Tesla (NASDAQ: TSLA) CEO Elon Musk: “Most Exciting Product Run Path on Earth!”

Tesla (NASDAQ: TSLA)  Q4 2022 Earnings Call


CEO Elon Musk:

It was a fantastic quarter for Tesla. It was our best year ever on every level. Teams did an amazing job. It’s an honor of course to work with such, such a, an incredibly talented group of people. So in 2022, we delivered over 1.3 million cars and achieved a 17% operating margin. The highest among any volume car maker, I think may, maybe among any car maker.

We so we generated 12 and a half billion dollars in net. and seven and a half billion in pre cash flow. Importantly, the Tesla team achieved these records while 20, despite the fact that 2022 was an incredibly challenging year due to four shut downs very high interest rates and many delivery challenges.

So it’s, it’s worth knowing that, all these records were in the face of massive difficulties accredit to the accredited to the team for achieving that. The most common question we’ve been getting from investors is about demand. Thus for so I want to put that concern to rest.

Thus far in January we’ve seen the strongest orders year to date than ever in our history. We currently are seeing orders. almost twice the rate of production. So that, that’s hard to say whether that will continue a twice rate of production, but the orders are high and and we’ve actually raised the bottle up y price a little bit in response to that.

We do not we think demand will be good despite probably a contraction in the automo automotive market as a whole. Basically price really matters. I think there’s a vast number of people that want to buy a Tesla car but can’t afford it. And so these price changes really make a difference for the average consumer.

It’s sometimes for those, for people who are well, have a lot of money they forget about how important affordability is. . And it’s always been our goal at Tesla, us to make cars that are affordable to as many people as possible. So I’m glad that we’re able to do and yeah, so I think it’s a good thing. All things considered. We’re also making very good progress on cost control. And we’re seeing the costs production in Berlin and Austin drop commensurate with the growth in production. So as you’d expect. Yeah. With respect to autopilot as of now we deployed full self-driving beta to in, on poor city streets to roughly 400,000 customers in North America.

This is a huge milestone for autonomy as FSD beta is the only way any consumer can actually test latest AI powered autonomy. And we’re currently at about a hundred million miles of FSD outside of hot wastes. And our published beta shows that improvement in state safety, in safety, statistics, stuttering here, safety statistics.

It was very clear . We would not have released the FFC bed if the safety statistics were not excellent. With regarding batteries, approximately rate of 46 80 sales reached a thousand cars a week at the end of last year, and we’re increasing capacity for 46 80 sales by another a hundred gigawatt hours as announced at gig in Nevada yesterday.

Our long-term goal is to get to in excess of a thousand gigawatt hours of cells produced internally and continue to use other self cell providers. So to be clear we will con continue to use other cell providers, just that the demand for lithium batteries is quasi infinite or, and will be for quite some time.

So we fear we can scale a lot faster using both suppliers and internally produced cells. And we’ve got a, an amazing plan for making the 46 80 cell low cost and high energy density. Energy storage also see soil record growth. And with that is continuing to accelerate.

Towards worth remembering that the three pillars of a sustainable energy future are obviously electric vehicles solar and wind. And then the third key item is stationary storage to store the energy from solar and wind, because obviously the sun doesn’t shine all the time and the wind doesn’t flow all the time.

So if you have those three things, you can you can convert all of Earth to a fully sustainable situation many times over actually. I would like to just, make it clear that there, there is a path to a fully sustainable future for humanity, and we, our goal at Tesla is to accelerate progress on that path as much as humanly possible.

Yeah, so we were obviously ramping up Megapack production and which we expect to it to grow at a rate quite a bit faster than our vehicle output. So in conclusion, we’re taking a view that we want to keep making and selling as many cars as we can. We believe we can keep pushing for strong volume growth while retaining the industry’s best operating margins.

As we mentioned many times before, we want to be the best manufacturer. Really manufacturing technology will be our most important long-term strength. And we’ll talk more about our upcoming plans at the March 1st Investor Day and what and last day. I want you to once again, thank all of our employees for delivering another record brief year.

Congratulations guys. Thanks Elona, and I think Zach has some opening remarks as well. Yeah. Thanks Martin. So Elon mentioned 2022 was a terrific year for Tesla. I also wanna congratulate the Tesla team and also say a thank you to our suppliers for your support. During quite a volatile year on a full year basis, revenue increased over 50%.

Operating income doubled free cash flows increased over 50%, and our margins remained industry leading. Additionally, we continue to make progress on overhead efficiencies as non gap opex as a percentage of revenue improved. Further, for specifically sequential and annual margin was impacted by a s p reductions as we were managing through covid impacts in China.

Uncertainty around the consumer tax credit in the US and a rising interest rate environment. Note that in 2022, rising interest rates alone had effectively increased the price of our cars in the US by nearly 10%. Additionally, cogs per unit has increased on a year over year basis, driven primarily by three factors.

First, raw materials and inflation led by lithium prices and discussed at length in previous calls. Second, we are working through the early ramp inefficiencies of our Austin and Berlin and in-house cell production factories. Third, our vehicle mix over the last year has moved more heavily towards model Y, which carries a slight cost premium to model three, partially offsetting these impacts.

We’ve continued to execute on Tesla controllable cost reductions in line with the progress we’ve made in prior years. These improvements include our continued work to gradually move towards a regionally balanced build of vehicle. The energy business had its strongest year yet across all metrics led by steady improvement in both retail and commercial storage.

While much work remains to grow this business and improve cost, we believe we are on a good trajectory. As we look towards 2023, we’re moving forward aggressively leveraging our strength and cost. There are three key points I wanted to make here. First, on demand. As Elon mentioned, customer interest in our products remains high.

Second on cost reduction. We’re holding steady on our plans to rapidly increase volume while improving overhead efficiency, which is the most effective method to retain strength in our operating margins. In particular, we’re accelerating improvements in our new factories in Austin, Berlin, and in-house cells where inefficiencies are the highest, but we are attacking every other area of cost and unwinding cost increases, created for multiple years of covid related instability.

This includes logistics, expedites, accumulation of material buffers. Part premiums, productivity, and overheads. As an example, as the world transitions from an inflationary to deflationary environment, we expect a strong partnership with our suppliers on this journey as well. In net, we’ve priced our products with the view towards a longer term cost structure.

Thus, there will be an impact on operating margin In the near term, however, we believe our margins will remain healthy and industry leading over the course of the year. Third, we are continuing to ensure funding is prioritized for our long-term roadmap. This includes expanding in-house sell production, bringing cyber truck to market development of our next generation vehicle platform, expansion of our manufacturing footprint, and growth of the energy business.

We’re looking forward to discussing these plans in more detail on our investor day in a month. Thank you. Thank you very much, Zach. Let’s now go to investor questions. The first question is, some analysts are claiming that Tesla orders, net of constellations came in at a rate less than half of production in the fourth quarter.

This has raised demand concerns. Can you elaborate on order trends so far this year and how they to current production rates? I think we’ve already answered that question. Yes, exactly. The demand far exceeds production. And we actually are making some small price increases as a result.

Thank you. The second question is in similar vein what is the initial reaction been to global price reductions in early one Q 2023 specifically in terms of order intake levels? We’ve answered that one as well. Yeah. So let’s go to the next one. The next investor question is, will Tesla be able to take full advantage of advanced manufacturing production credit?

For battery sells packs. So $3,700 per long-range model, 3M model y, it’s $45 a kilowatt for autos and energy products. And how much does Tesla expect to earn in the coming year from these credits? I’ll say a little bit about it then. I think Slack work will add some long term we expect these the value of these credits to be very significant.

You can do the math if we were to get anywhere near a thousand gigawatt hours a year of production or even a few hundred gigawatt hours. It’s it’s very significant. But the credits do rely upon domestic manufacturing. And, in the case of Panasonic West Domestic Manufacturing we’re, splitting the value of the credit.

It’ll the value, the credits this year will not be gigantic, but I think it could be gigantic in the future. It would, we think it probably will be very significant in the future.

Yeah. Just to add and input some boundaries on what we’re expecting in terms of impact to Tesla for this year. So different products we think will get different amounts of credit. The regulations here are still in flux and there continues to be updates. So this is just our best understanding at the moment.

But, we think on the order of 150 million to 250 million per quarter this year, and growing over the course of the year as our volumes grow. And, part of the work we’re doing here, which is part of what this incentive package is trying to incentivize is as Elon mentioned, to move more manufacturing onshore in the United States.

which is Tesla’s plans anyways. And so I think we’re pretty well positioned over the coming years to take advantage of this. But then also, part of what the goal of this incentive package is to improve adoption from our customers. And so we also want to use these incentives to improve affordability as we think about, what the price points are on our products going forward.

And so as we were thinking about our pricing changes in the US a couple of weeks ago that we announced, we were looking at know, what the credit benefit to Tesla would be to make sure that customers are able to receive the benefit not only from this, that we’re receiving to some extent, but also on the consumer facing side, which is currently 7,500 per car of tax credit, assuming that subject to the MSRP caps and the income caps.

know, We want to use this. To accelerate sustainable energy which is our mission and also the goal of this bill. Thank you very much. The next question from investors is after recent price cuts, analysts release expectations that Tesla Automotive gross margin exclusive, excluding leasing and credits, will drop below 20% an average selling price around 47,000 across all models.

Where do you see average selling price and gross margins after the price cuts? Yeah, go ahead. Yeah, I’ll jump in on this. There, there’s certainly a lot of uncertainty about how the year will unfold, but I’ll share what’s in our current forecast for the moment. Based upon these metrics here, we believe that we’ll be above, both of the metrics that are stated in the question.

So 20% automotive gross margin, excluding leases and red credits, and then 47 K A S P across all models. . two other comments I wanna make on this just tactically on Sequential ASP changes from Q4 to q1. And just as a reminder, the ASP reduction is not as large as the reduction in configurator prices.

As in q4. We had backlog customers that were delivering cars to at a lower price book, given that backlogs had been so long for so much of 2022. But then also there are various programs in place that we used in Q4 that lowered ASPs. What the second comment I wanted to make here is that, as a management team here, we’re most focused on on what our operating margin is.

And as other areas of the business become more important, particularly the energy business, which is growing faster than the vehicle business and as we’re heavily focused on operating leverage here, improving efficiency of our overheads we think the right metric for us to be focused on is operating margin.

And so wanted to make sure that I shared that with the investor community as well, because that is what we’re primarily managing to now. Yes. Something that I think some of these smart re retail investors understand, but I think a lot of others maybe don’t, is that the every time we sell a car, it has the ability just from up uploading software to have full stop driving enabled.

And the full stop driving is obviously getting better, very rapidly. That’s actually a tremendous upside potential because all of those cars with a few exceptions, only a small percentage of cars don’t have hardware three. So that means that there’s millions of cars where plus off driving Can be sold and essentially a hundred percent gross margin.

And the value of FSC grows as it become, as the autonomous capability grow. And then when it becomes fully autonomous that is a value increase in the fleet. That might be the biggest asset value increase of anything in history. Yeah. Thank you. Let’s go to the next investor question. Since Elon started political influencing Pulse from morning consult and Yuko chose Seth, you trust their them with your life.

Show Tesla brand fa favorability declining in 2022 and division among partisan lines such brand damage can impact, demand. Does Tesla track favorability? And how will any brand damage be mitigated? Let me check my Twitter account. Okay, so I’ve got 127 million followers. It continues to grow very rapidly.

That suggests that I’m, reasonably popular. And I might not be popular by with some people, but for the vast majority of people, my follow account speaks for itself. I, on most interactive accounts social media accounts, I think maybe in the world certainly on Twitter. And that’s actually predated the Twitter acquisition.

I think Twitter’s actually an incredibly powerful tool for driving demand for Tesla. And I would really encourage companies out there of all kinds automotive or otherwise, to make more use of Twitter and to use their Twitter accounts in ways that are interesting and informative.

Entertaining and it will help them drive sales just as it has with Tesla. The net value of Twitter, apart from, a few people are, complaining is gigantic, obviously.

Thank you. Let’s go to the next question. Please provide a detailed explanation of where you are on the 46 80 Ram. What are the current roadblocks and when do you expect to scale to 10,000 vehicles a year? A week. Yep. Thanks Martin. First I just wanna say congrats and thanks to the Tesla 46 City.

Came for achieving Uhk a week in q4. Was no small feat. Definitely a result of, more than a couple years of hard work. As far as where we stand in Texas, one of four lines are in production with the remaining three and stages of commissioning and install. Really our 2023 goal as a 46 80 team is to deliver a cost effective ramp of 46 80 as well ahead of cyber truck.

Focus areas are dialing in and improving the quality of the high volume supply. Mechanical parts and driving factory process yields up as much as possible. Between two of those things, if we’d achieve those key goals we’ll be well set up to for a major 46 8 year in 2024. Thank you.

And next investor question is even said previously that FSD hardware for we most likely come first in cyber truck. Is that still the current plan? Do you expect there to be an upgrade path for hardware three cars to hardware four?

Yes. iTrack will have hardware four and , thank you. For 2023, cyber Truck will not be, a real, a significant contributor to the bottom line but it will be in next year. So it’s an incredible product. I can’t wait to drive it personally. It will be the car that I drive every day, actually, just I’m wearing the t-shirt with the smashed glass

And it’s just one of those products that’s only comes along once in a while and it’s really special. Yeah, it, so with respect to upgrading cars that have hardware three I don’t think that will be needed. Hardware three will not be as good as hardware four, but I’m confident that hardware three will so far exceed the average for the safety of the average achievement.

So aiming for how do we get ultimately to. Let’s say for argument’s sake, if hardware three can be, say, two or 300% safer than human hardware, four might be, five or 600%. It’ll be a hardware five beyond that. But what really matters is are we approving the average safety on the road?

But it is the cost and difficulty of retrofitting hardware three with hardware four is quite significant. So it would not be, I think economically feasible to do thank you. The next question is for Zach. Zach, when do you think Tesla insurance will become big enough revenue source to warrant providing more details in the financials of the business so investors can compare it to other insurance companies?

Yeah. I think it’s probably gonna take some time before this business is large enough for specific financial disclosures. But I’m happy to provide an update on where we stand in the business. So we’re currently at a $300 million annual premium run rate as of the end of last year. We’re growing 20% a quarter, so it’s growing faster than the growth in our vehicle business and in the states in which we’re operating on average 17% of the customers in those states are using a Tesla insurance product.

So in that number continues to take up as we spend more time in markets. And we see most of the adoption occurring when folks take delivery of the new car as they’re setting up insurance for the first time as opposed to going back and switching when they already have insurance set up. So as an inherent stickiness in the insurance business but.

Sorry, go ahead. No, I was just gonna say, just as a broader reminder on kind of the motivation for starting this business it was to improve and still is to improve the total cost of ownership of our cars, given that we’re seeing high premiums of insurance from third party companies. And that remains our priority here.

We’ll obviously run this as a healthy business but we wanna make sure we keep our costs low and insurance stays affordable to our customers. Yeah. And so there, there are two really important side benefits, which has an insurance that are worth mentioning, one of which Zach alluded to, which is that just by Tesla offering insurance for our cars at a competitive rate that makes the other car insurance companies offer better rates for Teslas.

So it has a bigger effect than you think because it improves total cost ownership of insurance costs even when they don’t use Tesla insurance because now No. That the guy goes into the world have to compete with Tesla and cannot charge outrageous insurance for Tesla’s. This is great.

So that has an amplified effect. Very important. The then it is also giving us a good feedback loop into minimizing the cost of repair of Teslas for all Teslas worldwide. Because we obviously wanna minimize the cost of preparing it at Tesla if it’s in a collision and for Tesla insurance.

And previously we didn’t actually have good insight into that because the other insurance companies would cover the cost and actually the cost in some cases where unreasonably high. So we’ve actually adjusted the design of the car and made changes in the software of the car to.

Minimize the cost of repair, obviously minimize the first, the best repair is no repair, avoid the accident entirely. Which since every Tesla comes with most advanced act of safety in the world whether or not you buy full cell driving you still get the intelligence of full self driving for active safety, active GL collision prevention.

So it’s giving us this really good feedback loop for, again, reducing cost, total cost of ownership and also just figuring out how to get, if somebody’s cars in a, in an accident, most accidents are actually small. They’re like, a broken fender or scratched the side of the car or something like that.

They’re not the vast majority of accidents. But we’re actually. Solving how to get somebody’s car repaired very quickly and efficiently and back in their hands. And like I said those improvements actually apply then to old cars. And and we’re making just emphasize another key point cuz some of these points might be less project being repetitive, but it’s remarkable how small changes in design of the bumper and and improving, obviously improving.

The logistics of spare part are providing spare parts needed for collision repair have enormous effect on the repair cost. So if you’re waiting for a part to get repaired and that part takes a month, now you’ve got a month of having to rent another car. It’s very extremely expensive. And of course you’re missing the car that you love and want actually want to drive.

This is a, actually a very significant effect on total cost of ownership and customer happiness. Thank you. The next question from investors is cyber track production still on track for mid-year? It we do expect production to start. I know maybe sometime this summer, but it’s, I always like, try downplay the starter production because the starter production is always very slow.

It increases exponentially, but it’s always very slow at first. So I wouldn’t put too much stock in starter production. It’s when does volume production actually happen? And that’s next. Thank you. Yeah that’s right on. Just to emphasize on that, we’ve started installation all the production equipment here in Giga, Texas.

Castings, ga general assembly body shops, built all our beta vehicles. More coming still in the next month, but as you said, the ramp will really come 20, 20, 24. Yeah, exactly. Thank you. And the last investor question is with near infinite global demand for energy storage. Yeah. Seriously, what if, should Tesla build the next mega pack factories?

How many are needed on each continent? It’s a good question. It’s not something we, I think would, I think we’ll provide an update about that in the future. But it is something we’re thinking about very carefully. Really kinda what is the fastest path to a thousand gigawatt hours a year of production.

And you’ll see announcements come out later this year and. and next that answer that question. Thank you. Okay. And now let’s go to analyst questions. The first analyst question comes from Rod Large from wealth research. And Rod, feel free to unmute your mic. I think I’m unmuted. Can you hear me?

Yes, we can. Okay, thank you. Just firstly it sounds like your 1.8 million unit volume indication for this year is somewhat more supply constrained and demand constrained than I have a follow up on, on cost. But is that an accurate statement, ? Okay. Our internal production potential is actually closer to 2 million vehicles, but.

We’re saying 1.8 because I don’t know, there just always seems to be some frigging force maje thing that happens somewhere on earth, . And we don’t control if there’s like earthquake, earth, earthquakes, tsunamis, wars, pandemics et cetera, . If it’s a, if it’s a smooth year, actually, without some big supply chain interruption or massive problem, we actually have a potential to do 2 million cars this year.

We’re not committing to that, but I’m just saying that’s the potential. And I think there’s, there would be demand for that too. Yeah. Thank, thanks for clarifying that. And on, on the cost side, the numbers that we just saw from you as you pointed out, were weighed down by the 46 40 and 60 ramp, the Berlin Austin.

Gig cast things, processes not at rate. Can you give us a bit of an indication of the headwind that you’re absorbing from those things like you did last quarter? And then lastly on, on cost. Do you think that we can tease out an interesting data point from on where battery costs are headed from this announcement that you just made last night?

If I’m correct, it looks like the investment cost for kilowatt hour is less than half of what I’ve seen anywhere else. May maybe $30 a kilowatt hour for that capacity.

don’t think I wanna say the specific number, but interesting. If you look at the size of the, of gig in Nevada that is allocated to make a hundred gigawatt hours is a small fraction of the size that currently makes about 35. Yeah, the goals we outlayed it. Battery day on reducing the investment required to deploy cell manufacturing.

That’s been a key focus of ours. And the team is doing a good job hitting hitting the marks on that focus. Yeah. And it goes back to the point I was making and I said that several years ago. I think Tesla, us really the competitive strength that will be by far the hardest for other companies to replicate is Tesla being just damn good at manufacturing and having the most advanced manufacturing technology in the world.

And if you’ve got that sort of advanced manufacturing toolbox, you can apply it to many things. And we’re applying it now to battery sales. I should say that they’re, we have other products in development. We’re not gonna announce them obviously. But they’re very exciting. And I think we’ll blow people’s minds when, when they, when we.

Revealed them. Tesla has the most exciting product run path of any company on earth by long shot. And yeah, we’ll, we’ll continue to, I think, have be in that position. We’ve got more great ideas than we, we know what to do with here. The future is very exciting. I, as I said in the last call I, there’s gonna be bumps along the way and a group will probably have a, pretty difficult recession this year, probably.

I, I hope not, but probably. And so you, one can’t predict the short term sort of stock value because know, when there’s a recession and people panic in the stock market, then prices of stocks with value of stocks can drop sometimes too surprisingly low levels. But long term I am.

convinced that Tesla will be the most valuable company on earth. Thank you. And I think Zach, there was a question on cost headwind in, in Q q4.

Yeah. I mean our weighted average clouds for the company, if you were to assume Austin and Berlin were at the cost structure of our other factories, this was on the order of 2020 500 of headwinds. So I think from there you come back into margin impact of this factories as of end of q4.

Thank you very much. And let’s go to the next question from Pierra Farrago from New Street Research here. Please go ahead. Thanks Martin. Can you hear me well? Yes. Yes. Excellent. Zach, I actually, I’d like to follow up on the data points you just gave on. If I look back at the Cox per car you guys bottom close to $36,000 in the middle of 2021.

And then the number went up as you had to face with inflation in input cost and the ramp of Berlin and Texas. And this quarter I think we are close to 40 K and we picked maybe close to 40, $42,000 at some point last year. And so my question from here is how much time do you think it takes you to get back to this kind of 36 K, which would mean, Berlin and and takes us and magazine input, cost, all that stuff is normalizing.

Is that like a, and that would be like a kind of a 10% decline in the cox per car. Is that something we can hope to see this year or is that too optimistic? The Austin and Berlin ramp in efficiencies in 46 80 will make a substantial amount of progress on that over the course of the year, and that’s within Tesla’s control.

We’re doing a lot of work on cost reduction outside of that, and we talked about supply chain, cost expedites logistics, attacking everything on the raw materials and inflation side where lithium is the large driver there. And this was a meaningful source of cost increase for us. We’ll have to see where lithium prices go and, know, we’re not fully exposed to lithium prices, but I think in general it’s what we’ve seen from our forecast here.

Cost per car of lithium in 2023 will be higher than 2022. That’s a headwind that would have to be overcome to return back to those levels. So I don’t think we’ll get there this year, but I think we’ll make progress. and can you continue to find ways to offset these raw material costs that we don’t have control over any?

Is there any anything on that? Yeah, like on the non cells raw material, we begin to capture, benefits of indexes tapering up, but you do a length of various supply chains. It does take time before this is reflected in our financials. And while alumni is down like 20%, year over year, steel is about 30% down year over year.

The global non-sales raw matures market continues to be influenced by geopolitical situations in Europe. High production cost you to labor cost increases in energy spikes and disruptions due to natural disasters like Typhoon and Korea four months ago, pandemic lockdowns. So we believe that meaningful price corrections will ultimately come, but it remains uncertain exactly.

In the meantime we continue to redesign supply chain to make it more efficient and work with our supplier partners to find more efficiencies, streamline logistics, and transportation to reduce costs. Excellent. Thank you. And I have, sorry, you wanted to say something? I was gonna say we’re also, our fleet is starting to mature the three y fleet and we’re gathering a lot of data out of that fleet to understand how we can bring some margin that we didn’t know we had out of the product.

So over the course of 2023 on the powertrain side, we’re actually gonna go a, after sort of some materials where we’re paying for more performance than we need, or we have more content than we need without impacting reliability at all. And that will actually add up to a pretty significant cost reduction on the powertrain side over the course of 2023.

So we’re not just relying on supply, we’re also doing design actions to, to bring cost out. . Yeah. And my guess is if there is a the recession is a serious one, and I think it prob probably will be, but I hope it isn’t. But then that, that would lead to meaningful decreases in almost all of our input costs.

So I would expect to see deflation in our import costs most likely. Which would then lead to, yeah. Better margins. I just, I’m just guessing here, so this is, but that, that, that would be my, excellent. Thank you so much. So Isaac, quick follow up. Elon I was thinking about like fsd and when you look at, like the situation today compared to a year ago, it’s like the products have been like amazing in the quality of the product, but also it’s it’s rollout and so I was wondering.

How much is this like impacting the tech rate of FSD today? So do you already see that people are getting more exciting by FSD because they see it around them on 400,000 cars and they see the value of the service already? Or is that too early to really see to expect like a, an uptick in a, in the the trend is very strong towards use of fsd.

And as you lead to the, with each incremental improvement the enthusiasm of the increases. And I think something that still a lot of people out there don’t quite dep appreciate is that Tesla, I’ve always say Tesla as much as a software company, as a hardware company but Tesla is really one of the world’s leading AI companies.

This is a big deal, not both AI on the. software side and on the hardware side, with the hardware three inference computer, still the most efficient inference computer in the world, despite, being at this point five years old from the design point.

And with hardware for coming. And then hardware five, beyond that with where there are significant leaps and the Dojo computer, we expect to be using that operationally at Tesla later this year. And we’re seeing just a lot of world-class AI talent joined the company. Was also the long term potential of optimist where we’re able to use out expertise in electric motors and.

Power electronics, batteries and advanced manufacturing to be able to make a humanoid robot that is actually useful and can be made at high volume with with exceptional capabilities because of the autopilot ai that, where we take the cause like the car is like a robot on four wheels and the optimist is a robot on legs.

But the as we get closer and closer to solving real world AI and we don’t see anyone even close to us in, in, in achieving this the value, I think you appreciate this and a few others do, but most dunno what I’m talking about . But it’s is the thing that.

Has order of magnitude potential market cap improvement for 10 for Tesla. Thank you. And the next question comes from Alex Potter, from Piper Sandler.

Can you hear me guys? Yep. Yes. Okay, great. So quick one on F S D, this, I guess for Zach. Obviously you unlocked some deferred revenue in the quarter that’ll translate presumably into higher margins on every incremental sale going forward. So long as people opt in for fsd. But was wondering if you’re able to disclose the percentage of the $15,000 price that you’re not gonna be able to recognize Is revenue upfront rather than deferred?

Yeah, I the way that we’ve structured this is the full self-driving package is two components. There’s enhanced autopilot, the price of which is listed on the website. We fully recognize that. Then there’s an incremental, which is , for the additional features that full self driving offers.

And we’ve released a portion of that. And then there’s a minority of the total package that’s remaining that will be released over time as software updates are there. And know, in our shareholder letter, in addition to disclosing the dollar amount of the deferred revenue release we also included in there the dollar value of the balance of unreleased deferred revenue.

That will be released over time with future software updates. Okay. Great. And then maybe one additional question here on the incremental capacity in Nevada the 46 eighties that you’re planning a lot of batteries, obviously, and presumably you won’t be putting all of those in Tesla semi. So I guess two questions about that, that incremental capacity first.

Is that correct to assume that all of those 46 80 s are gonna be more or less fungible and usable in your entire range of products? And if the answer is yes, then if you had to guess, how do you think that 100 gigawatt hours would be allocated between your various end markets? I don’t know. This is a bit too much guessing at this point.

Yeah. But the, yeah. Yeah. You’re right, not all of the a hundred gigawatt hours are gonna go into the semi trucks. That is correct. We can, does say like we, know, I alluded to, number of future products. Those future products, we’d use the 46 80.

Thank you. And the next question comes from George from Conor Research. Hi everyone. Thanks for taking my question. So you recently adjusted prices and that may have. Put many of your competitors in the back foot. In addition to that, capital markets have recently gotten a lot tougher. So with those factors in mind, I’m curious how you see the current competitive landscape changing over the next few years and who as your chief competitors, five years from now?

Five years. Five years is a long time . I was with the Tesla Auto part AI team late until late last night. And just we’re asking, I was just like, so who do we think is close to Tesla? We’re for a general solution for self-driving and we still don’t even know really who would even be just in second. Yeah we, it really seems like we’re. You, I, right now, I don’t think you could see second place with a telescope or least we can’t. I don’t, that won’t last forever. And in five years, I don’t know that probably somebody’s figured out . I don’t think it’s any of the car companies that we are aware of.

But I’m just guessing that someone might figure it out eventually. So yeah, beyond that, Elon, like in the vehicle space, even though the market’s shrinking, we’re growing and EVs have doubled almost year over year. So it, whoever keeps up with the trend of EVs is gonna be a competitor.

And, the Chinese are scary, we always say that. But . I, a lot of people always look at the, ev market share, but we always look at it as how much of the total vehicle space do we have? And we’re just gonna keep growing in that space. It’s, there’s 95% for us to go get.

Yeah. And I don’t wanna say I think we have a lot of respect for car companies in China. They are the most competitive in the world. That is our experience. And the Chinese market is the most competitive. They work the hardest and they work the smartest. That’s so a lot of respect for the China car companies that we’re competing against.

And so forward gas, were probably some company out of China is the most likely to be second, to Tesla. And, but we are be Tesla China team is winning in China. . Yeah. And I think we actually are able to attract the best challenge in China. . Hopefully that continues.

Yeah. Super fired up about the future and yeah, look, it’s gonna be great. Just as a follow up the Inflation Reduction Act has created huge tax incentives for commercial vehicles. You mentioned an incredibly interesting product pipeline. Are there maybe some plans to accelerate commercial vehicle form factors outside of the Tesla semi to help accelerate EV adoption?

I was basically saying that yes, but I’m not gonna give you details cause this is nice try. Nice try, . Yeah, of course. We have to always look at what is the limiting factor for new vehicles because if the, for the longest time we’ve been constrained on total cell, lithium ion production output

And so people said like why not bring this other car to market or that other car to market? It doesn’t really help, but all you’re doing is shuffling around the batteries from one car to another. In fact, it hurts because you add complexity, but you don’t add incremental volume. So it’s pointless, in fact, counter like counterproductive to, to add model complexity without solving the availability of lithium ion batteries.

So as we solve as we get the, so we want new product, inter new product introduction to match where it sell are available or that new product to use, those sales will without cannibalize the cells of the other cars. That, that, that’s the actual limiting factor for new models, not anything else really.

Thank you. Let’s go to the next question. The next question comes from William Stein from Truist.

Great. Thanks for taking my question. You started to answer this earlier, but I like to ask this question about the AI elements of your business and ask if you could comment on progress around dojo and optimists and your anticipation for the likelihood, for example, for for the company to disconnect the GPU cluster in favor of Dojo and to have some market achievement and optimists.

Yeah, I obviously with, since Priscilla at the early stages, there are big error barss in any predictions. So it’s, it’s like easy, I think easy to predict the long term, but hard to predict the time in between now and then. But it’s what we think Dojo will be competitive with the innovative H one at the end of this year, and then hopefully surpass it next year.

And the key there is I think is what’s the energy usage required for a given amount of, if you’re training a frame of video how how, what’s the energy cost required to do that training. And we think probably we, we said this already actually at I AI day two, so it’s not new information, but we do see potential for an order of magnitude improvements.

Relative to gpu what GPUs can do for Dojo, which is obviously very specialized for AI training it’s hyper specialized for AI trainings. It’s not, wouldn’t be great for other things, but it should be extremely good for AI training. So just like if you do an ASIC for something that’s gonna be better than a cpu this is in some ways like a giant asic.

And and we’re able to since we’re operating one of the biggest review classes in the world already the, we’ve got a good sense of how efficient the GPU clusters operate and what merger needs to do in order to be competitive. . But we think that it does have a fundamental architectural advantage because it’s designed not to be a, the GP is trying to do many things for many people.

Trying to do graphics video games it’s, doing crypto mining. It’s it’s doing a lot of things. We’re just doing one thing and that is training. And we’re also optimizing the low level software to, so at a very, bare metal level. So it’s just in Sammy, good at efficient training.

And the intercommunication between the do modules is extremely high. It’s not, you’re not going across an internet cable. It’s a, so anyway the, this, we see a path to a order of magnitude improvement. In the energy efficiency for per given unit of training. But we also have to achieve that.

And so like, when will it be achieved? It’s hard to say, but we reduce your path to, to get there. And then also in inference, like once you’ve got the something trained if you want to have a product that’s a consequence of that training and that product may not be anything to do with cars then the efficiency of inference is extremely important.

And we, so we also have by far, the most efficient inference computer. And at the, with the FSD computer in the car, this has potential for products that makes it aren’t part even really in automotive. Thank you. And William, do you have a follow up? Yeah. It sounds like the 1.8 million units you expect this year is supply, not demand, limited supply, it sounds like by the lithium batteries.

If you were to become demand limited, can you talk to us about your propensity to use price and and your relatively high industry margins to, to grow units and share?

Yeah. To be clear, the 1.8 million is not sale supply limited. That and that, yeah. We did address that number earlier on the call. Don’t answer. Yeah. It’s roughly. , a sell supply is roughly matched with that. And this, you don’t in cars, if we get lucky, it could be more.

And then the rest would go c stationary storage, the power will and mega pack. Yeah. So true.

Okay, let’s have the final question from Adam Jonas.

Hi Elon. First question is it time for Tesla to significantly expand the captive FinCo? You only have four and a half billion of these receivables. It’s basically nothing compared to other big auto companies. Then I have a follow up. I’m Zach, maybe. Press that. Yeah. Yeah. I The way that we’ve been using captive financing so far is to plug what we believe to be gaps in the market of existing third party products.

And so we have a couple of offerings in Europe. We do loans for energy business, retail, energy business here in the us. We do leasing and we do a small amount of US loans that are very targeted. And so we’re using captives to support market caps, as I mentioned, so as basically as vehicle to support vehicle sales make sure customers have access.

I do think there’s opportunity here to continue to grow this. We are growing it slowly here. It is a consumer of cash, so we’re being cautious on how we do that. But, the plumbing is in place to, to do a lot more here. And I think we’ll have to see how things unfold over the course of the year and make decisions real time as to how much we ramp it up versus ramp it back.

I think if we see this if we see a severe recession this year, which like I said, hopefully we don’t in, in, in severe recessions, cash is king big time cuz it’s in such short supply. So we wanna be cautious about using cash for loans and that sort of thing. For cars I feel we’re in a very strong position to get through a recession because we really don’t have any debt.

And we’ve got over 20 billion of cash, which is great. Actually the the cash is earning a ridiculous return, not good return. So it’s like non-trivial in the interest rate actually means the 20 billion is earning like quite a good amount. And I think this point on Twitter a few times, I’m sure a lot of people on this call understand the, the back the basic value of a security is function of the risk wage or we’ll see how risk period really is, but of the T rate.

So if you’ve got, I think the, I recall correctly, the s and p 500 has a long term rate of return of roughly 6%. And so I think the Fed needs to be very cautious about having fed rate that potentially exceeds 6% if you like. If we see deflation and I think. , I think we are seeing deflation.

Then you would add the deflation number to the quotes risky rate from the Fed. And as that starts to exceed 6%, now you’re starting to exceed the long-term return of the s and p 500. And it starts to become questionable as to why why aren’t you put your money in umts or savings accounts, essentially instead of in the s p 500?

If the s and p 500 is variable and the bank rate is not, this is . So basically the Fed is risk of crushing the value of all equities, requires quite a serious danger. Thanks Elon. And just a follow up I don’t wanna steal thunder from March 1st down in Austin, but how close are we to that step?

Change improvement in bomb cost where you could sell. An EV for under 25 or 30,000 bucks and actually generate a profit that, that kind of real moving assembly line moment and manufacturing. Again, don’t wanna steal the thunder, but just if you wanted to wrap up with thoughts there, that’d be helpful.

Oh man. Thanks. I’d love to answer. I, if I were you probably asking the same question, but we would be jumping the down on future announcements.

Fantastic. Thank you very much everyone for all your good questions and we will see you again in three months time. Thank you. Thank you. Bye-Bye.

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