way to achieve that that would be great.

Vaibhav Taneja:

Like, I said in my opening remarks, we're focused on reducing the cost of our vehicles. This is very extensive and involved exercise whereby we look at not just the component cost, but down to the packaging used to get the materials to the production flow. Each element of the cost is scrutinized to optimize further. A few pennies saved at the subcomponent level, whether through engineering redesign or from many other things which I mentioned leads to cost reduction. This is a constant exercise and we just have to chase down every penny possible. We have a strong team which is hyper-focused on this. However, this is a very difficult thing to predict precisely because there are lots of...

Martin Viecha:

Okay. Thank you. The next question is, does the company anticipate a 50% volume CAGR to be realized in either of 2024 or 2025? If not, why not?

Martin Viecha:

All right. Thank you very much. The next question is from Michael. When will Tesla start construction on the Giga Nevada expansion and Giga Mexico, and when can we expect each of these to produce their first products such as 4680 cell, Semi, and next-gen vehicles?

Elon Musk:

Yeah, exactly. It's important to emphasize that I mean, Model 3 production was three years of hell, I've said it before, some of the really worst years of my life, frankly. I still have mental scar tissue from those three years, as do many. And then Model Y was somewhat of a variant on Model 3. So a much easier situation. And then we were able to actually do an improved -- slightly improved versions of, in some cases, significantly improved versions of the Model Y production line in Shanghai and Berlin. And that's the right, I think the sensible way to go about things is kind of figure out the core technology of the manufacturing line and then replicate it with improvements throughout the world.

Elon Musk:

I really think lots of car companies should be asking for FSD licenses. And we've had some tentative conversations, but I think they don't believe it's real quite yet. I think that will become obvious probably this year. And I do want to emphasize that if I were CEO of another car company, I would definitely be calling Tesla and asking to license Tesla full self-driving technology. It's definitely the smart move.

Elon Musk:

Optimus, obviously, is a very new product, an extremely revolutionary product, and something that I think has the potential to potential to far exceed the value of everything else that Tesla combined. When you think of an economy, economy is productivity per capita times capita. But what if there's no limit to capita? There's no limit to the economy. And the technologies that we've -- AI technologies that we've developed for the car translate quite well to a humanoid robot because the car is just a robot on four wheels. Tesla is arguably already the biggest robot maker in the world. It's just a four-wheeled robot. So Optimus is a humanoid robot with arms and legs. It's by far the most sophisticated humanoid robot that's being developed anywhere in the world. I think we've got a good chance of shipping some number of Optimus units next year. But like I said, this is a brand new product. A lot of uncertainty -- when you have -- when there's a lot of uncertainty in your uncharted territory, it's obviously impossible to make a precise prediction. But we will be updating the public with progress on Optimus every few months, and you can see that it's advancing very quickly. I was just in the Optimus lab, actually, until late last night, like red night or something, finally left the Optimus lab. The team's doing amazing work. That's obviously a case where we want to make sure that Optimus is safe, especially at scale, and that there's no -- it should be impossible for any centralized control to upload malware to a humanoid robot. So we're going to want to pull then localized shut off that cannot be updated from a central server. That's the case where we really have to give extreme thought to safety. But like I said, I do think it has the potential to be the most valuable product of any kind ever, by far.

Elon Musk:

We can already do some useful things.

Elon Musk:

Yeah. A smart robot that can do -- that's capable of doing generalized tasks is what it will be in terms of doing moderately specialized tasks. Well, it can already do that. It'll just get better through the course of the year. As we improve the technology in the car, we improve the technology in Optimus at the same time. It runs the same AI inference computer that's on the car. Same training technology. I mean, we're really building the future. I mean, the Optimus lab looks like the set of Westworld. Admittedly, that was not a super utopian situation.

Elon Musk:

Yeah. The creators of Westworld, Jonathan Nolan, Lisa Joy Nolan, friends, old friends of mine, actually. And I invited them to come see the lab. I think they'll come see it, hopefully soon. It's pretty wild, especially the sort of subsystem test stands where you've just got like one leg on a test stand, just doing repetitive exercises and one arm on a test stand. Pretty wild. Yeah.

Elon Musk:

Right. You take safety very, very seriously.

Karn Budhiraj:

First of all, I want to thank all the Cybertruck reservation holders for their patience. The reservation to order conversion rates so far has been very, very encouraging. If the trend continues as it very likely to be, we will soon sold out all the builds in 2024. And also, we have new orders come in after the launch. The auto numbers keep growing. So we're now all hands on deck, focused on ramping so we can fulfill all the demands in a reduced wait time.

Vaibhav Taneja:

Definitely is. Anywhere you go, people look at you, they give you thumbs up.

Martin Viecha:

All right. Thank you. The next question is, can we get Tesla Energy volumes reported in the production and delivery release?

Martin Viecha:

Thank you. And the last investor question is from Siddharth, what are the preliminary results and return on investment of your ads and education campaign? Given that many people still lack awareness that Tesla average price is less than the average non-luxury car price of $45,000, will you expand educational ads?

Vaibhav Taneja:

But I would also like to caution that we'll be very careful that we don't want to overspend on this side. We want to make sure people are aware. But that's where we'll keep tweaking our methodology about how and where we spend the money. Because we understand the importance of increasing awareness, but at the same token, we don't want to spend a lot of money on just creating awareness.

Martin Viecha:

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?

Vaibhav Taneja:

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.

Unidentified Company Representative:

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.

Lars Moravy:

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.

Karn Budhiraj:

And we get to ride that down, right?

Karn Budhiraj:

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.

Lars Moravy:

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.

Pierre Ferragu:

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?

Vaibhav Taneja:

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.

Vaibhav Taneja:

Exactly

Elon Musk:

Yeah.

Elon Musk:

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.

Elon Musk:

So like Toyota RAV4.

Elon Musk:

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.

Adam Jonas:

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?

Adam Jonas:

They do.

Karn Budhiraj:

Same thing with Battery Day.

Adam Jonas:

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.

Martin Viecha:

Thank you. And the next question comes from Dan Levy from Barclays.

Lars Moravy:

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.

Lars Moravy:

On that if everyone wants to do that.

Lars Moravy:

Random number of 48 volts.

Lars Moravy:

Slightly less random based on human injury, but...

Lars Moravy:

Pretty slow.

Lars Moravy:

The 21st century.

Lars Moravy:

So, certainly like...

Lars Moravy:

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.

Lars Moravy:

Yeah.

Elon Musk:

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.

Elon Musk:

It does make it very hard to copy us because you have to copy the machine that makes the machine that makes the machine.

Elon Musk:

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.

Elon Musk:

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.

Colin Langan:

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?

Andrew Baglino:

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...

Andrew Baglino:

There's more to come on commodities reductions.

Andrew Baglino:

That's what I mean.

Andrew Baglino:

Yeah and battery material.

Andrew Baglino:

What?

Martin Viecha:

Thank you, Colin. Do you have a follow-up question?

Vaibhav Taneja:

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.

Elon Musk:

Thank you.

Martin Viecha:

Thank you very much, Elon. And our CFO, Vaibhav, has some opening remarks as well.

A - Martin Viecha:

Thank you very much. And now let’s go to investor questions. The first investor question comes from Craig. How many Cybertruck deliveries do you anticipate for 2024?

Martin Viecha:

Thank you. The second question is, can you provide a progress update on the 4680 cell, particularly progress towards performance improvements and cost savings outlined on Battery Day? Thank you.

A – Martin Viecha:

Thank you. The next question from institutional investors. Could you please provide an update on capacity expansion plans for company’s factories in Berlin and Austin, and the opening schedule of Gigafactory Mexico?

Elon Musk:

In Mexico we’re laying the groundwork to begin construction and doing all the long lead items. But I think we want to just get a sense for what the global economy is like before we go full tilt on the Mexico factory. I’m worried about the high interest rate environment that we’re in. I just can’t emphasize this enough that the vast majority of people buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally. So, if interest rates remain high or if they go even higher, it’s that much harder for people to buy the car, they simply cannot afford it. And we are tracking, I believe at this point for Model Y to be the best selling car on earth, but not just in revenue, but in unit volume. If you compare that to the other vehicles that are number two and number three and whatnot, they cost much less than our car. So, we’re just hitting law of large numbers situations here. I know people want to us advertising, we are advertising. I think there’s something to be gained on the advertising front. I don’t think it’s nothing. But informing people of a car that is great, but they cannot afford doesn’t really help. So that is really the thing that must be solved is to make the car affordable or the average person cannot buy it for any amount of money or they can’t afford it. So, this is big deal.

Vaibhav Taneja:

When we look at 2024, there are a lot of moving pieces. I just talked about what is happening in the macroeconomic environment. So, we’re focused on growing our volumes in a very cost efficient manner and are carefully reviewing all our options, and we’ll be able to provide a much more meaningful update at our next earnings call.

Martin Viecha:

Thank you. Next question is do you have an approximate timeline in mind for the robotaxi driven or non-driven? What excites you most about how this project is progressing?

Martin Viecha:

Thank you. The next question is, why was the price dropped on FSD if it is getting better and robotaxi is expected so soon?

Martin Viecha:

The next question is again on FSD. Mercedes is accepting legal liability for when its Level 3 autonomous driving system drive pilot is active. Is Tesla planning to accept legal liability for FSD? And if so, when?

Unidentified Company Representative:

I mean I think it’s important to remember for everyone that Mercedes’ system is limited to roads in Nevada and some certain cities in California, doesn’t work in the snow or the fog. It must have a lead car in plains, only 40 miles per hour. Our system is meant to be holistic and drive in any conditions, so we obviously have a much more capable approach. But with those kind of limitations, it’s really not very useful.

Martin Viecha:

Thank you. The next question on Optimus. Will Optimus be working on Gigafactory lines next year? If so, how many would you guess will be deployed?

Martin Viecha:

Sounds good. And the last question from investors is Neural net path planning represents a significant advance in capability and safety for FSD. What steps is Tesla taking to make this technology available outside the U.S.?

Martin Viecha:

Thank you. Let’s now go to analyst questions. The first question comes from Will Stein from Truist.

Elon Musk:

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.

Unidentified Company Representative:

I mean, there’s like unique complexity to Cybertruck.

Unidentified Company Representative:

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.

Elon Musk:

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.

Elon Musk:

Yes. So I mean, the Cybertruck has a lot of bells and whistles.

Pierre Ferragu:

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.

Martin Viecha:

Pierre, do you have a follow-up?

Vaibhav Taneja:

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…

Vaibhav Taneja:

Yes.

Rod Lache:

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?

Unidentified Company Representative:

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.

Elon Musk:

Not at this time.

Elon Musk:

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.

Elon Musk:

Not an EV adapter. Just who wants a great car.

Elon Musk:

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.

Elon Musk:

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.

Elon Musk:

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.

George Gianarikas:

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?

Unidentified Company Representative:

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.

Vaibhav Taneja:

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.

Unidentified Company Representative:

We play it.

Unidentified Company Representative:

That’s a penny.

Unidentified Company Representative:

More than a penny.

Unidentified Company Representative:

Very much escaping prison.

Elon Musk:

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.

Colin Langan:

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?

Unidentified Company Representative:

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.

Unidentified Company Representative:

There’s also…

Martin Viecha:

All right.

Vaibhav Taneja:

Especially if there are wars going on and then that impacts your sentiment.

Martin Viecha:

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.

Elon Musk:

Thank you, Martin. So, just a Q2 recap. In Q2 we achieved record vehicle production and deliveries, and record revenue of about $25 billion in a single quarter. And Model Y became the bestselling vehicle of any kind globally in Q1, surpassing the likes of Corolla and Golf. So, it was the number one vehicle of any kind, including vehicles that are sold at a far lower price. This is, I think, an incredible achievement by the Tesla team, and just a huge thank you to our customers for their support. And this came in spite of high interest rates and a lot of macro uncertainty. And nonetheless, we managed to achieve operating margin of about 10%. We continue to target 1.8 million vehicle deliveries this year. Although, we expect that Q3 production will be a little bit down because we’ve got summer shutdowns to -- for a lot of factory upgrades. So, just probably a slight decrease in production in Q3 for sort of global factory upgrades. In the long-term, autonomy we think is going to just drive volume through the ceiling next level. And our sort of future robotaxi products -- dedicated robotaxi products we think have like quasi-infinite demand. The way we’re going to manufacture robotaxi is, is also itself a revolution. So, it’s revolutionary design made in a revolutionary way. It’ll be by far the highest units per hour of any vehicle production ever. So, very excited about that. With respect to Autopilot and Dojo, in order to build autonomy, we also need to train our neural net with data from millions of vehicles. The more -- I mean, this has been proven over and over again. The more training data you have, the better the results. And, I mean, there are times where we see basically -- in a neural net, basically it’s sort of at 1 million training examples, it barely works; at 2 million, it slightly works; at 3 million, it’s like wow, okay, we’re seeing something, but then you get like 10 million training examples, it’s like -- it becomes incredible. So, there’s just no substitute for a massive amount of data. And obviously, Tesla has more vehicles on the road that are collecting this data than all of the companies combined by, I think, maybe even an order of magnitude. So, I think we might have 90% of all -- or a very big number. So, the success in AI endeavors is a function of talent, sort of unique data and computing resources. And we have outstanding capabilities in all three arenas. And I really just don’t know how anyone could do what we’re doing, even if they had our software and had our computer, if they did not have the training data. So, speaking of which, our Dojo training computer is designed to significantly reduce the cost of neural net training. It is designed to -- it’s somewhat optimized for the kind of training that we need, which is a video training. So, we just see that the need for neural net training -- again, talking -- speaking of quasi-infinite things, is just enormous. So, I think having -- we expect to use both, NVIDIA and Dojo, to be clear. But there’s -- we just see demand for really vast training resources. And we think we may reach in-house neural net training capability of a 100 exaflops by the end of next year. So, to date, over 300 million miles have been driven using FSD beta. That 300 million mile number is going to seem small very quickly. It’ll soon be billions of miles, then tens of billions of miles. And FSD will go from being as good as a human to then being vastly better than a human. We see a clear path to full self-driving being 10 times safer than the average human driver, so. And between Autopilot, Dojo computer, our inference hardware in the car, which we call sort of Hardware 3, 4, but it’s really dedicated. It’s a high efficiency inference computer that’s in the car and our Optimus robot, Tesla’s clearly at the cutting edge of AI development. With regard to our Cybertruck, we continue to build our release candidates of the Cybertruck on our final production line in Austin. I’m actually here in Austin at the Gigafactory. This is the first truck that we’re aware of that will have four doors over a six foot bed and will fit into a 20-foot garage. So, it’s sort of biggest on the outside, but it’s even bigger on the inside. So it’s -- I think that’s a -- one of the elements of good design is it should feel bigger on the inside than it looks on the outside. And this is no small car, but we really cared about the exterior dimensions of the Cybertruck down to the last millimeter. So just -- we try to get right in the middle of the Goldilocks zone, not too big, not too small and then really maximize the utility of the volume. And we can’t wait to start delivering it later this year. Some other highlights. Our global Supercharging network now stands at over 50,000 -- roughly 50,000 connectors and over 5,000 locations. As I think a lot of people are aware, the Tesla Charging Standard, which we made open source and it’s now called the North American Charging Standard. We’re deeply honored that Ford, GM, Mercedes and many other OEMs have signed up to use our connector and gain access to our charging network. We strongly believe in helping other car companies to accelerate the EV revolution and just trying to do the right thing in general. So, that’s the goal there. Then something I think, I want emphasize, like very strongly, this is a very important point is that Tesla -- just as with the North American Charging Standard, although we’re not license -- in that case not licensing, we’re just making it available, but we are very open to licensing our full self-driving software and hardware to other car companies. And we are already in discussions with -- early discussions with major OEM about using Tesla FSD. So, we’re not trying to keep this to ourselves. We’re more than happy to license it to others. And lastly, our new lithium refinery and cathode facility are progressing well. In conclusion, we continue to focus on making as many cars as we can, while maintaining healthy financials. Our artificial intelligence development is obviously entering a new era and we’re incredibly excited about what’s to come. Our other businesses such as Megapack, Supercharging service and whatnot, all started to become a meaningful contributor to overall profitability this quarter. And then lastly, I’d just like to profusely 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 you’re making.

Zachary Kirkhorn:

Yes. Thanks Martin. As Elon mentioned, Q2 was another record quarter of production and deliveries, as well as records in profit for our energy and services and other businesses. Congratulations again to the Tesla team on the continued progress. As we navigate through a period of economic uncertainty, rising interest rates, volatility in consumer confidence and regulatory change, I want to comment on our financial approach. First, the single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the long-term value of the business. This includes increasing spending on AI related technologies such as full self-driving, Optimus and Dojo, as well as new products such as Cybertruck, our next generation platform and the Semi, as evidenced by the continued growth in our R&D spend. This also includes continuing our investments in capacity expansion, not only in our vehicle factories, but also our Supercharging network, service, internal applications, and battery processes, as we continue with meaningful capital expenditures to lay this foundation for the future. Second, we continue to work towards our goals of maximizing volumes on both, our vehicle and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments. This requires a strong focus on per unit COGS reductions in each of our key businesses, as well as working capital improvements on raw materials, work in process inventory and customer AR, all of which progressed appropriately in Q2. If we look specifically at our automotive business, our gross margin showed a modest reduction and remained healthy, despite action taken to further improve vehicle affordability early in the quarter. We recognized – we realized per unit cost improvements in nearly every category, including material cost and commodities, manufacturing costs and logistics, while also continuing to rapidly increase the build rate in our Austin and Berlin factories. For our energy business, we improved margins and gross profit driven by cost reductions and deal economics, particularly with Megapack. As a reminder, storage volumes are typically volatile sequentially based on the types of projects and their specific revenue recognition milestones. As we look forward to the rest of the year, I want to reiterate Elon’s comments on Q3 volumes driven by planned downtimes for factory upgrades. These upgrades will also carry some amount of factory idle cost. However, we are working to minimize as much as possible. It’s also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term. Regardless, we continue to remain dynamic with a focus on fundamental efficiency and a long-term outlook. Congratulations again to everybody on a great quarter.

Unidentified Company Representative:

Yes. First, I’ll just start with a little bit of a production update. So, in Texas, 4680 cell production increased 80% Q2 over Q1, and the team surpassed 10 million production cells produced here in Texas. So, congrats to the team for that. Their focus on yield reduced our scrap bill by 40% quarter-over-quarter, and that resulted in a 25% reduction in cell COGS. Here in Texas, we’re preparing to launch our Cybertruck cell, which is 10% higher energy density than current production. That was accomplished through process and mechanical design optimization. As we scale Cyber cell production through the end of the year and early next, we should be in a comfortable place on cost per cell. Against our battery energy density targets, the Cyber cell is at our expectations on a like-for-like electrochemistry basis. We’re yet to integrate silicon or in-house cathode production, both reviewed on Battery Day, which do bring significant further energy density and cost improvements, but that is a topic for another day. Lastly, it is important to remember that most of what we focused on a Battery Day was the Tesla-engineered 4680 production system and the improvements we strove to achieve on equipment, factory density, capital cost and utility cost reduction, all of which we are realizing in our Texas scale up to date.

Unidentified Company Representative:

We can’t comment on future product road map, but I can provide a quick energy Q2 update. Megapack continues to show strong demand globally with Lathrop ramping successfully to meet our contracted projects in 2023. As stated last quarter, Megapack margins are in a reasonable place, in line with our target – vehicle target margins. The second final assembly line at Lathrop is progressing on schedule, eventually doubling Lathrop capacity ahead of our full factory ramp in 2024. We have several exciting large projects in construction or nearing completion, including the KES project in Hawaii, the Riverina project in Australia, several products in California and one here at Gigafactory, Texas that we’ll tour today, actually. We want to thank our customers, utilities and grid operators for trusting us with these projects. On the Autobidder question, we continue to grow Autobidder contracts in wholesale markets like Australia, Texas, UK and California with over 6 gigawatt hours under Tesla’s dispatch next year. In the UK, our projects performed best in the industry in Q2. Autobidder does have software margins and is an enabler for hardware sales, but it’s a relatively small contributor to revenues, given how much deployment growth on the Megapack hardware side is occurring. It’s important to remember that these large projects – these large capital projects have lifetimes of 20 years of recurring revenues on an annualized basis relative to upfront CapEx are small. On the residential side, we have some fun things happening. We recently surpassed 0.5 million Powerwalls installed. Just this week, we are launching Charge on Solar, which allows Tesla Powerwall and vehicle customers to charge their vehicles using their excess solar and drive only on the sunshine that hits their roof. Yesterday, we began paying customers in Texas for participating in our virtual power plant to provide grid support to ERCOT. We expect these credits to lower our median customer’s annual bill by a third and to increase these credits over time as ERCOT expands market access. And today, we are expanding Tesla electric enrollment to new Model 3 owners in Texas, followed by all Texas vehicle customers over the rest of the quarter. Unfortunately and somewhat similar to Tesla Insurance, bringing Tesla electric and BPP capabilities to our customers requires working through a fractured regulatory environment on a jurisdiction-by-jurisdiction basis. In the long run, the value of residential energy software and hardware will be driven by the level of market access that utilities, market operators and regulators permit. For Powerwall that’s eligible to provide the full stack of energy services, like peaker capacity and system buffering, such as in Australia, we can more than double the value of ownership relative to a typical system today.

Zachary Kirkhorn:

All right. I can take that. On the first part of the question for IRA manufacturing incentives, we provided previous guidance that we expect these to be for the course of this year in the range of $150 million to $250 million per quarter. We are staying within that boundary as we guided previously, so that was the case in Q2 as well. I will note, and I think we’ve mentioned this before, that this includes a 50-50 sharing of credits for qualified cells from our long-term battery partner, Panasonic. On the commodity side, we are continuing to see improvements there, as we’ve discussed previously. Lithium is the most notable improvement so far. I think I commented on this on the last call, because typically, we see this coming about a quarter before it actually is realized in our financials. And also just as a reminder, we’re not fully exposed to the price of lithium. Our supply chain team has done a terrific job in partnership with another – a bunch of other companies to put in place some long-term agreements here, but we do have some exposure that moves up and down. We’re also seeing benefits in aluminum and steel, which I think is great. Not as large as the lithium impacts, but they contribute nonetheless. So, if we add up the total impact of this in Q2 relative to prior quarter, it’s about the same size and magnitude as the IRA benefits that we also received. Just to put this in context, as you look at COGS per unit sequentially from Q1 to Q2, I think there’s two things to keep in mind there. The first is that our SX mix for deliveries increased quite a bit from Q1 to Q2. So, as you think about fundamental cost reductions, it’s important to adjust for that. And then secondly, as we continue to work on reducing our Austin and Berlin cost, which we did quite a bit of that from Q1 to Q2, these factories are still slightly above Model Y production costs elsewhere. And in the quarter, our mix of Austin and Berlin related builds increased. And so, that’s something to consider as you model out the impact on – from Q1 to Q2 in terms of COGS per unit. I do want to ask Karn if there’s anything else on the commodity side or just more generally, you want to add here?

Martin Viecha:

Thank you. The next question on FSD. Have you considered allowing FSD transferability as a lever to allow existing customers to upgrade to a new Tesla instead of being locked into an existing car due to the price of FSD?

Martin Viecha:

Right. The next question, when will we give more information about the Cybertruck orders, estimated delivery schedules, pricing and specifications?

Martin Viecha:

Thank you. The next question is critics of Gigacasting contended that process makes vehicles harder and more costly to repair, essentially pushing costs on to the customer. Can you share some details about the initial repair experience with Gigacast vehicles?

Lars Moravy:

Thanks, Elon. This is Lars. I mean, that’s like simply not true. There’s a misconception that traditional bodies are easy to repair, but they are made up of multiple materials and multiple joining methods. Spot welds and rivets have to be drilled out. Panels and structural adhesives have to be chiseled out. Dried adhesive has to be removed, stains, cut, blah, blah, blah.

Lars Moravy:

Yes. And so putting that back together means time and money. Using an example of replacing a rear cast rail in the Model Y, to do that versus like what we replaced it with from Model 3, it’s 10 times cheaper and 3 times faster to do it with the cast rail. Design team works with our collision repair team since we’re a closed loop on this with insurance, and we design specific parts that make it easier and faster to repair. And we have an incentive to do that because we have our own insurance and our own body shops. We expect that we’ll continue to do this, and collision repair will continue to become cheaper and faster over time. And we already make this available to all body shops or our Tesla-approved body shop training.

Lars Moravy:

Crucial. I don’t think anyone else can do it with that ecosystem that we have, so.

Lars Moravy:

Probably.

Martin Viecha:

Thank you. Next question, how many Optimus bots have been made? And when will they be able to start performing useful tasks?

Unidentified Company Representative:

Certainly not compelling.

Martin Viecha:

Thank you. The next question is, how has the order intake trended relatively to production levels during Q2? And how has it trended in the quarter-to-date period? Conceptually, how does Tesla decide when is it appropriate to reduce prices or at other sales incentives to increase demand?

Unidentified Company Representative:

DM us.

Martin Viecha:

Thank you. Let’s go to the next question. With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts? And if so, when?

Zachary Kirkhorn:

I fully agree with you. I mean, I think the only thing in the short term that matters is what I said in my opening remarks, which is are we generating enough money to continue to invest. And the portfolio of products and technologies that the technical teams are investing in right now, this is intense. It’s intense in terms of investment; it’s intense in terms of potential.

Unidentified Company Representative:

And vertical integration. It’s not even just like new products, but also...

Zachary Kirkhorn:

And so, at least from my perspective, what matters is continuing to generate the cash to invest. That means continuing to be hyper focused on near-term cost reduction. Is everything we do in near-term cost reduction provides capital to reinvest? Hyper-focused on working capital management, which we’ve made quite a bit of progress there on the raw materials and with -- a set of that we’ve been very focused on accounts receivables as well to ensure that we can continue to reinvest the cash. This is what we’re focused on. And so, there’s a set of this that we control. We have a pipeline of cost reductions. We are getting tailwinds in the commodity space right now, as Karn mentioned, that’s helpful. Variability around average selling prices goes back to Elon’s point. We don’t control interest rates. We don’t control macro consumer sentiment. But we have an obligation to be responsive to that to ensure that we’re matching supply and demand and keeping things balanced. And so, this is how we’re managing the next handful of quarters. Soon enough, these quarters will be behind us. They won’t be part of the present value of future cash flows of the business. And so, we want to make sure we keep that view and make sure that the long term business is exactly the way that we want it to be.

Dan Levy:

I wanted to start first with a question about your efforts in AI and Dojo. It’s pretty clear it sounds like you’re accelerating your focus. Can you maybe provide us with a sense of what the process is of refining a product? Is it more machines? And maybe you could give us a sense of when the payout starts to -- when you start to see the payout and what the resource outlay is, what should we expect on the OpEx front as a result of this?

Dan Levy:

Yes.

Dan Levy:

Yes.

Zachary Kirkhorn:

Just to add to what Elon mentioned. So, the numbers that he mentioned are between R&D spend and capital spend. And this is moving quickly. And so, we provide a three-year outlook on our capital expense. We are considering these expenses in that outlook. And as that moves up and down, we’ll continue to update our guidance in the Q.

Zachary Kirkhorn:

And it’s just difficult to predict how quickly we can execute on it.

Elon Musk:

It’s not about getting more share. It’s just that you can think of every car that we sell or produce that has full autonomy capability as actually something that in the future may be worth as much as 5 times what it is today. Because average -- vehicle is doing like maybe 10 hours of driving a week. If sort of -- if this says 1.5 hours a day on average, that’s 10 hours a week-ish. If you’ve got on autonomous -- if the vehicle is able to operate autonomously and use either dedicated autonomous or partially autonomous like Airbnb, like maybe sometimes you allow your car to be used by others. Sometimes you want to use it exclusively just like Airbnb -- doing Airbnb with a room in your house. The value is just tremendous. So, I think it’s sort of, it would be -- I think it -- it does make sense to sacrifice margins in favor of making more vehicles because we think in the not too distant future, they will have a dramatic valuation increase. I think the Tesla fleet value increase at the point which we can upload full self-driving and is approved by regulators will be the single biggest step change in asset value maybe in history.

Emmanuel Rosner:

Two questions from me as well. First, following up on the autonomy. So before you start launching these dedicated robotaxi vehicles, on existing vehicles, you’re improving FSD incrementally. What is your latest targeted timing to essentially release a non-beta version or an eyes-off version that would trigger much higher take rates? And would Tesla benefit from lowering the price of FSD?

Martin Viecha:

And the next question comes from William Stein from Truist.

Elon Musk:

Yes. I think it’ll actually enhance the value of Tesla. There were just some of the world’s best AI engineers and scientists that were willing to join a startup, but they were not willing to join a large sort of relatively established company like Tesla. So, it was like -- that’s actually how it got started. I was interviewing a few people and they’re like, no, we want to do a startup. I was like, and that’s well -- I couldn’t convince them to join Tesla. So -- so it’s like, okay, well, better to start up that I run than go work somewhere else. That’s kind of the genesis of xAI. And xAI is focused on sort of AGI. Yes. So it’s -- like I said, I think there will be some value that xAI brings to Tesla. Also some of the best -- for the very best people in the world, they really just want to work on interesting problem. So if you take, say, a material science group, really what convinced Charlie Colman to leave Apple, where he was very happy and well compensated, and both at -- in both -- where we think is the best material science group in the world, was that he got to work at both Tesla and SpaceX. He wasn’t willing to leave Apple if it was just Tesla, but he’s willing to do it if it is Tesla and SpaceX. So sometimes you get the best talent in the world if that’s the kind of thing you need to do. And that actually has been very beneficial to Tesla.

Elon Musk:

Sure. We have sort of -- we started the referral program, which I think will be quite effective. As Zach was saying earlier, we don’t control the macroeconomic conditions. So, if interest rates continue to rise, that reduces the affordability of cars. And for a lot of people, they’re really -- they’re just really breaking even every month. In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month. Credit card debt is looking scary. So, we just don’t control the market conditions. If market condition is stable, I think prices will be stable. If they’re not stable, then we would have lower prices. Yes.

Colin Rusch:

As you’re building out Dojo and implementing what truly is going to be a highly complex set of software, can you speak to the maturity of the operating system and how much outsourced software you’re expecting to use in that system?

Colin Rusch:

Okay. Thanks so much. That’s super helpful. And then can you speak to how you’re managing some of the geopolitical risks relative to your capacity expansion? Obviously, as you guys continue to grow at this rate, you’re going to be putting some folks out of business. And there’s going to be some impacts around regional economy. So, I just want to understand how you’re thinking about that in terms of some of your CapEx plans and how you’re managing some of those relationships with different countries and regions.

Martin Viecha:

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

Zachary Kirkhorn:

This is -- I think I was asked this in the past. This is very difficult to forecast. There’s a series of costs that we manage, the series of costs which we don’t control. And so particularly on the commodity side, where labor costs go, et cetera, it’s just hard to say.

Karn Budhiraj:

Definitely. There’s that. And then there’s also the unit economics improve as volumes grow. That’s the other thing we’re seeing. As we’re becoming a bigger and better part of a lot of suppliers, the economies of scale come into play. There’s equipment depreciation that comes into play, equipment that was commissioned 5 to 7 years ago. That used to be a part of the piece price. That’s completely amortized. So, we’ll see situation where piece price comes down because that equipment contribution has gone away. And then just we continue to have this mentality of continuous improvement in terms of labor, reducing labor, improving automation, and just continue to get better at what we do. So we have seen -- I think every quarter, we have seen an improvement. Of course, the commodities spiked up and down. Just in general, the trend is towards being more efficient.

Elon Musk:

Yes, lithium prices were absolutely insane there for a while.

Karn Budhiraj:

Cobalt -- the way it used to be.

Elon Musk:

And quality costs…

Unidentified Company Representative:

Packaging is a big element to that.

Zachary Kirkhorn:

Logistics is normalizing, which is great.

Zachary Kirkhorn:

Yes, and it’s hard...

Unidentified Company Representative:

Yes. And we’ve made tremendous improvements in cost in all fronts on expired costs. We have done pre-pandemic expired cost levels now, and our goal is to go further down.

Elon Musk:

Yes, it’s a game of pennies. It’s a Game of Thrones with pennies.

Mark Delaney:

Yes. Thank you very much for all the details on that. Maybe you could put a finer point on the downtime impact that you spoke about in your prepared comments in terms of production impact and then also to what extent there’s a margin impact from those factory upgrades that you’re planning this quarter?

Elon Musk:

I think we’re getting too much into the weeds here. I mean, like we’re asking for a level of precision that is not possible to answer. So, let’s move on.

Elon Musk:

Thank you.

Elon Musk:

Thank you, Martin. So just a Q1 recap. Model Y became the best-selling vehicle of any kind in Europe and the best-selling non-pickup vehicle in the United States. And this is in spite of a lot of challenges in production and delivery. So it's a huge credit to the Tesla team for achieving these great results. The -- it is worth pointing out that the current macro environment remains uncertain. I don't think I'm telling anyone anything, I think people already know, especially with large purchases such as cars. And while we reduced prices considerably in early Q1, it's worth noting that our operating margin remains among the best in the industry. We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin. However, we expect our vehicles, over time, will be able to generate significant profit through autonomy. So we do believe we're like laying the groundwork here, and then it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy. This is an extremely important point. Let's see. Regarding the Cybertruck, we continue to build Alpha versions of the Cybertruck on our pilot line for testing purposes. It's a great product, and we're completing the installation of the volume production line at Giga Texas, and we're anticipating having delivery event, a great delivery event probably in Q3. As with all new products, it will follow an S curve, so production starts out slow and then accelerates. So the Cybertruck is no different. So it's -- there's [Indiscernible] amount of demand for the product, obviously. And it is my view, a fantastic product, a hall of famer. But as with all new products, it takes time to get the manufacturing line going. And this is really a very radical product. It's not made in the way that other cars are made. So with regard to Megapack, we're making great progress. Our energy storage deployment reached nearly 4 gigawatt hours in Q1. This is, by far, the strongest quarter ever. And this growth was achieved thanks to the ongoing ramp at our Mega factory in Lathrop, California. There's still some way to go to reach the [Indiscernible] rate of 40 gigawatt hours per year. And then we additionally announced the start of a new Mega factory in Shanghai. So we're -- as we've expected, the stationary storage growth actually will significantly exceed the vehicle growth. Regarding Autopilot and Full Self-Driving, we've now crossed over 150 million miles driven by Full Self-Driving beta, and this number is growing exponentially. We're -- I mean, this is a data advantage that really no one else has. Those who understand AI will understand the importance of data -- of training data and how fundamental that is to achieving an incredible outcome. So, yes, so we're also very focused on improving our neural net training capabilities as is one of the main limiting factors of achieving full autonomy. So, we're continuing to simultaneously make significant purchases of NVIDIA GPUs and also putting a lot of effort into Dojo, which we believe has the potential for an order of magnitude improvement in the cost of training. And it also -- Dojo also has the potential to become a sellable service that we would offer to other companies in the same way that Amazon Web Services offers web services, even though it started out as a bookstore. So, I really think that, yes, the Dojo potential is very significant. In conclusion, we're taking a view that we want to keep making and selling as many cars as we can. Despite this being an uncertain macro environment, this is a good time to increase our lead further, and we'll continue to invest in growth as fast as possible. Once again, I'd like to give a huge thanks to all Tesla employees worldwide who are doing an incredible job again. And yes, super appreciated.

Zachary Kirkhorn:

Thanks Martin. I want to start by congratulating the Tesla team for record vehicle production and deliveries. And I also want to congratulate our energy storage team for record volumes as well. There's three main points I want to make. First, automotive gross margin and operating margin reduced sequentially. But as Elon mentioned, these remain at healthy levels. In particular, automotive gross margin was impacted by a few factors since our discussion on the last earnings call, which include additional action taken in the second half of the quarter to improve vehicle pricing and one-time items, most notably warranty adjustments on older S and X vehicles as well as increased deferred revenue for certain Autopilot features as we transition technologies. Progress on vehicle cost reduction continued in Q1 with meaningful improvements on logistics and the beginnings of some commodity cost reductions starting to be realized. Per unit cost for Austin and Berlin improved as well, driven by record volumes. However, these factories still provide a margin headwind and will likely continue to do so until after we reach and stabilize at our intended volumes. Note that Q1 was our third quarter in our multi-quarter plan to move to a more regionally balanced mix of build and deliveries. As I've mentioned previously, this results in lower deliveries and production within a quarter due to a higher volume of cars in transit at the end of the quarter and has an associated impact on quarter-ending free cash flows. This was particularly prevalent in Q1 for S and X as we begin exporting cars for international deliveries. Second, our storage business is starting to take shape, and this is exciting to see after many years of investment and focus. This business is growing as a percentage of the businesses of the company's revenue and reached its highest level yet in Q1, driven by an increasing rate of deliveries for our Megapack products. We are also making progress on storage profitability, generating our highest gross profit yet in the quarter. Third, I want to reiterate the philosophy by which we're operating the business this year. Our approach is to grow volumes as quickly as possible in both our vehicle and energy businesses. We plan to continue to invest heavily into our future plans, which include the Cybertruck next-generation platform, in-house cell production, energy storage business and our autonomy and AI-enabled products. And we plan to do this while keeping the business financially healthy and industry leading. To accomplish this, we need to remain focused on cost efficiency and working capital and in particular, unwinding the strategic inventory buildup left over from the pandemic. I want to conclude by thanking the Tesla team again, as well as thanking our suppliers and our customers.

Zachary Kirkhorn:

Do you want to take that, Elon, or do you want me to take that?

Zachary Kirkhorn:

I think that's right. I mean, as a team, we review where we stand globally on a weekly basis and certainly, I can't get into the details of the reasons why certain decisions are made. But it is something that's very actively managed by a subset of the leadership team.

Elon Musk:

Yes, I should just clarify like bigger than auto from the standpoint of like total gigawatt hours deployed. So its possible automotive revenue may be higher, but gigawatt hours I think will be probably higher with stationary storage. If you just look at the -- what's needed to transition the world to a sustainable energy economy, there is more stationary energy storage needed than there is mobile energy storage. So -- and we are seeing growth of our stationary storage well in excess of automotive. So that is in line with expectations.

Martin Viecha:

Thank you. The next question, as you said, was already answered, so let's go to the battery question.

Elon Musk:

We're hopeful to get there later this year, but that's not a promise. That's an aspiration.

Andrew Baglino:

Yeah. So on Battery Day, we established a cost-down road map through 2026 across five areas of effort. There was the cell design we discussed, anode and cathode materials, the structural pack concept, and the cell factory itself, and we've been making progress across all of these aspects since then. For the cell factory, the Texas 4680 factory are partway through building and commissioning and selling and operating will be 70% lower CapEx per gigawatt hour than typical cell factories when fully ramped, in line with what we described on Battery Day. And we're continuing to further pursue densification and investment reduction opportunities in future factory build-outs like in Nevada. On the cell design, we're in production with not only the first generation tablet cell we unveiled on Battery Day, but a second more manufactural version in Texas today. On the cathode materials side, we have a number of activities underway per the Battery Day road map. For lithium, our Corpus Christi Lithium refinery breaks ground this May. Our goal is to start commissioning portions of the facility before the end of the year. The refinery uses the sulfate-free spodumene refining process with reduced process costs, no acid or caustic reagents, lower embodied energy. It actually produces a beneficial byproduct that can be repurposed in construction materials. We discussed all of these concepts on Battery Day. Same with cathode precursor, we've successfully demonstrated lower process cost, zero waste water precursor process that we described on Battery Day at both lab and pilot scale and are in the detailed design phase for incorporating this technology into the front end of our Austin cathode facility. On cathode production, we are 50% equipment and 75% utilities installed at our new cathode building in Austin, with our goal to begin dry and wet commissioning this quarter and next quarter with a target to produce first material before the end of the year. Structural pack, we saw big improvements with pack manufacturing with the 4680 cell and the structural pack concept, 50% lower CapEx and 66% smaller factory for the same output in gigawatt hours per year. We do believe structural as a concept is a good one. It's simpler. We'll continue to structurally load the cells and use the pack as the floor of the vehicle while iterating the design to closer to B-level execution of this A-level architecture in future programs. And zooming out for the 4680 team, Q1 was all about cost and quality. We made significant improvements in both areas. Texas production increased 50% quarter-over-quarter through yields increased 12% and [Indiscernible] peak rate increased by 20% and through yields improved by 20%. Altogether, the team accomplished a 25% reduction in COGS over the quarter, and we are on track to achieve steady-state cost targets over the next 12 months. And going forward for the rest of the year, the priority, one, is yielding cost for the 4680 program as we steadily ramp production ahead of Cybertruck next year.

Zachary Kirkhorn:

Yes, I can start off on this one. This is a difficult environment to make a projection like this. There's a lot of macro uncertainty. There's also headwinds and tailwinds. And this is basically a question I think that's asking about viewpoint on where costs will go. And within costs, there's a set of costs in which we do control and a set of costs in which we're kind of subject to what's going on in the macro world. Within the bucket of things we control, most of the cost down that we're working on is around ramping our Austin factory, stabilizing that and then doing the cost optimization work once we get to our intended volumes there. And a part of the cost journey in the Austin factory is, as Drew mentioned, the 4680 cell, which is an input into our Austin COGS. And so, as the 4680 program improves over the course of the year on cost, as Drew mentioned, and then the non-cell portion of the factory improves and we see a pretty good trajectory in the Austin facility. A similar story exists in the Berlin factory. It does not have 4680 as an input, but for that factory, the journey to complete localization is still ongoing. And so, over the course of this year, as volume increases, more localization occurs, we do see a good path to cost reduction in the Berlin factory as well. In existing factories, we talk about this on every call, so I don't need to rehash it, but the expectation is that every existing factory improves all of their key metrics and we continue to see the progress there. There's also a handful of other costs in which we have influence, but the philosophy here is that, we're aggressively going across every cost bucket that we can. Within the world that we don't control, the two major costs there being logistics, which fortunately is moving in our favor, and I think our supply chain team has done a great job, both on logistics optimization and taking advantage of reduced spot rates where they can. So thank you to our supply chain team. And then there's the commodities world, which has been a huge pain point in our cost structure over the last, say, two years or so, and we're still kind of at the maximum of pain for commodities in our cost structure. It kind of maximize -- max down in the second half of last year. We did start to see, in Q1, a little bit of improvement. We think there'll be a little bit more improvement in Q2, but...

Zachary Kirkhorn:

Yes. And that's the piece that we expect to see more impact on in Q2. And, generally, as a company, we do expect commodity prices to come down and have a more meaningful impact in the second half of the year.

Zachary Kirkhorn:

So this is our approach. How that nets out, I mean, just a lot of risk, and we'll have to see how the year progresses.

Elon Musk:

I think the overall thing we can say is that orders are in excess of production.

Elon Musk:

Well, I think we'll save that for the Cybertruck handover, which will hopefully be around the end of Q3 this year. And one thing I am confident of saying is that, it's an incredible product, it's a hall of famer, I think. And a product like this only comes once in a long while. So it will not be disappointed at all. It's amazing.

Alex Potter:

Can you hear me?

Elon Musk:

Yes.

Andrew Baglino:

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

Elon Musk:

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

George Gianarikas:

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

George Gianarikas:

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

Andrew Baglino:

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

Elon Musk:

Yes. But just on the lithium front, to emphasize, the choke point is more -- much more on refining capacity than it is on mining. The theme is actually -- is very common throughout the world, including in the US and really never -- it's just a very common element on earth, is lithium. So, it's much more a question of where is the refining capacity and can the refining capacity keep up? That's really what matters more than where is the lithium ore. It's everywhere basically. I think that same question also extends to refining of the cathode and to some degree, refining of the anode. And this is why we, at Tesla, we're building our lithium refinery capability at Corpus Christi and our cathode refinery outside Austin. It's worth noting, I hope other companies do the same thing. We will have, by far, the most lithium refining capability and the most cathode refining capability in North America, I think, probably more than everyone else combined by a lot. So, can other people please do those work? That would be great. We're begging you. We don't want to do it. Can someone please? Like instead of making a picture-sharing app, please, we're trying, lithium, mining and refining, heavy industry, come on.

Elon Musk:

Yes, yes. Exactly. For real.

Elon Musk:

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