Tesla Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 23, 2024

There are 14 speakers on the call.

Operator

Good afternoon everyone and welcome to Tesla's Q2 2024 Q and A Webcast. My name is Travis Axelrod, Head of Investor Relations. And I'm joined today by Elon Musk, Devav Taneja and a number of other executives. Our Q2 results were announced at about 3 p. M.

Operator

Central Time and the update deck be published at the same link as this webcast. During this call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow-up.

Operator

Please use the raise hand button to join the question queue. Before we jump into Q and A, Elon has some

Speaker 1

opening remarks. Elon? Thank you. So to recap, we saw large adoption acceleration in EVs and then a bit of a hangover as others struggle to make compelling EVs. So there have been quite a few getting electric vehicles that have entered the market.

Speaker 1

And mostly they have not done well, but they have discounted their EVs very substantially, which has made it a bit more difficult for Tesla. We don't see this as a long term issue, but really as 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 of cars, but also aircraft 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.

Speaker 1

And we're investing in many future projects, including AI training and inference and a 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. And in addition to that, we have scale economies and we're the most efficient electric vehicle producer in the world.

Speaker 1

So 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 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 5 times the parameters of 12.4, and we'll merge finally merge the highway and 30 stacks.

Speaker 1

So the highway stack is still at this point pretty old. So often the issues people encounter are on the highway. But with 12.5%, we're finally merged with the 2 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.

Speaker 1

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 this, I think, will be a massive demand driver. Even unsupervised full self driving will be a massive demand driver.

Speaker 1

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 the fleet. We postponed the sort of robotaxi or the sort of product to unveil by a couple of months where it's shifted to 10.10, so 10th October. And this is because I wanted to make some important changes that I think would improve the vehicle the sort of the robotaxi, the main thing that we're going to show. And we're 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 of other things for the product unveil.

Speaker 1

We're also nearing completion of the south expansion of Giga Texas, which will house our largest clip training cluster to date. So it will be an incremental 50,000 H100s plus 20,000 of our hardware 4 or AI5 Tesla AI computer. With Optimus, Optimus is already performing tasks in our factory and we expect to have Optimus production version 1 and limited production starting early next year. This will be for Tesla consumption. It's just better for us to iron out the issues ourselves.

Speaker 1

But we expect to have several 1,000 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. There'll be production version 2 of Octavius. For the energy business, this is growing faster than anything else.

Speaker 1

This is we're really demand constrained rather than production constrained. So we're ramping up production in our U. S. Factory as well as building our building a meg back factory in China that should roughly double our output, maybe more than double our output, maybe triple potentially. So in conclusion, we're super excited about the progress across the board.

Speaker 1

We're changing the energy system, happy to move around, happy to 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 optimists. Although the numbers sound crazy, I think Tesla producing app volume with unsupervised MSP, essentially enabling the fleet to operate like a giant autonomous fleet and to take the valuation, I think, to some pretty crazy number, ARK Invest thinks on the order of $5,000,000,000,000 I think they're probably not wrong. And long term, Optimus, I think, is achieves evaluation several times that number.

Speaker 1

I want to thank the Telstra team for strong execution and looking forward to exciting years ahead. Great.

Operator

Thanks very much, Elon. And Vevap, I'll

Speaker 1

pass opening remarks as well.

Speaker 2

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 a taxing financing options to offset sustained high interest rates.

Speaker 2

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're waiting on the sidelines, come out and get your car.

Speaker 2

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 costs 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.

Speaker 2

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 traction 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.

Speaker 2

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 and 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 profits for the Energy business.

Speaker 2

And 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 the 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 and other on the income statement.

Speaker 2

Just to level said, this was about $642,000,000 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 sequential decline in Q2, we still expect the year to be over $10,000,000,000 in CapEx as we increase our spend to bring a 50 ks GPU cluster online. This new cluster will immensely increase our capabilities to scale FSD and other AI initiatives.

Speaker 2

We reverted to positive free cash flow of $1,300,000,000 in Q2. This was despite restructuring payments being made in the quarter and we ended the quarter with over $30,000,000,000 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.

Speaker 2

Great.

Operator

Thank you very much, Bhavav. Now let's go to investor questions. The first question is, what is the status on the Roadster?

Speaker 1

With respect to the 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 roaster next year. Great. It'll be something special, like a whole thing, I think. Fantastic.

Operator

The next question is about timing of RoboTaxi event, which we've already covered. So we'll go to the next question. When do you expect the first RoboTaxi ride?

Speaker 1

I guess that's really just a question of when to expect the first when can we do unsupervised full self private? 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 it's too 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 Point Simply plus the points of the curve of miles per intervention that trend exceeds here and for sure next year.

Speaker 1

So, yes.

Operator

Thank you very much. Our third question is the cyber truck is an iconic product that wows everyone who sees it. Do you have plans to expand the cyber vehicle lineup to a cyber SUV or cyber van?

Speaker 1

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

Operator

Great. Thank you. Our next question is, what is the current status of 4,680 battery cell production and how is

Speaker 3

the ramp up progressing? 4,680 production ramped strongly in Q2, delivering 51% more cells than in Q1, while reducing COGS significantly. We currently produce more than 1400 cyber trucks of 4,680 cells, but we can we'll continue to ramp output as we drive costs up further towards the cost parity target we set

Speaker 1

toward the end of the year. We've built our

Speaker 3

1st validation Cybertruck with dry cathode process made on our mass production equipment, which is a huge technical milestone and super proud of that. We're on track for production launch with dry cathode in Q4. And this will enable Cellcast to be significantly below available alternatives, which was the original goal of the 4,680 program.

Speaker 1

Great. Thank you

Operator

very much. The next question is any update on Dojo?

Speaker 1

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 demand for NVIDIA hardware is so high that it's often difficult to get the GPUs. And there just seems there's 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.

Speaker 1

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 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 Doja work and we will.

Operator

Great. The next question is what type of accessories will be offered with Optimus?

Speaker 1

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 would we offer really human. It's just really intended to be able to be backwards compatible with human tasks. So it would use any accessories that a human would use.

Operator

Thank you. The next question is, do you feel you're cheating people out of the joys of owning a Tesla by not advertising?

Speaker 1

We're doing some advertising. So, one second.

Speaker 2

Yes, I'll say something. Our fundamental belief is that we need to be providing the best products at a reasonable price to the consumers. Just to give you a fact, in QS alone in Q2, over 2 thirds of our sales were to deliveries were to people who had never owned a Tesla before and which is encouraging. We spent money on advertising and other awareness programs and we have adjusted our strategy. I'm not saying no to advertising, but this is a dynamic play and we know that we have not exhausted all our options and therefore plan to keep adjusting in the later half of this year as well.

Operator

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 officially?

Speaker 1

Well, we currently oppose on GigaMexco. I think we need to see just where things stand after the election. Trump has said that you put heavy tariffs on vehicles produced in Mexico. So it doesn't make sense to invest a lot in Mexico if that is going to be the case. So we kind of need to see where things are bad politically.

Speaker 1

However, we are increasing capacity at our existing factories quite significantly. And I should say that the cyber taxi or Roma taxi will be produced here at our headquarters at Giga Texas. All right. Thank you. Sorry.

Speaker 1

As will optimists towards the end of next year for Optimus production version 2, the high volume version of Optimus will also be produced here in Texas.

Operator

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

Speaker 1

There are a few major OEMs that have expressed interest in licensing Tesla full stop driving. And I suspect there will be more over time, but we can't comment on the details of those discussions.

Operator

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

Speaker 1

I should say that Tesla is learning quite a bit from XAI. It's been actually helpful in advancing full self driving and in building up the new Tesla data center. With remaining investing in XAI, I think we'd need to have a shareholder approval of any such investment. But I'm certainly supportive of that if shareholders are, but we probably I think we need to vote on that. And I think that there are opportunities to integrate Grot into Tesla Software, yes.

Operator

All right. Thank you 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.

Speaker 4

Great. Thanks so much for taking my question. This relates a little bit to the last one that was asked. Elon, I share your strong enthusiasm about AI and I recognize Tesla's opportunity to do some great things with the technology. But there are some concerns I have about Tesla's commercialization and that's what I'd like to ask about.

Speaker 4

Specifically, there were some new stories through the quarter that indicated that you redirected some AI compute systems that were destined for Tesla instead to XAI or perhaps it was to X, I'm not sure. And similarly, a few quarters ago, if you recall, I asked about your ability to hire engineers in this area. And you noted that there was a great desire some of these engineers to work on projects that you were involved with, but some of them weren't at Tesla, they were instead at XAI or perhaps even X again. So the question is, when it comes to your capital investments, your AI R and D, your AI engineers, how do you make allocation decisions among these various ventures and how do you make Tesla owners comfortable that you're doing it in a way that really benefits them?

Speaker 5

Thank you.

Speaker 6

Yes, I

Speaker 1

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. Tesla said we had no place to turn them on. So it would have been a waste of Tesla Capital because we would just have to order H100s and have no place to turn them on. So it was just there wasn't this wasn't a specific XCI of a Tesla.

Speaker 1

There was no the Tesla data centers were full. There was no place to actually put them. We've been working 20 fourseven to complete the south extension on the Tesla big factory here in Texas. That's us. The south extension is what will house the 50,000 H100s.

Speaker 1

And we're beginning to move the H100 Turberex into place there. But we really needed we needed that to complete physically. You can't just order compute or GPUs and turn them on with no 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.

Speaker 1

Does Tesla know good to have JIT use that cash amount? But second, that South extension is able to take GPUs, which is really just this week. We are moving GPUs in there and we'll bring them online. With regard to XAI, there are people 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 APM, not just Tesla, so many problems.

Speaker 1

And

Speaker 3

they want to

Speaker 1

start they do a start up. So it was a case of either they go to a start up or and I'm involved or they do a startup and I'm not involved. Those are the 2 choices. This wasn't they would come to Tesla. They were not going to come to Tesla under any circumstances.

Speaker 1

So yes.

Speaker 2

Yes, I mean, I would even add that AI is a broad spectrum. And there are a lot of things which we are focused on full sun driving as Tesla and also Optimus. But there's the other spectrum of AI, which we're not working on. And that's the kind of work which other companies are trying to do, in this case, XAI. So you have to keep that in mind that it's a broad spectrum.

Speaker 2

It's not just one specific type.

Speaker 1

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 if you want and they refused. Only then was XCI upgraded.

Speaker 4

I really appreciate that clarification. If I can ask one follow-up, it relates to the new vehicles that you're planning to introduce next year. I understand this is not the venue for product announcements. But when we think about the focus, I've heard on the one hand that the focus is on cost reduction. On the other hand, you also said that the Roadster would come out.

Speaker 4

Should we expect other maybe more limited variance like similar to the cars that you make today, but with some changes or improvements or different, some other variability in the form factors, should we significant part of the strategy in the next year or 2?

Speaker 1

I don't want to get into the 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 progress in the future just like we have in the past and a story. Great.

Operator

The next

Speaker 7

When we think about revenue contribution and with energy growing so quickly and optimists 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 in their cars? Thanks.

Speaker 1

Yes. I mean, as I've said a few times, I think the long term value of Optimus will exceed that of everything else that Tesla combined. So it's simply you simply consider the usefulness utility of a humanoid robot that can do pretty much anything you ask of it. I think everyone knows it's going to want 1,000,000,000 people on Earth, so it's $8,000,000,000 right there. Then you've got all of the industrial uses, which is probably at least as much, if not way more.

Speaker 1

So I suspect that the long term demand for germplasmidrobiets is in excess of 20,000,000,000 units. And Tesla has the most advanced humanoid robot in the world and is also very good at manufacturing, which these other companies are not. And we've got a lot of experience with the most experience, we're the world leaders in real world AI. So we have all of the ingredients. I think we're unique in having all of the ingredients necessary for large scale, high utility, generalized humanoid robots.

Speaker 1

But that's why my rough estimate long term is in accordance with the ARK Invest analysis of modeling capital on the order of $5,000,000,000,000 for maybe more for autonomous transport. And it's several times that number for general purpose humanoid robots. I mean, at that point, I'm not sure what money even means. But in the benign AI scenario, we're headed for an age of abundance, where there is no shortage of goods and services. Anyone can have pretty much anything they want.

Speaker 1

It's a wild pretty wild future we're headed for.

Operator

And on the distributed compute?

Speaker 1

Yes, distributed compute, that seems like a pretty obvious thing to do. I think the where this distributed compute becomes interesting is with our next generation Tesla AI chip, which is hard to revive or what we're calling AI5, which is from the standpoint of an inferno stability comparable to V200 and NVIDIA V200. And we're aiming to have that in production at the end of next year and scale production in 'twenty six. So it just seems like if you've got even if you've got autonomous vehicles that are operating 4:50 or 60 hours a week, there's 100 and 68 hours a week. So you have somewhere above, I think 100 neural net computing.

Speaker 1

I think we need a better word than GPU because GPU means graphics processing unit. So there's 100 hours plus per week of AI compute, AI inverse compute from the fleet, from the vehicles and probably some percentage from the human rights robots that it would make sense to do distributed inference. And if you're physically of some point 100,000,000 vehicles with AI5 and beyond because AI6 and 7 and whatnot. And there may be billions of humanoid robots that is just a staggering amount of in front of compute that could be used for general purposes. Like computing doesn't have to be used for the Humana drive auto for the car.

Speaker 1

So I think that's a pretty obvious thing to say like what's more useful than having do nothing.

Operator

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

Speaker 8

Perfect. Thanks. I wanted to ask a question on FSD licensing. You mentioned that in passing previously. I was just wondering if you can elaborate maybe on the mechanics of how that would work.

Speaker 8

I guess presumably this would not be some sort of simple plug and play proposition that presumably an OEM would, I don't know, several years develop its own vehicle platform that's based on FSD. I imagine they would need to adopt Tesla's electrical architecture, compute, sensor stack. So I correct me if I'm sort of misunderstanding this, but if you had a cooperative agreement of some kind with another OEM, then presumably it would take you several years before you'd be able to recognize licensing revenue from that agreement. Is that the right way to think about that?

Speaker 1

Yes. The OEMs do not move fast. There's not really a sensor suite. It's just cameras. But they would have to integrate our AI and 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 with that unique kind of a gateway computer too.

Speaker 1

So it's really gateway computer with the cellular and Wi Fi connectivity, the Tesla AI computer and 7 cameras or not cameras again a 360 degree view. But this will given the speed at which the order history moves, it would be several years before you would see this in volume.

Speaker 8

Okay, good. That's more or less what I expected. So then the follow-up here is if you did sign an FSD licensing agreement with another automaker, when do you think you would disclose that? Would you do it right when you sign the agreement or only after that multiple years has passed and the vehicle is ready to be rolled out?

Speaker 1

I think it depends on the I guess we'd be happy either way.

Speaker 2

Yes, it depends on what kind of arrangement we enter into. A lot of those things are we've not ironed those out yet. So we'll make that determination as and when we get to that point.

Speaker 1

And the kind of deals that are obviously relevant are only if some OEM is willing to do this in a 1,000,000 cars a year or something significant, not if it's like 10,000 or 100,000 cars a year. We could just make that ourselves.

Operator

All right. Thank you. The next question comes from Dan Levy from Barclays. Dan, please go ahead and unmute yourself.

Speaker 9

Hi, good evening. Thanks for taking the questions. 1st, 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. Maybe you can just give us a sense of how the strategy changes, if at all, given the implementation of tariffs in Europe?

Speaker 9

Also, to what extent your import of batteries from China into the U. S, how that might change given the tariffs? Thank you.

Speaker 2

Yes, I think I covered some part of it in my opening remarks, but just to give you a little bit more, Just on the tariff side, the European authorities did sample certain other OEMs in the first round to establish the tariffs for cars being imported from China into Europe. While we were not picked up in our individual examination in the 1st round, they did pick us up in the 2nd round. They visited our factory, we worked with them, provided them all the information. As a result, we are adjusting our import strategy out of China into Europe. But and one other thing to note is in Q2 itself, we started building right hand model wise out of Berlin and we also delivered it in the UK.

Speaker 2

And we're adjusting as needed, but we will keep adjust we're still importing Model 3s into Europe out of Shanghai. And we are still evaluating what is the best alternate to manage all this. Just on the examination by the European authorities, like I said, we cooperated with them well. We are confident that we should get a better rate than what they have imposed for now. But this is literally evolving and we are adjusting as fast as we can with this.

Speaker 2

It is I would also add that because of this, you've seen the impact that Berlin is doing more imports into places like Taiwan as well as U. K. I just mentioned. So it will keep changing and we will keep adapting as we go about it.

Operator

Great. Randy, do you have a follow-up?

Speaker 9

Yes. Thank you. As a follow-up, I wanted to ask about the RoboTax 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 can help us understand which regulation specifically are the ones that we should be looking for?

Speaker 9

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 robo taxi approach one that's more geofenced, so to speak, and is more driven by a state by state approach? I

Speaker 1

mean, our solution is a generalized solution, unlike what everybody else has. If you see the Quimod and one off, they have a very localized solution that requires high density mapping. It's not it's quite fragile. So their ability to expand rapidly is limited. Our solution is a general solution that works anywhere.

Speaker 1

It would even work on a different Earth. So if you're branded a new Earth, it would work on a new Earth. So it's there's capability. I think in our experience, once we demonstrate that something is safe enough or significantly safer than human, we find that regulators are supportive of deployment of that capability. It's difficult to argue with if you've got a large number of if you've got both 1,000,000,000 of miles that show that in future, unsupervised FSD is safer than human, What regulator could really stand in the way of that?

Speaker 1

They're morally obligated to approve. So I don't think regulatory approval will be a limiting factor. Should also say that the self driving capabilities that are deployed outside of North America are far behind that in North America. So with version 12.5 and maybe 12.6, but pretty soon, we will ask for regulatory approval of the Tesla supervised FSD in Europe, China and other countries. And I think we're likely to receive that before the end of the year.

Speaker 1

Thank you. Which will be a helpful demand driver in those regions. Thank you. Just to add,

Speaker 3

Travis, in terms of like, as Elon said, in terms of regulatory approval, the vehicles are governed by FMUSS in the U. S, which is NIFA, which is the same across all 50 states. The growth 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 municipal level regulations that may apply to being a transportation company or deploying taxes.

Speaker 3

But as far as getting the vehicle on the road, that's all federal and that's very much in line with what Yulan was just suggesting about

Speaker 1

the data and the vehicle itself.

Speaker 10

And to add to the technology point, the end to end network basically makes no assumption about the location, like you could add data from different countries and it would just like perform equally well there, just like almost close to 0 U. S. Specific code in there. It's all just the data that comes from the U. S.

Speaker 3

Yes. 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.

Speaker 10

Yes, exactly.

Operator

Great. Thanks, guys. The next question comes from George from Canaccord. George, please go ahead and unmute yourself.

Speaker 11

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.

Speaker 11

And from what we understand, and again, maybe I'm wrong here, but the robo taxi that has been shown at least in the 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 a pedal pedals or a wheel and that may that be different from just regular FSD on the traditional Tesla vehicle? Thank you.

Speaker 1

Well, obviously, the real reason that they canceled it is because GM can't make it work, not because regulators, they're blaming regulators. That's misleading attempts to do so because Waymo is doing just fine in those markets. So it's just that the technology is not far.

Speaker 11

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?

Speaker 1

Thank you.

Speaker 2

Yes. We've shared that how that we've seen a meaningful increase. I don't want to get into specific because we started from a low base and but we are seeing encouraging results. And the key thing here is like Elon said, you need to experience it because words can't describe it till the time we actually use it. And that's why we are trying to make sure that every time a car is getting delivered, people are being sure how this thing is working because when you see it working, you realize how great it is.

Speaker 2

I mean, just to give you one example. So again, there's a bias example, but I have a more than 20 mile commute into the factory almost every day. I have 0 interventions on the latest time and the car just literally tries to be a while. And especially with the latest version where we're also tracking your eye movement, the same lag is almost not there as long as you're not wearing sunglasses.

Speaker 1

Well, we're fixing the sunglasses thing. It's coming soon. So you will be able to drive. We'll be able to have sunglasses on and have to call and drive. So but there's been a fair 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 are asking me about FSD and I'm like, you can just get a car and try it.

Speaker 1

And if you're not doing that, you have no idea what's going on.

Operator

Thank you. The next question comes from Pierre from New Street. Pierre, please unmute yourself.

Speaker 12

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 get there eventually kicking up miles and compute, etcetera. And my question is more, how you think about deployments?

Speaker 12

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 ride 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, etcetera. 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?

Speaker 12

And is that like a Tesla only plan or are you looking at partners, local partners, global partners to do that? And I'll have

Speaker 1

a quick follow-up. This would just be the Tesla network. You just literally open the Tesla app and summon a car and resend a car to pick you up and take you somewhere. And we will have a fleet that's on the order of 7,000,000 dedicated to live autonomy soon. In the years to come, it will be over 10,000,000 then over 20,000,000.

Speaker 1

This is immense scale. And the car is able to operate 20 fourseven unlike the human driver. So the capability to like if there's this basically instant scale with a software update. And now this is for a customer owned fleet. So if you think of that as being a bit like Airbnb, like you can choose to allow your car to be used by the fleet or cancel that and bring it back.

Speaker 1

It'll be used by the fleet all the time, it can be used by the fleet some of the time and then Tesla would take would share in the revenue with the customer. But you can think of the giant fleet of Tesla vehicles as like a giant sort of Airbnb equivalent fleet, Airbnb on wheels. I mean then in addition, we would make some number of cars for Tesla that would just be owned by Tesla and be added to the fleet. I guess that would be a bit more like Uber. But this would all be a Tesla network.

Speaker 1

And there's an important clause we've put in every Tesla purchase, which is that the Tesla vehicles can only be used in the Tesla fleet. They cannot be used by a third party for autonomy.

Speaker 12

Okay. And do you think that scales 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 be able to offer like a service that is of competitive quality compared to what like Uber would be typically delivering already?

Speaker 1

I guess I'm not maybe I'm not conveying this correctly. The entire Tesla fleet basically becomes active. This is obviously maybe there's some number of people who don't want their car to own money, but I think most people will. It's instant scale.

Operator

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

Speaker 13

Sorry about that guys. I've got 2 questions around energy storage. With the tight supply and the stationary storage, can you talk about your pricing strategy? And how you're thinking about saturation and given geographies given that some of these larger systems are starting to shift wholesale power markets in a pretty meaningful way quickly?

Speaker 2

So, yeah, 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 a very there's actually long end in terms of where you enter into a contract, where delivery starts happening. And so far we have good pricing leverage and now Mike chime in on this too.

Speaker 6

Yes, I mean there's a lot of competition from Chinese OEMs like there is in the vehicle space. So we're in close contact with our customers and making sure that we're remaining competitive and where they're needing to be competitive to secure contracts to sell power and energy in the markets. We had a really strong contracting quarter and continue to build our backlog for 20252026. So we feel pretty good about where we are in the market. We realize that competition is strong, but we have a pretty strong value proposition with offering a fully integrated product with our own power electronics and site level controls.

Speaker 6

So

Speaker 2

Yes. And again, the aspect which people do not fully understand is that there's also a whole software stack which comes with a megapack.

Speaker 1

Right.

Speaker 2

And that is a unique proposition which we have which is only available to us and we're using it with other stuff too. But that gives us a much more of an edge as compared to the competition.

Speaker 1

Yes. We only find customers that they can sort of put together a hodgepodge solution and then sometimes they'll pick that solutions and then that doesn't work and then they come back to us. Yes.

Speaker 6

And we're not really seeing saturation 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.

Speaker 2

Yes, I mean just even on the AI computer side, these GPUs are really powerful already. And the amount of new pipeline which we're getting for people for data center backup and things like that is increasing at a pretty large scale.

Speaker 12

Thanks, Thomas.

Speaker 13

And then the follow-up here is around the 46 80 process technology, you know, on the roll to roll process. You know, you there's some news around your equipment suppliers. You know, can you talk about how far along you are in potentially qualifying an incremental supplier around some of those critical process technology steps?

Speaker 3

Yes, I can talk about that.

Speaker 9

You

Speaker 3

know, as you're probably referring to the lawsuit that we have with 1 of our suppliers, Look, I don't think this is going to affect our ability to roll out 4,680. We have very strong IP position in the technology. And the majority of the equipment that we use is in house designed and some of it's in house built. And so we can take our IP stack and have someone else build it if we need to. So that's not really a concern right now.

Speaker 1

Yes. I think people don't understand just how much demand there will be for storage. They're really just like the people I think are understating this demand by product orders in 'nineteen. So the actual energy total energy output of say the U. S.

Speaker 1

Grid is if the power plants can operate at steady state is at least 2 to 3 times the amount of energy it currently produces because there are huge gaps. There's a huge difference in the from peak to trough in terms of energy or 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 hardest day, which means that for the rest of 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.

Speaker 1

In some cases maybe 3 times.

Operator

Thank you, Yaron. The next question comes from Colin Langan from Wells Fargo. Colin, please unmute yourself.

Speaker 5

Oh, great. Thanks for taking my questions. You hear me? Yeah. Yeah.

Speaker 5

Oh, good. Sorry. I guess I'm 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 3 and Y get IRA help for customers and I think your batteries get production tax credits.

Speaker 5

So just what can you clarify if the IRANs, 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?

Speaker 1

I guess that there would be like some impact, but I think it would be devastating for our competitors, but and it would hurt Tesla slightly. But long term probably actually helps Tesla, that would be my guess. But I have said this before in many calls. The value of Tesla overwhelmingly is autonomy. These other things are in the noise relative to autonomy.

Speaker 1

So I recommend anyone who doesn't believe that Tesla will solve vehicle autonomy should not hold Tesla stock. They should sell at Tesla stock. If you believe Tesla will solve autonomy, you should buy Tesla stock. And all these other questions are in the noise.

Speaker 2

Yes. I mean, I'll ask 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're looking at battery costs, yes, 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.

Speaker 2

And like Elon said, we definitely have a big advantage as compared to our competition on that front. We've delivered it and we can see it in the numbers over the years. 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 Elon said, it becomes meaningless to even think about the short term.

Operator

Okay. I think that's unfortunately all the time we have for today. We appreciate all of your questions. We look forward to talking to you next quarter. Thank you very much and goodbye.

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Earnings Conference Call
Tesla Q2 2024
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