Tesla Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 23, 2024

There are 9 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Tesla's Q3 2024 Q and A webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk, Devap Taneja and a number of other executives. Our Q3 results were announced at about 3 pm Central Time and the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward looking statements. These comments are based on our predictions and expectations as of today.

Operator

Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue. Before we jump into Q and A, Elon has some opening remarks. Elon?

Operator

Thank you. So to recap, someone's saying something

Speaker 1

that what about industry, I've seen year over year declines in order volumes in Q3, tends at the same time has achieved record deliveries. In fact, I think if you look at EV companies worldwide, to the best of my knowledge, no EV companies even profitable. And I'm not to the best of my knowledge, there was no EV division of any company of any existing order company that is profitable. So it is notable that Tesla is profitable despite a very challenging automotive environment. And this quarter actually is a record Q3 for us.

Speaker 1

So we produced our 7,000,000 vehicle actually just yesterday. So congratulations to the teams that made it happen in Tesla. That's the staggeringly immense amount of work to make 7,000,000 cars. So, and we also have the energy storage business is growing like wildfire with strong demand for both mega pack and Powerwall. And as people know, on October 10th, we laid out a vision for an autonomous and electric future that I think is very compelling.

Speaker 1

The Tesla team did a phenomenal job there with actually giving people an opportunity to experience the future where you have humanoid robots walking among the crowd, not, you know, with the canned video presentation or anything, but literally walking among the crowd, serving drinks and whatnot. And, and we had 50 autonomous vehicles. There were 20 cyber caps, but there were an additional 30 Model Y's operating fully autonomously the entire night, carrying thousands of people with no incidents the entire night. So, and for those who went there, it's worth emphasizing that the siren cab had no steering wheel or brake or accelerator pedals, meaning there was no there's no way for anyone to intervene manually even if they wanted to. And the whole night went very smoothly.

Speaker 1

So regarding the vehicle business, we are still on track to deliver more affordable models starting in the first half of twenty twenty five. You know, this is I think probably people are wondering, well, what should they assume for vehicle sales growth next year? And at the risk of to take a bit of risk here, I do want to give some rough estimate, which is I think it's 20% to 30% vehicle growth next year. You know, notwithstanding negative external events, like if there's some force majeure events, some big war breaks out or interest rates go sky high or something like that, then, you know, we can't overcome massive force majeure events. But I think with our lower cost vehicles, with the advent of autonomy, something like 20% to 30% growth next year is my best guess.

Speaker 1

And then cyber cap reaching volume production in 'twenty six, We do feel confident of cyber cap reaching volume production in 'twenty six, not just starting production, but reaching volume production in 'twenty six. And that should be substantial growth. We're aiming for at least 2,000,000 units a year of cyber cap. That will be in more than one factory, but I think it's at least 2,000,000 units a year, maybe 4,000,000 ultimately. So yeah, these are just my best guesses.

Speaker 1

But if you ask me what my best guess is, those are my best guesses. The cell 4,680 lines, the team is actually doing great work there. The 4,680 is rapidly approaching the point where it is the most competitive. So when you consider the fully landed the cost of a battery pack fully landed in the U. S.

Speaker 1

Net of incentives and duties, the EUV-four thousand six hundred and eighty is tracking to be the most competitive, meaning lower cost per kilowatt hour fully considered than any other alternative, which is not quite there yet, but we're close to being there, which I think is extremely exciting. And we've got several a lot of ideas to go well beyond that. So if I think there's if we execute well, the 4,680 will have the the Tesla internally produced cell will be the most cost competitive cell in Tazeen, North America, a testament to a tremendous amount of hard work there by the team. So that's a rule. We'll continue to buy a lot of cells from our competitors.

Speaker 1

Our intent is not to make to provide to make sales just internally. So I don't want to set up any long bells here. We're obviously increasing substantially our vehicle output and our stationary storage output. So we need a lot of cells and most of them will still come from suppliers. But I think it is some good news that the Tesla internal cell is likely is tracking to be the most competitive in the U.

Speaker 1

S. So with respect to autonomy, as people are experiencing in the cars really from week to week, there are significant improvements in the miles between interventions. So with the new version 12.5 release of full self driving inside of truck, the the combining the code into a single stack so that the city driving and the engine and highway driving are 1 stack, which is a bigger burden for the highway driving. So it's just all neural nets and the release of actually smart summon. We try to have a sense of humour here at TES.

Speaker 1

And we're also so that's 12.5 version 13 of FSD is going out soon. Shaul will elaborate more on that later in the call. We expect to see roughly a 506 fold improvement in miles between interventions compared to 12.5. And looking at the year as a whole, the improvement in miles between interventions, we think we'll bring at least 3 orders of magnitude. So that's a very dramatic improvement in the course of the year and we expect that trend to continue next year.

Speaker 1

So the current the current internal expectation, the internal expectation for the Tesla FSD having longer miles between machine and human is the Q2 of next year, which means it may end up being the Q3, but it's next it seems extremely likely to be next year. Sure. Do you want to add anything?

Speaker 2

Yeah. In mentioning, miles between critical interventions, like you mentioned, Elon, we already made a 100x improvement with 12.5 from starting of this year. And then with v13 release, we expect to be, a 1000 x from the beginning from January of this year on my production release software. And this came in because of technology improvements going to end to end, having higher frame rate, partly also helped by hardware force, more capabilities, so on. And we hope that, you know, we continue to scale the neural network, the data, the training compute, etcetera.

Speaker 2

By q2 next year, we should cross over the average human minds for critical intervention, probably collision in that case.

Speaker 1

I mean, that that is just, unvarnished our internal estimate. Yes. Yeah. So, that's not sandbagging or anything else. Our internal estimate is Q2 of next year to be safer than human and then to continue with rapid improvements thereafter.

Speaker 1

So a lot vast majority of humanity has no idea that it has those by themselves. So especially for something like a Model 3 or Model Y, it looks like a normal car. So you don't expect normal car to be able to be intelligent enough to drive itself. The Sabot cab looks different. Sabotra looks different.

Speaker 1

But Model Y and Model 3 are look they're good looking cars, but look fairly normal. You don't expect a fairly normal looking car to have the intelligence enough AI to be able to drive itself. But it does. So we do want to expose that to more people. And so we're doing every time we have a significant improvement in the software, We'll roll out another sort of 30 day trial.

Speaker 1

So to encourage people to try it again and we are seeing a significant improvement in adoption. So the the take rate for FSC has improved substantially, especially after the 10:10 event. So there's no need to wait for robot taxi or cyber cab forward to experience full autonomy. We expect to achieve that next year with the with our existing vehicle item.

Speaker 2

I wanted to actually spot someone, give us a small taste of what it's going to look like, the car able to drive itself to the user within private parking lots. Currently, it's speed limited, but then it's going to quickly be increased. And we already had more than a 1000000 usage,

Speaker 1

attempts of Smart Summon. Yep. So, and and we we actually we have, for Tesla employees in the Bay Area, we already are are offering a ride hailing capability. So so you can actually use with with the development app, you can request a ride, and it'll take you anywhere in the Bay Area. We we do have a safety driver for now, but the software required to do that, We've developed and I mean, David, do you want to elaborate on that?

Speaker 3

Yeah, sure. It's David. We showed some screenshots of this in the Q1 shareholder deck. And this is real. We've been testing it for the part of the year and the building blocks that we needed in order to build this functionality and deliver it to production.

Speaker 3

We've been thinking about working on for years. It just so happens that we've used those building blocks to deliver great features for our customers in the meantime, such as sharing your profile, synchronizing it across cars so that every single car that you jump into, whether it's another car that you own or a car that somebody's loaned to you or a rental car that you jump into, it looks exactly like yours. Everything synchronized, seat mirror positions, media navigation, everything is the same. Just what you would expect from one of our robo taxis. But we gave that functionality to our customers right now because we built it intending for it to be used in the future.

Speaker 3

Releasing that functionality now, all the end to end cybersecurity that

Speaker 2

we knew we were going to need

Speaker 3

to deliver that functionality, sending a navigation to destination from your phone to the vehicle. And so, you know, you're doing that now with the with the ride hailing app. But it's something that we've made available to customers for years. Seeing the progress on route in the mobile app, that's something you'll need for the ride hailing app. But again, we released it in the meantime.

Speaker 3

So it's like we're just starting to think about this stuff right now while we're building out, you know, the early stages of our ride hailing network. We've been thinking about this for quite a long time and we're excited to get the functionality out there.

Speaker 1

Yeah. And and we do expect to roll out ride hailing in California and Texas next year to the public. But not the California somewhat there's quite a long regulatory approval process. I think we should get approval next year, but but it's contingent upon regulatory approval. Texas is a lot faster.

Speaker 1

So it's I'd say like we'll definitely have available in Texas and probably have it available in California subject to regulatory approval. And then and maybe some other states actually next year as well, but at least California and Texas. So that'd be very exciting. I mean, there's really a profound change. Tesla becomes more than a sort of vehicle and battery manufacturing company at that point.

Speaker 1

So we published that Q3 Vehicle Safety Report, which shows one crash for every 7 100 miles of water pilot that compressed the US average of water crash roughly every 700,000 miles. So it's currently showing a 10x safety improvement relative to the US average. And we continue to expand our AI training capacity to accommodate the needs of both FSD and Optimus. We're currently not training compute constraint. So probably the big limiting factors that the FSC is actually getting so good that it takes us a while to actually find mistakes.

Speaker 1

And when you start getting to where it could take 10,000 miles to find a mistake. It's a it takes a while to actually figure out which it is. Is this is this software bolt better than software bolt A better than software bolt B? It actually takes a while to figure it out because neither one of them are making mistakes. What takes take a long time to make mistakes?

Speaker 1

So that's actually the single limit. Big slimming factor is how long does it take us to figure out which version is better? So that sort of high class problem. Obviously, having a giant fleet is very helpful for breaking this out. And then with Optimus, we showed we showed a massive improvement in Optimus's dexterity movement on October 10th and our next gen hand in form, which is 22 degrees of freedom double, which is double the prior hand in form.

Speaker 1

It's extremely humanlike and also has much better tactile sensing. It's really I feel confident in saying that we have most advanced human robot by long shot. And we're moreover the only company that really has all of the ingredients necessary to scale humanoid robots because the things that what other companies are missing is that they're missing the AI brain and they're missing the ability to really scale to very high volume production. So you sort of see some impressive video demos, but what they like they like the localised AI and the, Voyager scale volume to very high numbers. As I've said on a few occasions before, I think Optimus will ultimately be the most valuable part.

Speaker 1

So I think it has a good chance of being the most valuable product ever made. For the energy business, that's doing extremely well. And the offshady ahead is gigantic. The Lathrop megapack factory reached 200 megapacks a week, which is now a 40 gigawatt hour a year run rate. And we have a second factory in Shanghai that will begin with a 20 gigawatt hour a year run rate in Q1 next year, so just next quarter.

Speaker 1

And that will also scale up. It won't be long before we're shipping 100 gigawatt hours a year, stationary storage at Tesla. And that will ultimately grow, I think, to multiple terawatt hours per year. It has to actually in order to have a sustainable energy future. If you're not at the terawatt scale, you're not really moving the needle.

Speaker 1

So if you look at our mentally very complicated last master plan, which I think actually has too much detail, I'll ask Goran to analyse it and give us the TLDR on the last master plan. But we showed in that master plan that it is possible to take all of us to a fully sustainable energy situation using sustainable energy power generation and batteries and electric transport. And there are no fundamental material limitations. Like there's not some very rare material that we don't have enough of on Earth. We actually have enough of raw materials to take all of human civilization, make it fully sustainable and even if civilization dramatically increased its electricity usage, it would still be fully sustainable.

Speaker 1

You know, one way to think of the progress of a civilization, which is based out a little esoteric, but is percentage completion of Karychev scale. So Karychev scale 1 would be you're using all the power of a planet. We're currently less than 1% on Kardashev level 1. Level 2 would be using all the power of the sun and level 3, all the power of the galaxy. So we have a long way to go.

Speaker 1

When you think in Kardashev terms, it becomes obvious that by far the biggest source of energy is the sun. Everything else is in the noise. So so in conclusion, Tesla is focused on building the future of energy, transport, robotics and A and A. And this is a time when others are just focused on managing around near term trends. We think what we're doing is the right approach.

Speaker 1

And if we execute on our objectives, I think we will. It tells that my prediction is Tesla will become the most valuable company in the world and probably by a long by a long shot. I want to thank the Tesla team once again for strong execution in a tough operating environment and really looking forward to building an incredibly exciting future. Thank you.

Operator

Great. Thanks very much, Elon. And I'll let Bob pass some more remarks as well.

Speaker 4

Yeah. Thanks. Our Q3 results were positive and once again demonstrate the scale to which businesses evolved over the years with the generation of record operating cash flows of $6,300,000,000 Our automotive revenues grew both quarter on quarter year on year. While we had unit volume growth, we did experience reduction in ASPs, primarily due to the impact of financing incentives. As a reminder, we are providing these incentives primarily using 3rd party banks and financial institution and recognize the cost of these incentives as an upfront reduction to them.

Speaker 4

We released FSD for Cymytruck and other features like actually smart summon like Pilar talked about in North America, which contributed $326,000,000 of revenues in the quarter. We continue to see elevated levels of regulatory credit sales with over 2,000,000,000 of revenues so far this year. Expand on this at an industry level, China continues to outperform US and Europe by a factor of 3. And if there is something to be learned from that, this gives a signal of what is to come in other regions as customers' acceptance of EV growth. And we feel that is the right strategy to build affordable and more compelling needs.

Speaker 4

Our focus remains on growing unit volume while avoiding a buildup of inventory. To support this strategy, we're continuing to offer extremely compelling vehicle financing options in every market. When you compare any vehicle in our lineup with other OEMs, we believe our vehicles provide much better value, particularly when you consider the safety features, performance, and unbalanced software functionalities like David also talked about, include also what, Ashok had talked about around autonomy, music options, parental controls, and much more. While every vehicle in our lineup comes up with these capabilities, there is an awareness gap, not just with buyers, but at times even with existing owners. We plan on making these more visible in our interactions with both existing and future customers.

Speaker 4

Automotive margins improved quarter over quarter as a result of a 50 features released discussed before, increase in our overall production and delivery volume, continued benefit from commodity pricing and more localized deliveries in region, which resulted in lower freight and duties. Sustaining these margins in Q4, however, will be challenging given the current economic environment. Note that we are focused on the cost per vehicle and there are numerous work streams within the company to squeeze our costs without compromising our customer experience.

Speaker 1

Yeah. Something that's helpful, hopefully a helpful macro trend is if there's a decline in interest rates, this has a massive effect on the automotive demand. The vast majority of people is the demand is driven by the monthly payment. Can they put monthly payment? So, like most likely we'll see continued decline in interest rates, which helps with affordability in vehicles.

Speaker 4

Yeah. I mean, that is one trend which we observed in the industry that, you know, because of the affordability being impacted because of interest rates, People are holding on to the cars longer, especially in the U. S. And that is actually having an impact on the whole industry too. As we discussed earlier, as we discussed impact orders, energy deployments fluctuate quarter over quarter due to customer readiness, location of orders being fulfilled and not necessarily an indicator of demand or production within the quarter.

Speaker 4

While we did see a decline in Q3, we expect to grow our deployment sequentially in Q4 to end the year with more than double of last year. Energy margins in Q3 quarter record at more than 30%. This is a function of mix of projects being deployed in the quarter. Note that there will be fluctuation in margins as we manage through deployments and our inventory. Our pipeline and backlog continue to grow quarter over quarter as we fill our 2025 production slots, and we are doing our level best to keep up with the demand.

Speaker 4

Just coming back on automotive margins, I talked about sorry, I talked about what is happening. One other thing which I want to also share is that we're that, you know, we will continue to keep whatever we can to squeeze like I said before about squeezing out the cost. But this is something which we also are very capable of. I mean, just in q3, we reached our lowest cost per vehicle, and that is a trend which we want to keep focus on. Then going on to service and other, we continue to show improvements in q3.

Speaker 4

This was a result of better performance both in our service business, which includes collision part sales and merchandise and continued growth in supercharging. These fleet based revenues will continue to grow as the overall fleet size increases. Our operating expenses declined quarter over quarter and on year on year basis. This is partially due to the restructuring we undertook in Q2. Cost savings from these initiatives were partially offset by increase in costs related to our AI efforts.

Speaker 4

We've started using the GPU cluster based out of our factory in Austin ahead of schedule and are on track to get 50 ks GPUs deployed in Texas by the end of this month. One thing which I'd like to elaborate is that we're being very judicious on our AI compute spend too and saying how best we can utilize the existing infrastructure before making further investments. On the CapEx front, we had about $3,500,000,000 in the quarter. This was a sequential increase largely because of investments in AI compute. We now expect CapEx for the year to be in excess of 11,000,000,000.

Speaker 4

We shared our vision for the future at the WeRobot event at the beginning of the month. The Tesla team is hyper focused on delivering on that version, and all efforts are underway to make it a reality. While we've achieved significant progress this year, it will take time to get this as we find a new and incredibly complex technologies and navigate a fragmented regulatory landscape. Future is incredibly bright, and I want to thank the Tesla team once again for all their help.

Operator

Great. Thank you very much, Baba. Now we'll go to investor questions. The first one is, is Tesla still on track to deliver the more affordable model next year as mentioned by Elon earlier? And how does it align with your AI and product roadmap?

Speaker 1

Sure. I

Speaker 5

mean, as Elon and Vibal both said, you

Speaker 1

are in

Speaker 5

plan to meet that in the first half of next year. Our mission has always been to lower the cost of our vehicles to increase the adoption of sustainable energy and transport. Part of that is lowering the cost for current vehicles, which is where all of the personally owned vehicles that we sell today come in. But the next stage in that really is it fits into AI roadmap is when we bring in robotaxis, which lowers the initial cost of getting into an EV. And those that's really where we see the marriage of EV roadmap and the AI roadmap.

Speaker 1

Yeah. It'll be like with incentives sub-thirty ks, which is kind of a key threshold.

Operator

Great. Thank you very much. Similar question next, when can we expect Tesla to give us the $25,000 non robotaxi regular car model?

Speaker 1

We're not making it on robot.

Speaker 5

Yeah, all our vehicles today are road test.

Speaker 1

I think we've made very clear that the future is autonomous. I mean, it's going to be and I actually said this many years ago, but that my strong belief and I believe that is panning out to be true and be very obvious in retrospect is that the future is autonomous electric vehicles and non autonomous gasoline vehicles in the future will be like riding a horse and using a foot boat. It's not that there are no horses. Yeah, there are some horses, but they're unusual. They're niche.

Speaker 1

And, so it's just everything's going to be electric autonomous. I think this is blind like it should be frankly blindingly obvious at this point that that is the future. So a lot of automotive companies or most automotive companies have not not internalized this, which is surprising because we've been shouting this from the rooftops for such a long time and it will accrue to their detriment in the future. But all of our vehicles in the future will be autonomous. Yes.

Speaker 1

All the vehicles that we've really made, all the 7,000,000 vehicles, the vast majority are capable of autonomy. And we're currently making on the order of 35,000 autonomous vehicles a week. If you compare that to say Waymo's entire fleet, it's less than they have less than 1,000 cars, 35 ks a week.

Speaker 4

Yeah. And our cars look normal.

Speaker 1

Yeah. They're mostly not normal. The Cybertruck looks, thankfully, you know, looks abnormal. And then the Cybert cab, that's robotaxi. We wanted to have something futuristic working.

Speaker 1

I think it does look futuristic. It's worth noting with respect to the cyber cab. It's not, it's especially not just a revolution in vehicle design, but a revolution in vehicle manufacturing that is also coming with the with the cyber cab. The the cycle times like the the units per per hour of of the cyber cab line, it is like this is just really something special. I mean, this is probably half order of magnitude better than other car manufacturing lines like like like like like not in the same league is what I'm saying.

Speaker 1

Not in the same league. So so it's it's it's, you know, and I I said like several years ago that the maybe the most the hottest Tesla product to copy will be the factory. Yeah. Just like by a factory.

Speaker 5

In camera versus near a factory,

Speaker 1

that's up to my Yeah. It's like, you know, if we can Yeah. So the and and as we're so we're rapidly evolving and manufacturing technology. So anyway, it does like basically, I think having a regular 25 ks model is pointless. It would be silly.

Speaker 1

Like it would be completely at odds with what we believe.

Speaker 5

And autonomous world, what matters is lowest cost per mile of efficiency of that vehicle. And that's what we've done with the rope taxi.

Speaker 1

Exactly. Autonomous, it's fully considered cost per mile, is what matters. And if you try to make a car that is, essentially a hybrid manual automatic cars. It's not going to be as good as a dedicated autonomous car. So yes, our cab is just not going to have steering wheels and panels or you sign optimized for autonomy.

Speaker 1

But now it'll cost on the order of cost roughly 25 ks. So it is a 25 ks car. And you can you will be able to buy 1 on an exclusively if you want. So just what have steering wheel pads.

Operator

Great. Thank you very much. The next question is, what is Tesla doing to alleviate long wait times at service centers? So we aim on solving problems at the source, so at

Speaker 6

the factory before they can even affect our customers. We believe the best service is no service and Yeah.

Speaker 1

It really is.

Speaker 6

Don't even have them. If the car doesn't break

Speaker 1

Yeah.

Speaker 6

Exactly. That's the best thing. Don't see any with the test, you either do it Yeah. Fix the issue upstream or do it remotely, do it through software, maybe being at work or at home and car can be parked. And we've addressed and fixed the issue.

Speaker 6

And we've partnered the field with service to make sure we're looking at the same issues. And additionally, just in Q3 and Q4 of this year alone, we have opened and will open in total at nearly 70 locations. And in North America, we significantly expand the size of each location and have doubled the size last year compared to this year.

Speaker 5

Yeah, I

Speaker 1

think it's like actually a lot of merit to having large service centers because you can you can have specialisation of labour. You can start you can start to approach. Yeah, it should be more factory like, you know, where you can have dedicated lanes for particular types of service. And it's way easier for somebody to become expert in a few different types of repairs than in

Speaker 6

every repair. Exactly. This has helped us with the base that these heavy repairs like clogging up the lane, the dedicated lanes for different type of repairs. And so it's through a bit matters and really treating it like a factory.

Speaker 1

Yeah. This is this is where Tesla's structure, I think. Tesla has a strong advantage relative to the rest of the auto industry, because we we make the cars and we service the cars. Whereas I think there's a bit of a conflict of interest with the dealer model and the sort of traditional OEM, the dealer model where the dealerships make most of their money on service. And so they don't they obviously have this incentive to reduce the servicing cost.

Speaker 1

Yeah. Whereas in our case, we are incented to reduce the servicing cost because we we carry that servicing cost. And we've got a good feedback with with our with our cars. Exactly.

Speaker 6

Yeah. If we were with the factory, with the service leaders together and send people from the factories to the field and field to the factory to see it firsthand. Provide suggestions for manufacturing as well as for engineering on design.

Speaker 1

Yeah. So I I I view this as a structural fundamental structural advantage of Tesla versus the rest of the the auto industry.

Speaker 3

We also do a bunch of work on the software side, not only to automate, you know, diagnostics, so identifying, you know, what needs to be done to a car before it comes into service, but also automating all of the preparation work and aligning all the resources that are necessary in order for the car to be very efficiently worked on once it arrives. So the parts are there, like, the lift is scheduled, the technician's schedule, like, everything is

Speaker 1

going to be like a part of the schedule. This is what's wrong with me and tells us to tell the service center.

Speaker 6

The car the car

Speaker 3

Get everything ready in advance. Yeah.

Speaker 1

Please fix me, and this is what's wrong.

Speaker 6

Instead of customer trying to translate the car, it's telling us directly and we're pulling that. Yeah.

Speaker 1

Yeah. You don't need most of the time, you don't need to diagnose the car when it arrives. The car yeah. This is like, again, a fundamental technology advantage and structural advantage compared to the rest of the auto industry.

Speaker 4

I think it's underappreciated as to what all we are able to do. And that's why because like you said before, most of our cars, except for cyber truck, look the same. Right? So people don't realize that it has so much capability.

Speaker 1

Yeah. Yeah. Yeah. Yeah. But like, they're better than other cars.

Speaker 1

But they're not like obviously, like, super futuristic.

Operator

Great. Thank you very much. The next question is, please provide an update on the semi. What will the next stage of growth look like and when will FST be ready? Sure.

Speaker 5

So as we posted in the earnings deck, we're progressing swiftly on the build of the semi factory in our data factory in Reno. We've released all our major capital expenditures for that program and we're on track to start pilot builds in the second half of next year with production starting in the first half of twenty twenty six and ramping really throughout the year to full production. Semi growth will largely depend on our customers' adoption of the product.

Speaker 1

Well, I don't think we're going to be demand limited, honestly.

Speaker 5

Yeah, which I have to say, which is like a brainer for the semi

Speaker 1

because it's really a commodity of total cost of ownership. Yes, exactly. It's good. We have kind of ridiculous demand for

Speaker 5

the semi. In that world, where it's about how much do I spend to make good investments per mile, it's a no brainer.

Speaker 1

Yeah. Fundamentally, if you've got a semi where the fully considered cost per mile per tonne of transport is better than say a diesel truck, any company that doesn't adopt an electric semi will lose. It's not a subjective thing. It's like whether do you like This is competitive. I mean, we want the stat and we want to have a beautiful semi truck, but frankly, if we made an hockey semi truck, it wouldn't matter.

Speaker 5

And this is proving so in our fleets, in Pepsi's partner. In fact, the Pepsi actually said last week, they're having nobody want their drivers don't want to go back.

Speaker 1

Yeah. As soon as we give anyone the electric semi, it's it's it's like the that's like the choice.

Speaker 5

It's the what they want to drive. Yeah. Yeah.

Speaker 1

Yeah. That's like like so they're like the most senior, like, their top drivers will they get to drive the Tesla Semi. It's it's it's the thing they want to drive. It's it's it's super fun to drive.

Speaker 5

It's also very easy to drive.

Speaker 1

It's it's easy to drive and it it holds ass. It's like fast.

Speaker 5

Super fast. Maybe too fast.

Speaker 1

Well, but I mean, like, you know, like, you know, like, like, you've seen like the videos of where like, I think like Tesla Electric Semi, like, you know, can go uphill. Just be fast. Yes. We could speeding fast, like the diesel truck. In recent cars.

Speaker 1

Yeah. In cars. So like it's responsive. It's, you know, you floor it and that truck actually works.

Speaker 5

And that's a benefit not only for the driver and for the goods, but also for safety in terms of other drivers on the road. You don't get stuck behind the semi. You're not like in a slowdown situation in an on ramp. I mean, how that plays into FSD versus the second part of the question. All of the semis have been, since the couple hundred we've deployed already and the ones that we'll be building next year and throughout the future, have all the hardware and the cameras necessary to deploy FSD.

Speaker 5

And we're currently training with that small fleet that we have. And as soon as the fleet is trained and the neural nets are up, we'll get FSD onto that platform.

Speaker 1

Yeah. I mean, it'd be a massive improvement in driver fatigue, you know, because driver safety, we've got sort of the anti jackknifing software. You know, you don't have to worry about your brakes overheating if you go down a steep hill because we use regenerative. That energy goes back into the pack. Actually, when we leave Reno, it's just like it's like radically better than a diesel semi.

Speaker 1

So what the drivers love it.

Operator

Great, guys. Thank you very much. Our next question is, when will Tesla incorporate X and GRAK in all of the Tesla vehicles?

Speaker 1

Well, I mean, these are relatively small for I think, you know. But yeah, I think we'll keep expanding what is available in the car on the spot screen and also improving like the browser. So like just generally, you can access anything you want in the car. In fact, for the Tesla, you know, once you get to full autonomy, you actually want fully a a system that is, you can do anything. Like, if you want to browse the Internet, if you want to, you know, ask ask AI questions, if you want to watch a movie, if you want to play a video game, if you want to do some productivity thing, you can do anything you want in an autonomous vehicle because you don't need to drive.

Speaker 1

So that's why the Cyber Caps got a nice big screen and a great sound system. So you can watch it. Watch a great movie with it's like being like a Personal movie theater? Yeah. Personal movie theater.

Speaker 3

Closing. Yeah. This is why we've been building this functionality, adding gaming to the car, adding movies and other, you know, all sorts of different media applications to the car because, you know, the cars, that's what you're gonna that's yeah. The cars will be built today.

Speaker 1

There's some fun games, by the way, that you really haven't tried it. There's like Castle Doom bad and Plotopia and a bunch of really fun games in the car.

Speaker 3

Yep. We're we're constantly looking at, you know, what features to add next, and we're paying attention to what's most commonly requested by our customers.

Speaker 1

Yep. Play Castle Doom bad. You won't regret it.

Operator

Great. Thank you guys very much. The next question is, Elon mentioned unsupervised FSD in California and Texas next year. Does that mean regulators have agreed to it in the entire state for existing hardware 3 and 4 vehicles? As I said

Speaker 1

earlier, California loves regulation.

Speaker 5

But they have a pathway.

Speaker 1

Yeah, I mean, there's a pathway obviously Waymo operates in California. So there's just a lot of forms but a lot of approvals that are required. I mean, I'd be shocked if we don't get approval next year, but it's just not something we totally control. But I think we will get approval next year in California and Texas and towards the end of the year, it will branch out beyond California and Texas.

Speaker 5

I I think it's important to reiterate this like Mulligan or certifying a vehicle at the federal level in the US is done by meeting FMVSS regulations. All our vehicles today that are produced that are autonomous capable meet all those regulations, the cyber cattle need those regulations. And so the deployment of the vehicle to the road is not a limitation, but is a limitation is what you said at the state level, where they control autonomous vehicle deployment. Some states are relatively easy, as you mentioned for Texas. And so other ones have in place like California that may take a little longer.

Speaker 5

Other ones haven't set up anything yet. And so we will work with those state by state.

Speaker 1

I do think we should have

Speaker 5

a federal, I agree that like autonomous vehicles should be approved. They just should be possible to. Congress, if you're listening, let's get a federal AV. There should be

Speaker 1

a federal approval process for autonomous vehicles. I mean, that's how the FMBSS is Started at work. Federal motor vehicle, FMBSS is federal.

Speaker 5

Yeah. So I mean, in 2017 and 'eighteen, we it's when regulators started looking at it and it's really kind of stalled since then, but we would appreciate and would support helping out with

Speaker 1

those regulators. It really needs to be like a national approval is important. You know, if there's an Department of Government Efficiency, I'll to help make that happen. And you took for everyone, not just Tesla, but, you know, just like some things in the US are state by state regulated, like, for example, insurance. And it's like it's incredibly painful to do it state by state for 50 states.

Speaker 1

And I think we should have there should be a national approval process for autonomy.

Operator

Great. Thanks guys. The next question is, what is the plan for 2025?

Speaker 1

I mean, we're just talking

Speaker 4

about it. I mean, basically we talked through this and there's a lot going on. You know, Aldi mentioned that we're working on cheaper models to come out. I mean, there are work which the team is doing to get the factories ready today to try and make that happen.

Speaker 1

Yeah. And by the way, the amount of work required to make a lower cost car is insanely high. But, like, it is harder to get, like, 20% of the cost out of a car than it is to design the car and build the entire factory in the 1st place.

Speaker 5

Yeah.

Speaker 1

It's, like, excruciating. And it's and it's there's not a lot of movies made about the the heroes who got 20% of the cost out of a car. But let me tell you, there should be. Look at it. It was a little change.

Speaker 1

Because everything got that is incredibly heroic.

Speaker 6

It's a little change. It's not like it's Yeah.

Speaker 1

It's like there should be the heroes who got 20% cost out of a car is like, Damn, I have a lot of respect to them. It's like a movie. It's like,

Speaker 4

you know, I think you probably

Speaker 1

could make a compelling movie, but it just nope, nope. Like, if you actually saw how hard it if people actually saw how hard it was to do that, you'd be like, woah, that's damn hard.

Speaker 5

Just yesterday, we were talking about potty. Yeah.

Speaker 1

I mean, honestly, like, literally, yeah. I mean, there's a lot of what I do call sort of like getting cost out of things, it's kind of like it's like game of pennies. So it's like game of thrones, but pennies. You know, first approximation, if you've got 10,000 items in a car, very rough approximation, and each of them costs $4 then you have a $40,000 car. So if you want to make a, you know, a $35,000 car, you're going to get $0.50 on average out of the 10,000 items.

Speaker 1

Every time every part. Yeah. And it's like, you know, and then obviously the best is you delete some parts. In fact, we've found we're able to delete a lot of parts. I'm sorry.

Speaker 1

I'm very excited about the cyber cap design and the, you know, how we're rethinking the design of a car for the side of the cab, designing it for ultra high volume production and then designing a machine that builds the machine, that I think is also revolutionary. And it's just there's no other car company that's even trying to do what we're doing. Like, I've even heard of it actually. In fact, I'm certain there is someone like like, I think this is the new machine that builds the machine, like, it's it's inherent. Like, it's it's designed to be, like, you know, 5 times better than

Speaker 5

traditional factory, like cycle time. Cycle time and like part deletion and general movement. I don't think any other car company has the same level of like integration of thought that we have when it comes to like when you design a part from a white sheet of paper, who's going to make it? Where is it going to be made? How's it going to be shipped?

Speaker 5

How's it going to be assembled into the vehicle? And at any one point, if something is done in a silo, it becomes a bottleneck of either cost or time or efficiency. But with the road taxi development, like we've done a good job on combining all that and then like blowing up how it's made and saying it should be made this way and rethinking it all. So that's the most efficient factory possible that shows in our, it will ship in our CapEx efficiency when we deploy it, shows in the number of parts, shows in the simplicity of vehicle, but also how it performs in terms of like end user state.

Speaker 4

Yeah. Just to close-up, just on the energy front also in 'twenty five, we will have started manufacturing out the mega factory Shanghai. We'll continue to increase our storage deployments with Powerwall 3. We plan to continue expanding our supercharging network, getting more OEMs on our network, 4,680 in that cell ramp, as Yuval talked about, that would keep going. And then there's also we'll have our lithium refinery starting to produce.

Speaker 4

So there's a lot which is going on.

Speaker 1

Okay. Yeah. So many things. Yeah. I mean, the create like the crazy thing is like Tesla is winning basically on almost every single thing we're doing.

Speaker 1

If we're not winning now, we're on track to win. In arenas where there are entire large companies, that that's the only thing they do.

Speaker 4

I mean, it's a company there are multiple companies within the company. Yeah.

Speaker 1

TILDA is like many companies that are in 1.

Operator

Yeah. Fantastic. Thank you, guys. Just a few more. What is going on with the Tesla Roadster?

Speaker 1

Some things. Well, I'd just like to thank our long suffering deposit holders of the Tesla Roadster. The reason it hasn't come out yet is because it is the roadster is not not just the icing on the cake, it's the cherry on the icing on the cake. And so, you know, our larger mission is to accelerate the progress towards a sustainable energy future, you know, try to do things that maximize the probability of the future is good for humanity and for Earth. And so that necessarily means that, like, the things like that are kind of like dessert.

Speaker 1

We'd like like we'd all love to work on the Tesla, the next gen Tesla road. So it is super fun and we are working on it, but it has to come behind the more things that have a more serious impact on the good of the world. So just thank you to all our long suffering, Tesla Rosso deposit holders. And we are actually finally making progress on that. And we're close to finalising the design on that.

Speaker 1

It's really going to be something spectacular. You know, a friend of mine, Peter Thiel, you know, and sometimes it feels like Peter Thiel and I are rivals. We're really good friends. To be fair, Peter, you know, was lamenting how the future doesn't have flying cars. Well, we'll see.

Speaker 5

More to come.

Speaker 1

Yeah.

Operator

Great. Thank you very much. The next one is quite similar to other questions you've had. So when I combine it with the final question, so briefly, could you just detail how Robo Tech C will roll out? Will it start with a Tesla deployed fleet and then allow customers to add theirs on the subscription model?

Operator

And then will hardware 3 be capable of level 5?

Speaker 1

As

Speaker 2

you're going to be hardware 3, what we saw with 12.5 was it was easier to make progress with starting with hardware 4 and filling out the solution and then back porting into hardware 3 instead of directly working on hardware 3. Given that hardware 4 has more like fundamental hardware capabilities, I think that trend will continue into the next few quarters as well, but we first figured solution rapidly with AI4 and then back ported, right? The kernels It just takes longer to narrow up those things because it's not fundamentally supported in the hardware and it's emulated. But, yeah, it's initially working on hardware 4, backporting it to hardware 3.

Speaker 1

Yeah. So it's like the answer is we're not we're not 100% sure. But but but as a short version, because by some measures, hardware 4 has really several times the capability of hardware 3. It's easier to get things to work with hardware 4. And then it takes a lot of effort to sort of squeeze that functionality into hardware 3.

Speaker 1

And, you know, there is some chance that hardware 3 is does not achieve the safety level that allows for unsupervised FSD. You know, there was some chance of that. And if that turns out to be the case, we will upgrade those who have bought hardware 3 FSD for free. And we have designed the system to be upgradeable. So it's really it's really what you know, just to switch sort of switch out the computer type thing.

Speaker 1

The cameras are capable. But anyway, we don't actually know the assets of that. But if it does turn out, we'll make sure we take care of those onboard MST on HOT River 3.

Operator

Great. And the last few minutes that we have left, we will try to get in some analyst questions. The first question will be coming from Pierre Ferragu at New Street. Pierre, please feel free to unmute yourself.

Speaker 7

Thanks a lot guys for taking my question. I was wondering about the compute you're ramping up. So you gave interesting statistics on how much you have and you said you don't feel your compute constrained. And I was wondering how you are putting to work this additional compute. Is that a game for you of creating larger and larger models, like next generation of models that are larger the way OpenAI go from GPT-three to GPT-four?

Speaker 7

Or is that more like you're set on your model and you need to throw more and more compute to accelerate the pace of learning to improve reliability? And then I had a quick follow-up really quick on your rollout in Texas and in California next year. The plan as you see today, is it to roll out like a fleet or 2 with cars that will start with like a supervisory, like some onboard supervision, someone sitting at the wheel just in case and removing the supervisors progressively? Or are you aiming for going, fully fledged without even a human supervisor when you get started?

Speaker 1

Okay. Well, I guess, regarding answer. Yeah. The the first part of the question, the the nature of real world AI is different from, say, an LLM in that, you you have a massive amount of context. So that, like, the the you've got case of Tesla 7 or 8 cameras that, you know, 9, up to 9 if you include the internal camera that that that so you've got gigabytes of context and that is then distilled down into a small number of control outputs.

Speaker 1

You know, whereas it's like you don't really it's very rare to have in fact, I'm not sure any LM out there can do gigabytes of context. And then you've got to you've got to then process that in the car with a very small amount of compute power. So, you know, it's it's a it's all doable and it's happening, but it is a different problem than than what say a Gemini or OpenAI is doing. And now part of the way you can make up for the fact that the inference computer is quite small is by spending a lot of effort on training. And just like just like a human, like, the more you train on something, the less the less mental workload it takes when you try it when when you when you do it.

Speaker 1

Like, when the first time, like a human starts driving, it absorbs your whole mind. But then as you train more and more on driving, you get very good, then you the driving becomes a background task. It doesn't it only absorbs a small amount of your mental capacity because you have a lot of training. So we can make up for the fact that the inference computer is it's it's tiny compared to, you know, a 10 kilowatt bank of GPUs because you've got a few 100 watts of inference computer. We can make up that with heavy training.

Speaker 1

So, yeah, that's and and then there's also vast amounts of the the actual, you know, petabytes of data coming in are tremendous. And then sorting out what training is important with, you know, of the vast amounts of video training or video data coming in fleet, what is actually most important for training? That's quite difficult. But as I said, we're we're we're not currently training compute constraints. Right?

Speaker 1

I'm Rishabh, do you want to elaborate?

Speaker 2

Yeah. Like you mentioned, the training has both trained large models, also to train quicker.

Speaker 1

But in

Speaker 2

the end, we still got to pick which models are performing better. So the validation effort to picking the models, because the miles per intervention is pretty large. We have to drive a lot of miles to

Speaker 1

go

Speaker 2

in close loop. We do have simulation and other ways to get those metrics. Those 2 help, but in the end, that's a big bottleneck. Yeah. That's why we're not training computer constraint alone.

Speaker 2

And there's other access of scaling as well, which is a data, figuring out which data is more useful. That is an important task, and we're focusing on that.

Speaker 5

So as it relates to the second part of your question, Pierre, about safety drivers and rolling it out, each state has different requirements that in terms of how many miles and how much time you need to have a safety driver and not have a safety driver. We're going to follow all those. We're not going to violate whatever regulations are out there, but safety is a priority. But the goal is obviously that when we're ready and safety is there, we'll remove all the direction from the rideshare currently.

Speaker 1

Yeah. I mean, I guess like we think that we'll be able to have driverless Teslas during paid rides next year, sometime next year.

Operator

All right. Thank you. And our next question comes from Adam Jonas at Morgan Stanley. Adam, please feel free to unmute yourself.

Speaker 8

Okay. Thanks, everybody. Just had a question about the relationship between Tesla and XAI. Many investors are still not clear how the work at XAI is truly beneficial to Tesla. Some even take the view that the 2 companies may even be in competition with each other in terms of talent and tech and even your time, Elon.

Speaker 8

So what's your message to investors on that relationship between Tesla and XAI and where do you see it going over time? Thanks.

Speaker 1

Well, I should say that XAI has been helpful to Tesla AI, in a, you know, quite a few times in terms of things like scaling up, but like training, you know, just even, like, recently in the last week or so, improvements in training, you know, where if you you're doing a big training run and a node fails, being able to continue training and and easy to recover from our training when XAI has been pretty helpful. So, but it but there are different problems. You know, XAI is working on artificial general intelligence or artificial superintelligence. Tesla is trying to make autonomous cars and autonomous robots. They're they're different problems.

Speaker 1

So, yeah. I mean

Speaker 4

I think we've said this before also, like, all not all AI is equal. Right? I mean, there's AI is a broad spectrum.

Speaker 1

Yeah.

Speaker 4

And we have our own swim lanes. Yes, there are certain things which we can collaborate on if needed. But for the most part, we're solving different issues.

Speaker 1

Yeah. Tesla's focus on real world AI. And I was saying earlier, it is quite a bit different from an element. But you have massive context in the form of video and some amount of audio that's going to be distilled very like with extremely efficient inference compute. I do think Tesla is the most efficient in the world in terms of inference compute like because out of necessity, we have to we have to be very good at efficient inference.

Speaker 1

We can't put 10 kilowatts of GPUs in a car. We've got a couple 100 watts. So, you know, it's pretty well designed Tesla AI chip, but it's still a couple 100 ones. But there are different problems. I mean, you know, like like, the stuff that I said is, like, when it's running in burns, I mean, it's it's it is running in burns.

Speaker 1

So, like, answering questions, answering questions on a on a 10 kilowatt rack. It's like, yeah, put that in a car. It's a different problem.

Speaker 5

Please don't.

Speaker 1

No. Exactly. So, you know, XAI is because because I felt there wasn't there wasn't a truth seeking digital superintelligence company out there. Like, that's what it came down to, that they needed to be a truth seeking, like like an AI company that is very rigorous about, a truthful. I'm not saying XAI is perfect, but that is at least the explicit aspiration.

Speaker 1

Even if something is, you know, politically incorrect, it should still be truthful. I think this is very important for AI safety. So anyway, I think AI XNI will it has been helpful to Tesla and will continue to be helpful to Tesla, but they are very different problems. Great. And I mean, like, if you're thinking like what is like what other car company has a world class trip design team?

Speaker 1

Like 0. What other car company has a world class AI team like Tesla does? 0. Those were all startups. They're created from scratch.

Operator

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

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Earnings Conference Call
Tesla Q3 2024
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