Tesla's earnings call on April 20 was a brief peek behind the curtain of how the electric car company is doing, and what investors saw was comprehensive.
Tesla (TSLA Get Tesla Inc Report posted a new record for sales, beat analyst estimates for profits and offered a rosy picture of how it will fare in the near-term, even amid supply chain bottlenecks and rising inflation.
The question and answer portion after the call is always closely watched. In it, the company's chief executive and its chief financial officer fielded inquiries from investors and analysts.
You can read that full exchange below.
Moderator:
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&A, Zach will have some opening remarks. Zach.
Zach Kirkhorn:
Yeah. Thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the company. Despite numerous plant interruptions, including shutdowns at our Shanghai factory and nearby suppliers due to Covid, we've continued making progress and achieved our best ever vehicle deliveries.
Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin and bottom-line profitability. Gap automotive gross margin reached 32.9%, and for the first time exceeded 30% when excluding regulatory credits. Higher pricing continues to positively impact our financials, as we make progress delivering cars in our growing backlog.
Zach Kirkhorn:
Note that for most vehicles, our delivery wait times are quite long. Those cars delivered in Q1 generally carried pricing set in prior quarters, and at levels lower than cars being ordered today. Our per unit vehicle costs increased as well. Inflation, raw material prices, expedites and logistics costs continues to impact our cost structure. Factory shutdowns also occurred with little to notice, hence we are unable to take action to plan those interruptions in a cost-efficient manner.
Additionally, we saw a slight mix shift towards more profitable vehicles, including the Model Y. We also recognized a one-time benefit of 288 million from credit revenue relating to a regulatory change in the US CAFE penalty, without of which, credit revenue would've declined compared to the same period last year.
Zach Kirkhorn:
The energy business has continued to be impacted by macro conditions more severely than the vehicle business. Our storage products are in need of chip supply, and new import processes have impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. OPEX, as a percentage of revenue, continues to reduce and driven by higher revenue, lower stock based comp expense and other items.
As a result of our ongoing improvements and operating leverage, we achieved a record operating margin of over 19%. We note that commissioning costs for our factories are in R&D, as Berlin started production in late March and Austin in early April. These costs will be an automotive cost going forward, given these factories are now producing customer-sellable cars.
Zach Kirkhorn:
Our free cash flows have remained quite strong, yet were impacted by working capital related to lower than planned production. Additionally, we have reduced our debt excluding product financing to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2.
First, we've lost about a month of build volume out of our factory in Shanghai due to COVID-related shutdowns. Production is resuming at limited levels, and we're working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2.
Zach Kirkhorn:
Second, as I've mentioned before, Austin and Berlin are just starting their ramps, and thus those inefficiencies will start to flow through our gross margins in Q2.
Zach Kirkhorn:
Third, we do have of higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year, and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers, and our new customers for a great first quarter.
Moderator:
Thank you very much. And Elon has some opening remarks as well.
Elon:
Sure. Some of my remarks will be redundant with Zach's, but it's maybe worth repeating. Q1 was once again a record quarter on many levels by reaching the highest deliveries of profit and an operating margin of 19%. This was despite a lot of chip shortages, many logistics challenges, and an overall difficult quarter.
So I'd really like to congratulate the Tesla team on achieving record profitability and output, despite many, many difficult headwinds. And especially, the Tesla China team and our Shanghai factory. They really had significant challenges due to the COVID shutdown, and none the less, have been able to output a trimester of high-quality vehicles. And we are already back up and running with the Shanghai factory.
Elon:
So as Zach said, we remain confident of a 50% growth in vehicle production in 2022 versus '21. I think we actually have a reasonable shot at a 60% increase over last year. Let's see. Obviously, production, as people know, with Giga Berlin and Giga Texas, in the past few months. So we've two fantastic factories with great teams, and they are ramping rapidly. Now, with new factories, the initial ramp always looks small, but it grows exponentially. But I have very high confidence in the teams of both factories, and we expect to ramp those initially slowly, but like I said, growing exponentially, with them achieving high volume by the end of this year.
Elon:
Let's see. We're also working on a new vehicle that I alluded to at the Giga Texas opening, which is a dedicated Robotaxi, that's highly optimized for autonomy, meaning it would not have steering wheel or pedals. And there are a number of other innovations around it that I think are quite exciting, but it's fundamentally optimized. It's trying to achieve the lowest fully considered cost per mile, cost per kilometer, accounting everything. And so it's I think going to be a very powerful product. Where we aspire to reach volume production of that in 2024. So I think that really will be a massive driver of Tesla's growth.
Elon:
And we remain on track to reach volume production of the Cybertruck next year. Let's see. So basically once again, I'd like to thank the Tesla employees for their hard work, but also I'd like to thank our suppliers who have really gone the extra mile. We have an amazing supplier group. And I say heartfelt thanks to the suppliers that have really worked day and night to ensure that Tesla is able to keep the factories running.
And we're really at the early stage of our journey. We only crossed 1 million units in the past 12 months recently. And we aspire to head to 20 million units a year. So we're basically 5% along the way towards our goal. But we are growing very rapidly year over year. And remain confident of exceeding 50% annual growth for the foreseeable future for basically several of the next years. So yeah.
Elon:
And then there's of course, Optimus, which I was surprised that people did not realize the magnitude of the Optimus robot program. The importance of Optimus will become apparent in the coming years. Those who are insightful or listen carefully will understand that Optimus ultimately will be worth more than the car business, worth more than [inaudible 00:09:26]. And then of course, the insurance is growing well.
We expect to address the part shortages that limited our progress with batteries and solar. So we expect batteries and solar to also grow well this year. And basically the future is very exciting. I've never been more optimistic or excited about Tesla's future than I am right now. Thank you.
Moderator:
Thank you very much. Let's go to the first investor question. And the first investor question is, "Elon has historically provided the [inaudible 00:10:08] timelines with not optimal accuracy. We love Elon's optimism for 2022 release, but is there any data Tesla can share with investors to help them make their own conclusions on progress being made, interventions per mile driven or any other data?"
Elon:
Sure. Well, with respect to full self-driving, of any technology development I've ever been involved in, I've never really seen more false dawns, or where it seems like we're going to break through, but we don't, as I've seen in full self-driving. And ultimately, what it comes down to is that to solve full self-driving, you actually have to solve real-world artificial intelligence, which has nobody solved.
The whole road system is made for biological neural nets and eyes. And so actually, when you think about it, in order to solve full self-driving, we have to solve neural nets and cameras to a degree of capability that is on par with, and overly exceeds, humans. And I think we will achieve that this year.
Elon:
The best way to reach your own assessment is to join the Tesla full self-driving beta program, where we have over 100,000 people right now enrolled in that program, and we expect to broaden that significantly this year.
So that's my recommendation, is join the full self-driving beta program, and experience it for yourself. And take note of the rate of improvement with every release. And we put out a new release roughly every two weeks. And you'll see a little bit of two steps forward, one step back, but overall, the rate of improvement is incredibly quick. So that's my recommendations for reaching your own assessment is literally try it.
Moderator:
Thank you. The second question is, "How much of an impact will the production shutdown in Shanghai have in Q2? What is the timeline for localizing the Model 3 in Europe, or will newer models be prioritized in Berlin?"
Elon:
Well, yeah, we did lose a lot of important days of production. And there are upstream supplier challenges, where a lot of suppliers also lost many days of production. But Tesla Shanghai, Giga Shanghai is coming back with a vengeance. So I think not withstanding new issues that arise, I think we will see a record output per week from Giga Shanghai this quarter, albeit we are missing a couple weeks. So that means the most likely vehicle production in Q2 will be similar to Q1, maybe slightly lower.
But it's also possible we may pull a rabbit out of the hat and be slightly higher. But it's [inaudible 00:13:33] roughly on par. But then, Q3 and Q4 will be substantially higher. So it seems likely that we'll be able to produce over one and a half million cars this year, that's my best guess.
Elon:
And then Model 3, it's important for new factories to be focused and have the least amount of complexity and variation, which is why Giga Berlin, Giga Texas are focused on the Model Y. From the point in which you have a factory complete and you're making a small number of units, to the point where it's producing high-quality vehicles in volume is nine to 12 months from start of production. So now, hopefully, we're getting better at that ramp, so maybe it's a little less. But to get to the 5,000 a week level has typically taken us around 12 months from start of production. Yeah.
Moderator:
Thank you. The next question is, "How much raw material exposure do you have measured roughly in percentage of cost of goods sold, for example, in a given quarter versus one to two years out, both direct and indirect? Separately, how do you think about price increases versus prioritizing higher mixed vehicles going forward?"
Elon:
Actually, on the price increase front, I should mention that it may seem like maybe we're being unreasonable about increasing the prices of our vehicles, given that we had record profitability this quarter, but the wait list for our vehicles is quite long. And some of the vehicles that people will order, the wait list extends into next year.
So our prices of vehicles ordered now are really anticipating supplier and logistics cost growth that we're aware of, and believe will happen over the next six to 12 months. So that's why we have the price increases today, because a car ordered today will arrive, in some cases, a year from now. So we have a very long wait list. And we're obviously not demand limited. We are production limited by... Very much production limited.
Moderator:
Raw material exposure?
Zach Kirkhorn:
Yeah. Just add to what Elon is saying, there's different ways to calculate raw material exposure. I think a simple way, we estimate around 10 to 15% of our cost structure exposed to raw materials. And just to clarify a couple of things on that. So we've been experiencing increases in costs in general, but also raw materials, for a number of quarters now.
That pace picked up in Q1, so last quarter. And what we're seeing for Q2 is slightly higher than that as well. And as indices move, it doesn't impact us immediate or directly. In some cases we have contracts with suppliers, but then as those contracts expire, we have to renegotiate them so that there can be a lag.
Zach Kirkhorn:
In some cases, our contracts do directly reflect movement in commodity prices around material prices, but the timing in which the Tesla pace where that has a lag associated with it as well, based on the contract. And so to Elon's point what, what we're trying to do here, because it's quite an unprecedented situation of raw material movement, and all of these various lags and uncertainty around negotiating contracts, is we're trying to anticipate where things will go and make sure that the pricing that we have put in place at the time that those raw material cost increases hit us that they align, and that the company can remain financially healthy in various scenarios as we look out over the next four quarters.
Moderator:
Okay. Thank you very much. The next question is, "Why does Tesla continue to fight dealership laws on a state-by-state basis versus taking it federal? Separately, why isn't Tesla using 800 volt architecture in its vehicles? What are the advantages or disadvantages?"
Elon:
Sure. To the [inaudible 00:18:30] standpoint, obviously, we'd love to have federal legislation that allows direct sales in all states, but we have not seen willingness on the part of the Congress to enact such laws that it would override state laws. So unfortunately we have to fight it on a state-by-state basis. And Drew, do you want to answer that 800 volt question?
Zach Kirkhorn:
Yeah, sure. On the 800 volt thing, yeah, so it's really a case-by-case thing. For the smaller platform vehicles like 3 and Y, there's some wins and losses with 800 volts. Not everything is better. And so we look at that platform and we're not ignoring the reality that you could go to a higher voltage, but there's nothing really encouraging us to do so on that platform. It's really about mass and power. And you look at bigger vehicles, there are some advantages on those bigger vehicles.
Elon:
And I would just quantify that, basically our estimate is that going from 400 to 800 volts might save 100 bucks. It's not really moving the needle.
Zach Kirkhorn:
And you're changing many things.
Elon:
Yes, exactly.
Zach Kirkhorn:
From the charging infrastructure, all the way through the entire vehicle system.
Elon:
Yes.
Zach Kirkhorn:
To get maybe $100.
Elon:
Yes, exactly. So, I mean, in the US you've got 110 volts, household electric power or voltage. And then the most possible, 220, but really it doesn't make that much a difference in appliances. Pretty much as well, in say Europe, as they do in the US. So the advantages are small, and the cost is high. Say long term, years from now, does it make sense probably to move to an 800 volt architecture? Probably. But it really needs a very big vehicle volume to pay for all the cost of changing from 400 to 800 volts. And then, if you want to continue with it.
Zach Kirkhorn:
I was just going to say, that 100 volts also kind of like a spreadsheet exercise-
Elon:
$100.
Zach Kirkhorn:
Sorry. $100 is roughly a spreadsheet exercise. That you have to get through the full program to the end to see that maybe it's been whittled away to 50 or less. On bigger vehicles where you're talking about higher power on the charging side or higher power from the battery to the power electronics, or you need more torque, so the current requirements go up, there's a little bit more semiconductor and actual conductor savings of going to the higher voltage. And so we do consider that for Semi and Cybertruck. But for the 3Y platform, where we've got everything running and the benefit is questionably small...
Elon:
It's basically zero for Robotaxi.
Zach Kirkhorn:
Yeah. For Robotaxi, yeah, it doesn't make sense. Yeah.
Elon:
[inaudible 00:21:39]. Ignore. Ignore.
Zach Kirkhorn:
Sounds good.
Moderator:
Okay. Let's go to the next question. Next question is, "How are the current 4680s performing versus expectation set during the battery day, in terms of expected range increase and dollars per kilowatt hour?"
Elon:
Yeah.
Zach Kirkhorn:
Yeah. We're working in all the areas we shared on battery day. And we have consistent progress across all of those areas towards achieving the five year cost trajectory goals for the costs within our control, but we do not control all of the commodity costs. So that's an exception I need to call out.
Similar to Model 3, it will take us several years to get rate and yields to the point where everything that we've discussed is achieved. Our priority was on simplicity and scale during our initial 4680 and structural battery ramps. And as we attain our manufacturing goals, we'll layer in new material technologies we are developing, and higher range structural pack revisions.
Elon:
I think maybe in a nutshell.
Zach Kirkhorn:
Sure.
Elon:
I think probably is fair to say that 4680 structural pack will be competitive with the best alternatives later this year. And we think we'll exceed the best alternatives next year.
Zach Kirkhorn:
Yeah.
Elon:
We think we'll exceed the best alternatives next year.
Zach Kirkhorn:
Yeah. I mean, we have some good existing proofs, right? We've built the facility here in Texas. We know how much we spent on capital equipment in the facility and it's more than 5X less than prior technology installation. So we're saving huge on CapEx. On utilities and personnel, we know what those loads are and how many people are needed to run what is basically in a highly optimized factory. And we have massive reductions in both of those. So the cost model is well understood. It's really about rate and yield, which will come in time as Elon said over the course of this year and next.
Elon:
Yeah.
Moderator:
Thank you. And the next question is, how does Tesla plan to secure raw materials required to scale to extreme size?
Elon:
Yeah. So this is something we think about quite a lot. It depends what extreme size means, but ... Assume if looking at say the $5, $10, $20 million vehicle levels, you really have to analyze the macroeconomic ... Just what is the tonnage of lithium that you need, of nickel, of iron phosphate, of graphite, separators, electrolytes, that look like ... Really think of just macro tonnage.
And when you think about this for the world as a whole, because we want to figure out what are the limiting factors for accelerating the advent of a sustainable energy future and whatever those limiting factors are, Tesla will take action on those limiting factors. So right now we think mining and refining of lithium appears to be a limiting factor. And it certainly is responsible for quite a bit of cost growth in the sales. It's the same single biggest cost growth item right now [inaudible 00:25:17] on percentage basis.
Elon:
Although just for those who don't totally know this, the actual content of lithium in lithium iron cell is maybe around 2%, or 3% of the cell. So...
Zach Kirkhorn:
5kg is the car?
Elon:
Yeah, it's called lithium ion cell, but by far the most expensive and heaviest item in the cell is the cathode. So that's the nickel or the iron phosphate. So we're looking carefully at all of the raw materials and trying to figure out how we can accelerate the total amount of raw materials needed to transition the world to sustainability. And I think that we don't have enough time on this call to really go through all those details, but we're all thinking about these things and we think we'll have some exciting announcements in the months to come.
Zach Kirkhorn:
Yeah. One thing I want to call that as like, we're also committed to recycling at all of our cell factories. We're recycling 50 tons a week right now in Reno and ramping to 150 with all of that reclaim material going directly back into our cap and supply chain. So we're looking at the beginning and end of life needs here.
Elon:
Yeah.
Zach Kirkhorn:
That's true. Like since we only built Gigafactory, we started doing that with batteries, but as we built newer factories or vehicles, for example, Giga Texas here, where we are today, basically it was all of its non yielded or scrap aluminum from the stamping shop directly into the casting shop. We rerun any plastic that goes out. And so we're really concerned about raw materials, not just like mine them and consuming them, but when we get them in the door using all hundred percent of them.
Elon:
Yeah, that's a great point. So we're restoring, we're installing sort of valve bonuses for the Model Y that we built here if giga Texas has both a front and a rear body casting, so we're casting almost two thirds of the body and then that's cast high brush. And so we can take both aluminum, both scrap from the casting machine and the gating that comes out and put that by just really tossed that back into the melting aluminum melting pot.
Elon:
And then as we're saying, also take any stampings and any other aluminum scrap and also thrown that in the melting pot. And in fact, we've also figure out that we can use wheels from practically any a car. So we're going to be recycling the aluminum wheels from legacy gasoline cars as well. And throwing that in the melting pot for our aluminum gas body of model Y. And also we'll be moving to the sort of cast partner your body in all vehicles over time. Well, actually, maybe not S, X, but three wide.
Moderator:
Thank you. At what rate do you expect Berlin and Austin to ramp for relative to Shanghai? Are you able to leverage learnings from Shanghai or are the processes substantially different in the new factories?
Elon:
Ramp production faster than Shanghai, because we have learned a lot and we've now been through... We have basically veteran teams that have seen the Y ramp especially in local locations and we're obviously sharing what we've learnt. And so it, we don't want to get complacent we're entitled, but this should be a faster ramp because we have learned more and we've done a lot to simplify the production process of model Y, that should lead us to a faster ramp with in Texas and Berlin.
Zach Kirkhorn:
Yeah. We also have structural casting about 30% less robots. We expect to almost double the capacity for body, for example, reducing the number of robots, but doubling our capacity in a lot of areas.
Elon:
Yeah. Right. The body line for the structural pack is, and if you got structural pack and front and rear castings, the body shop size drops by over 60% relative to the standard way of making a car.
Zach Kirkhorn:
That tax into tunnel assembly and everything else, because, we have structural by battery. The floor is the battery. We put seats on the battery and then we put that in the car. So there's actually like 2, 10, 15% left station to GA because of the general assembly start. I think about this in the way that we think about cars. If you're waiting for the best Tesla, you're going to be waiting forever. If you're waiting for our best to answer, you're also going to be waiting forever. Because every new factory is better than the last one, because we take all that learning.
Moderator:
Thank you. Next question is at Cyber Rodeo, Elon mentioned that a futuristic driverless Robotaxi vehicle is on the roadmap. When can we expect more details on the product offering to be on the build? Is this something that people can own or will this be only offered by Tesla as a service?
Elon:
So I think we want to hold of, we don't want to jump the gun on an exciting product announcement too much. So I think we'll aim to maybe do a product event for Robotaxi next year and get into more detail. But we are aiming for volume production in 2024.
Moderator:
All right. And maybe the last question from investors is what is the current run rate of 4680 self production at Fremont and at Giga Texas? What do you expect run rates of 4680 to be in Fremont, or Giga Texas, or Berlin at the end of the year?
Elon:
Well, Berlin is using the 2170 nonstructural pack. So if they're not concerned by 4680, they will transition to 4680, hopefully later this year. But current billing production is require that we also have just as a risk mitigation, 2170 non-structural pack capability and at here at Giga Texas as well. But yeah, if things do plan, we will be in volume production with 4680 and sometimes have some towards the end of the third quarter. And certainly in the fourth quarter.
Zach Kirkhorn:
And the other thing I would add is like with the China COVID shutdown and the semiconductor bottlenecks we had through Q4 and a little bit in Q1, we have sizable cell inventory at the moment and excess cells to support the 2022 volume targets you described. So that gives us the ability to be pretty deliberate in the 4680 ramp, where we can maximize the learning step by step, take engineering downtime to upgrade key pieces of equipment, to modify the structural pack design, to improve reliability all while achieving what you just said.
Elon:
Yeah, 4680 output is not a risk to achieving one and a half million vehicles produced this year. But, it would become a risk next year if we do not solve volume production, by early 2023, but we're highly confident of doing so.
Moderator:
Thank you very much. Let's go through analyst questions now. The first question comes from then Dan Levy from CSFP, please go ahead and unmute yourself.
Dan Levy:
Hi, good evening. Thank you for taking the questions. The questions first, maybe you can just talk through or address what some of the drivers of cost improvement were in the quarter? Was it just further improvements within Shanghai or in Fremont? Anything around sort of ongoing Kaizen that you've talked about in the past? You could just talk through what you benefited from in the first quarter.
Zach Kirkhorn:
Sure. I mean at a high level, cars produced in Shanghai do carry a lower cost structure than cars produced in Fremont. And so as our mix of cars shift towards Shanghai, the average cost is positively impacted by that. We're also seeing some progress in manufacturing efficiencies in Fremont, particularly on the SNX side, as volume increases improves there. Expedites has been a huge story for the company Q4. We had massive amounts of expedites. Q1 was still quite large, but we did make progress bringing that down some.
Elon:
To mention like to the manufacturing team and our associates there, because we're achieving record output at Fremont.
Zach Kirkhorn:
Yeah. The Fremont team is doing a tremendous job, absolutely.
Dan Levy:
It's hard to under underweight, like you should expedite situation with the crazy logistics that occurred with COVID.
Zach Kirkhorn:
And, to Elon's point, the Fremont team and also the Shanghai team has been extremely dynamic with the unpredictable nature of our part rivals and our supply chain team and particular production planning portion of supply team supply chain. We often get very little notice when there's part shortages coming and it's kind of a scramble couple days before that part is supposed to arrive to figure out how to get it here. And so the amount of herculean effort that goes in to produce a quarter like Q1 and even the quarters before that is absolutely immense.
Elon:
So it's like the saying in the military or, it's like amateurs talk about tactics, professionals talk about logistics when it comes to war.
Zach Kirkhorn:
Yeah. You know, so there were some inherent cost improvements as I mentioned, but you know, there's also offsets that we've talked about previously and raw materials, commodities, outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity there and bring those costs down.
Dan Levy:
Second question. One of the initial goals of model three way back when was to have an EV that was affordable for a wide portion of the market and, we know prices are much higher now just given the supply constraints, prices are higher for all of the car makers. We know that there's inflation that you're battling through and some of that needs to be passed through to the price of the vehicles. And you're going to be supply constraint for the foreseeable future. So it's sort of a moot point, but given the goal long term of making EVs more widely available to the masses over time, how do you look at the progression of prices over time?
Elon:
We absolutely want to make EVs as affordable as possible. It's been very difficult with the, I mean, I think inflation is that like 40 or 50 year high. And I think the official numbers actually understate the true magnitude of inflation. And that inflation appears to be likely to continue for at least the remainder of this year. When we're talking to suppliers, suppliers understood cost pressure. So yeah, and in some cases we're seeing suppliers request 20 to 30% cost increases for parts from last year to the end of the end of this year. So there's a lot of cost pressure there.
Elon:
That's why we raise our prices. Because when things with respect to inflation, if you know it's high then, and we've got orders that go out a year or more in some cases, then we have to anticipate those cost increases. But I think especially with the Robotaxi and autonomy, I think we'll end up providing consumers with by far the lowest cost per mile of transport that they've ever experienced. Yeah. And you know, with the Robotaxi like maybe five to 10 times or cost per mile, it's really quite substantial.
Dan Levy:
Therefore, accessible to everything?
Elon:
I mean looking at some of our projections, it would appear that a Robotaxi ride will cost less than a bus ticket or subsidized subway ticket.
Moderator:
Thank you very much. Let's go to the next question from Rod Lache from Wolfe Research.
Rod Lache:
Hi everybody. I'm trying to just parse out your comments about the inflation and constraint supply and battery feed and the initiatives that you are working on internally to secure these materials. It sounds like you're optimistic about Tesla's ability to solve this for Tesla. But do you see this as a constraint on EV adoption more broadly?
Elon:
Yeah, absolutely. But you know, what sort of keeping our costs down at least in the short term is that we have long term contracts with suppliers, but those long term contracts will obviously run out and then, we'll start to see potentially significant cost increases, but looking at the world as a whole and saying, okay, what does it take for earth to transition to sustainable energy faster? It's fundamentally... The fundamental living factor is the output of the cell, the basically cell output. At what rate can lithium ion cells increase the gig one hours per year, that is the fundamental limiting factor.
Elon:
And that will move as fast as the lowest least lucky element of the whole supply chain. Currently we see as being a challenge with lithium. To be clear, it's not that there's a shortage of lithium ore in the world. Lithium is present almost everywhere. It's a very common element. However, you still need to dig up the, or take up basically large mean or whatever with the clay, with the lithium. And, then you need to go through a whole series of refinement steps. And that's a lot of industrial equipment that's needed to go to refine lithium ore to lithium, that can be used as lithium hydroxide or lithium carbonate in a battery cell.
Elon:
So we think we're going to need to help the industry on this front. But the industry is very, very fast. So they encourage entrepreneurs out there, both looking for opportunities to get into the lithium business. The lithium margins right now are practically software margins. I think this there's a, correct me if I'm wrong, but I think we're seeing cases where the spot lithium price is 10 times higher than the cost of extraction. So not like we're talking 90% margins here. Can more people please get into the lithium business. Do you like minting money? Well, lithium business is for you.
Rod Lache:
Interesting. So I guess we'll stay tuned to see what happens from that. My second question is, its impressive to see just the modest increase in cost per vehicle, cost goods sold per vehicle, given what we've seen in terms of commodities actually, and from here, you have a lot of savings opportunities with 4680 cells, and the cell manufacturing changes, chemistry structural packs, giga castings. Are you suggesting that even those may not be sufficient to offset the inflation that you're seeing? And that you're going to need additional pricing as well. In addition to those specific initiatives that you've called out?
Elon:
We hope we don't need to increase the pricing further. The current pricing is anticipating what we think is the probable growth in costs. And if that growth in cost does not materialize, we actually may slightly reduce prices. So currently anticipate making significant price increases. But, obviously we don't control the macroeconomic environment if governments keep printing vast amounts of money. And, if they're not significant increases in lithium extraction and refinement and the other raw materials such that everyone's competing for a limited amount of raw materials, then obviously that will try our prices to high levels.
Elon:
So if you have a principal that can tell us what the future going to be like, we'll just accordingly, but the current prices are for a vehicle delivered in the future, like six to 12 months from now. So this is our best guess.
Zach Kirkhorn:
But I think if you zoom out, right, as you said, our mission is to accelerate the transition of sustainable energy. So we are working with our existing suppliers and others to figure out how to grow all of these raw materials as quickly as possible to not slow down the transition.
Elon:
Yeah.
Zach Kirkhorn:
And whether that means we have to get directly involved in some cases or not comes down to the counterparty and their willingness to expand at the rate, we think they should be able to expand. That's similar to what we've done with everything else. Like we built a Gigafactory in Reno because it needed to be done.
Elon:
Yeah.
Zach Kirkhorn:
And we will do what needs to be done to not slow down the transition and affordability is a goal. Cause if it's unaffordable, It's going to retard the growth of what is inherently a good thing. So we can't have that as of now.
Moderator:
Thank you. The next question comes from Pierre Ferragu from New Street Research.
Pierre Ferragu:
Thanks. Can you hear me well?
Moderator:
Yeah.
Speaker 1:
Can you hear me well?
Moderator:
Yeah.
Speaker 1:
Great. I'd like to ask you some questions about free cash flow. So first, maybe in [inaudible 00:46:19], if you look at your performance and your gross model and your gross ambitions, I did the maths very quick and I see you guys sitting on four, maybe $500 billion of cash at the end of the decade. And I was wondering something you have given some thought to that [crosstalk 00:46:45].
Elon:
[crosstalk 00:46:46]. If inflation keeps going crazy then $500 billion might be $20 billion today. I don't know. We're going to see what $500 billions you in a decade, but it might be a lot less. So I don't know if we'll, that seems like a lot of cash. I don't know. We'll try to do something useful with it. [inaudible 00:47:11] that's for sure.
Zach Kirkhorn:
I think we have to take this one step at a time. We have in investments that are happening right now to get Austin and Berlin up and running. And then as Elon mentioned, installing capacity for robotaxi production. And there's some decisions that, as Elon alluded to, just to share in the future about what the economic model looks like for robotaxi. And so the way Elon and I have discussed this is [inaudible 00:47:56].
Elon:
Let me just, yeah, everybody just mute if you're...
Zach Kirkhorn:
Yeah. So our focus is to get to the point where robotaxis are on the road, [inaudible 00:48:06] is in use, get the economic model for that dialed in and then evaluate the size of cash flows at that point to make decisions then as to what's next.
Moderator:
[inaudible 00:48:17], do you have a follow-up question?
Speaker 1:
Yes.
Moderator:
[inaudible 00:48:31].
Elon:
Let's move on.
Moderator:
All right. Let's go to the next one. The next question comes from Trip Chowdhry from Global Equity Research.
Trip Chowdhry:
Thank you. Two questions I have. First is regarding the Cybertruck. And I was wondering, in terms of number of parts, how would Cybertruck compare with a traditional pickup truck in terms of number of parts? The second question I have is on Giga factory Nevada's parts. Will we have any production of vehicles in that factory or all the future production will happen in Giga Austin? Thank you.
Elon:
I'm not sure if we actually done a comparison of a Cybertruck parts versus regular truck parts. Lars?
Zach Kirkhorn:
Yeah. If you want to go down to, depends on what you [inaudible 00:49:28] part, we still have cells and [inaudible 00:49:30].
Elon:
That shouldn't count.
Zach Kirkhorn:
If we don't count that, the simplicity of our structure is significant versus a traditional pickup truck or any other vehicle. As we've talked about their Giga castings, we save hundreds of [inaudible 00:49:46] parts there. The entire rear-
Elon:
Half of the car is one casting.
Zach Kirkhorn:
And even so with the cyber truck and the doors, for example, we have an exoskeleton design where the door is [inaudible 00:49:58] the side load from impact. We don't have the door reinforcement, we don't have them crashing [inaudible 00:50:03]. To your point, I haven't counted them because I don't often look back at old technologies to decide how well I'm doing. I check that once in a while. But in general, architecture is always moving to reduce complexity, reduce parts and reduce parts count. I would say ignoring the battery cells. We are probably 20 to 30% less. All right.
Moderator:
Okay. Thank you. Let's go through the next [crosstalk 00:50:33].
Elon:
Oh, do we expect to expand? Yeah. We do expect to expand Giga Nevada. There's a lot of room for expansion there and we do expect to increase upward from Nevada. By far, the biggest increase in output will be from Giga Texas.
Moderator:
Thank you very much. The next question comes from Alex Potter from Piper Sandler. Alex, can you hear us?
Alex Potter:
Yes. Hi, Martin. Can you hear me?
Moderator:
Yep.
Alex Potter:
Okay, great. So first go question I had was, the extent which other plants outside of China are insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID lockdown thing gets out of hand, clearly that's going to continue impacting Shanghai, but is there a point at which it could actually also impact other facilities?
Elon:
Yeah. If it were to continue, there are some parts that are sourced in China that apply worldwide and that would impact production elsewhere. But all indications are that, Giga Shanghai is back in production at fairly high levels already, so are our suppliers. So we don't think this is going to be a big deal.
Alex Potter:
Okay. Thanks. Second question. Obviously, the higher profitability you guys have been able to experience over the last couple quarters, a lot of that is reflecting sort of 'real improvements'. Another part of it is because we're no longer paying you, Elon, as much as we were. So I'm wondering, the extent to which you and the board are in the process of contemplating another one of these long-term compensation packages, which in the past have seemed to work out quite well. Thanks.
Elon:
There are no discussions currently underway for incremental compensation for me.
Moderator:
Thank you. The next question comes from Collin Langham from Wells Fargo.
Collin Langham:
Oh, great. Do you guys hear me?
Moderator:
Yeah.
Collin Langham:
Yep. Perfect. Just to follow up, sorry to keep going on the raw material issue on the battery side, but obviously seems pretty important. How quickly can raw material supply be built? Because my understanding, it takes many years to build that out. So are we just sort of facing... When do you think we see a lithium shortage or a nickel shortage and is there even enough time to build that mining capacity in place? And then related, how quickly can you switch to LFP for the nickel issue?
Zach Kirkhorn:
Yeah. I'll take the LFP question and it says so in our letter, but half of our products were LFP last quarter, which shows how quickly we were able to respond to, well, honestly it wasn't because of a raw material shortage, but just because it seemed like the right thing to do, we could change our [cathode 00:53:50] chemistry. And there's more to be done on the cathode side and we are actively pursuing it to give us substitution flexibility in response to market conditions between the other cathodes out there that can be competitive in our vehicles, of which there are many options.
Zach Kirkhorn:
I guess what I would say is, specifically on the cathode side, flexibility is the way we're going to achieve this. And not all of the materials that go into cathodes are actually, first of all, hard to secure through mining or refining. And second of all, in many cases are very plentiful already, huge scale. And if all of the batteries in the world use those cathodes, it's less than a 1% increase in total annual output. That's the cathode side.
I think Elon already spent a lot of time talking about lithium. It's really depends on the resource. Some resources, just getting rocks out of the ground, expanding the amount of rocks that you're getting out of the ground is maybe a little bit of paperwork and some additional blasting and trucking operations.
The refining is maybe where there's, it's a little bit more chunky to bring it online, but also the refining doesn't, it's not like an oil refinery. It's a much smaller operation to refine lithium [inaudible 00:55:16] or liquid, like brine or a salt pond evaporation.
Zach Kirkhorn:
You're talking about a timescale of one to two years, and it's not like we haven't been talking to all of the lithium suppliers out there for many years. They have a lot of already in the pipeline to come online this year and next. Some of what's going on in the lithium market this year, doesn't actually have truth to bear to the fundamentals of supply and demand, which is also a little frustrating.
Yeah. If we look past this year or next year into 2030, when we need 15 to 20 [inaudible 00:55:57] of this stuff to get on the growth trajectory, stay on the growth trajectory we're on, we need everybody to do more in the lithium space than they currently are. I don't know if that answers the question.
Moderator:
Yep. Fantastic. Thank you very much. So let's go to the last question from Mark Delaney from Goldman Sachs.
Mark Delaney:
Yes. Good afternoon and thank you very much for taking the question. I was hoping you could comment on your latest thoughts about potentially opening up the charging network in the US to non-Tesla owners. Certainly, really important to have a good experience for Tesla owners in terms of wait times or charging stalls, but if Tesla's able to have enough capacity, it could be a really good way to bring other vehicle owners into the Tesla network, perhaps help Tesla to sustain its network benefits and maybe make more people likely to buy Tesla vehicles in the future.
Zach Kirkhorn:
Yeah. As Elon has said, and as we've publicly committed, we do plan to provide third party vehicle access and all over the world, not just in Europe where our original pilot was. And we are working on solutions in North America, which is a little bit more problematic with our connector being different than others. But we are moving in that direction. [inaudible 00:57:28].
Elon:
Yeah. I think there's more to be said on that part. Yeah. We want to do the right thing with respect to the whole system.
Zach Kirkhorn:
Absolutely.
Zach Kirkhorn:
And we're going faster on adding chargers with the growth of the cars that we're producing and then anticipating what Drew is discussing, overall charger capacity is really important. And so the pace of our investments and supercharging has accelerated.
Zach Kirkhorn:
Absolutely.
Mark Delaney:
Okay. That's helpful. And for my second question, could you share any more details on Tesla Insurance in particular as you're rolling it out in more states? Are there any metrics you can share on what take rates have been like and how do profitability margins on the insurance offering compared to the corporate average? Thank you.
Zach Kirkhorn:
So we just launched Tesla Insurance for realtime insurance in Virginia, Colorado, and Oregon earlier this week. Maybe one step that I'll share is that Texas is our longest standing realtime insurance market. But based upon the information that we have, Tesla is the second largest insurer of Teslas in the state of Texas.
And possibly by the end of this quarter, maybe early next quarter, we'll be the largest insurer of Tesla's. And so the customer reception to this has been quite positive. And I was reading social media on Monday after we launched in the three new states, a lot of folks who are reporting their stories of saving quite substantial amounts of money relative to their previous insurance. And so we're quite encouraged by that. And we're working as quickly as we can to get to 80% of customers having access to a Tesla Insurance product by the end of this year in the United States.
Zach Kirkhorn:
At which point, we'll pivot our attention to expansion outside of the U.S. The other thing I'll say on insurance is, with these three new states, the model is different because we are now the underwriter and we are also now holding the risk. And so with those states, we are a fully vertically integrated provider of insurance from systems and financials. With respect to the financials of the program, it's still very early. And so as the program gets more scale, I'm happy to share more information on that.
Elon:
And one side note is that we are seeing that the, having realtime feedback for driving habits is actually resulting in Tesla owners driving the cars in a safer way. Because they can see the, they get realtime feedback on, okay, this is affecting my insurance rate or it isn't.
And so when people can see a real time score and realize, oh, if I make the following changes in my driving habits, then I pay less in insurance, then they have a very, a realtime feedback loop for driving, for safer driving and an incentive to do so. So it is actually, what we're seeing is, it is causing people to drive their cars in a safer manner, which is also [inaudible 01:00:51].
Zach Kirkhorn:
It's safer on average, what we see in the data, to Elon's point, and premiums are lower. We see that in the take break data. We have extremely high retention for customers who experience the product. And I think I've talked about this in the past, but this has become a real passion program for us.
Elon:
Yeah.
Zach Kirkhorn:
For these benefits, it's bigger than just the economics. We're trying to do a good thing here for our customers. Save people money and make the roads a little bit safer.
Elon:
Yeah. I think it improves just overall macro economic efficiency. It's also a feedback loop for Tesla because we see if there is a crash, large or small, we sort of see exactly what that cost. And now we're, okay, think about how can we change the design of the car or the software in order to minimize the probability of that accident.
Because most accidents or minor, but how those accidents occur less frequently and how do we make the repair associated with that accident super fast. Aspirationally, it'd be same day repair from road collision, which is just night and day difference compared to sometimes having to wait for a month while insurance claims are settled and figured out. Because Tesla's also doing collision repair.
Zach Kirkhorn:
Yeah. The feedback loop is instant.
Elon:
Yeah.
Zach Kirkhorn:
We do claims management in-house and so we receive the notification that there's an accident. We work to prepare the estimate and we can, with the support of our customers, use our collision centers to do the repair.
Elon:
Yeah.
Zach Kirkhorn:
And so it's full end-to-end visibility and all of that, to Elon's point, we can then identify areas of cost and efficiency, feed those back to engineering teams or elsewhere, software teams, actually improve the product, which lowers the cost of insurance and improves reliability of the product. So it's a full circle.
Elon:
Yeah. Basically the customer experience is just vastly better because if there's an accident, there's no argument, we repair it immediately. And this is as compared to arguing with an insurance company and then a claims adjuster, and then a collision repair center. And this can be a nightmare, basically. So we're to try to turn a nightmare into [inaudible 01:03:25] insurance.
Moderator:
Fantastic. Thank you very much. Unfortunately, that's all the time we have this quarter. So thank you very much for all your great questions and we'll speak to you again in three months.
Speaker 2:
All right. Hey everybody. Let me know if you can hear me. Sometimes there have been small audio issues here, but I just want to do a quick recap of that call, some of the big things that we heard. So I'm just going to keep an eye on the chat here until it catches up and then we can do a quick recap. I am feeling very good about what Tesla is doing here. It's really exciting. This is a very exciting quarter. I think there's a lot to be happy about with the financial results, which, if you didn't see my reaction to that. There is a link to that in the description. You can go check that out. Looks like the audio's good. That's great. Yeah. Financials are great.
Speaker 2:
What Tesla's talking about doing here in terms of just their product roadmap, the plan for the next decade, plus, it's so difficult to not be a extremely excited about that. Obviously there's a lot of execution that remains, but we have seen Tesla do an amazing job of executing on their targets so far. Yeah. It's very exciting. I think just from a recency bias perspective, talk about Tesla Insurance here, that's just such a good example of what Tesla does.
They find things that are inefficient and then they just, somehow, despite all the things that Tesla has to juggle all the time, they do a really great job of tackling those things and finding improvements, and just thinking from, again, Elon always talks about it, thinking from a first principal's perspective to solve problems and make the world better. It's awesome to see. Exciting about that.
Speaker 2:
I think the biggest thing from the call here is, just since we already went through the financials, I think, obviously Tesla's making great improvements on cost. So it's exciting just fundamentally, they're starting to leverage, they've been doing that for the last two years now. What we've been talking about, about this leverage coming through, we're really starting to see that %5 billion in EBITDA this quarter. Tesla, no debt, they talked about. Pierre's question about the four or $500 billion on the balance sheet at the end of the decade.
And Elon laughs and says, "Oh, who knows how much that's going to be worth." But I would imagine Tesla's projections are actually a little bit higher than that, but I think Zach makes a great point, take it one step at a time, that's how Tesla's approaching things. And when they get to that point with the robotaxis on the road, printing money or [Optimis 01:09:04] is out there, hopefully printing money as well.
Speaker 2:
Elon always says that once you have, you only pay a dividend, I don't think he's said explicitly stock buybacks, but he says, once you pay a dividend, it's because you're out of ways to spend money. You can feel Elon's tone on that shifting a little bit, or his commentary around that. And I think that's based on what Tesla thinks is going to happen here. So point being that I do think once those things are in place and once Tesla at a certain point, you just can't spend that money quickly enough.
I look forward to those questions, well, I don't, but I'm sure in some future year, we're going to see questions about what Tesla needs to do with its massive cash balance and investors really harping to get that returned. And I do think at some point that's going to happen and Tesla will be able to continue investing in the future, and also just print money for investors too.
Speaker 2:
So it's an exciting future from a product perspective, it's an exciting future from a financial perspective. And again, Tesla just needs to execute on that. The roadmap is quite clear. All right. So let's just look through some of the notes here. I'm going to just go back to the top here. And thanks for the super chats, by the way. I definitely appreciate those. Hopefully the notes here are helpful. All right. So I think from the opening comments, a lot of that stuff, we've gone through. The regulatory credit.
This was something I considered in my forecast. I probably should have just put it in there, but we had talked about this a couple times on the podcast that there had been the change in the, basically the law from 2017 to 2021, that had been reversed and caused extra, more strictness in terms of the fleet-wide efficiency metrics for automakers in the US, and probably should have anticipated that would cause some extra regulatory [inaudible 01:08:10] revenue for Tesla. Does that make sense? We can factor that out later on.
Speaker 2:
Opex, it's all great. No debt. Lost about a month out of Shanghai. So Elon said something here that was very surprising. We'll have to dig into the spreadsheets to figure this out, but let's find Elon's comments here. He said that they're still going to be able to, and maybe I didn't quite get it in the notes, but he said for Shanghai that even though they've been down for almost the entire month of April, now they, oh, I guess, two thirds of the month, they still think that for the quarter, they can hit similar levels of production as Q1 here. So that would be great. We'll have to put that into our production tracking spreadsheet and just see what that means from a weekly production standpoint. But that suggests that there's going to be significant progress-
Rob Maurer:
... But that suggests that there's going to be significant progress. Tesla should be making production line upgrades in May and hopefully that will result in really good production for June, and then further upgrades in July is the current information.
Rob Maurer:
So, those things are really going to improve the production rate and sounds like that's going to make up for some of the lost volume here in April, which is really exciting because we can see that at this level Tesla's financials are very strong.
Rob Maurer:
They did mention that Berlin and Texas, although didn't have a huge impact this quarter, has acted specifically say that probably for next quarter, that is going to cause a hit to gross margin. That doesn't necessarily mean gross margin would be down, but he seemed to emphasize that more of that would be coming next quarter and I think a lot of that would be the start of 46 80s hitting cogs as well.
Rob Maurer:
So this is the one thing that I bolded. I don't usually bold stuff, but I just felt like I had to here. Because Elon talking about the dedicated robotaxi; he mentioned this on the master plan and that was the first inclination that Tesla would be shifting from driving down on the cost curve for a consumer model, $25,000.00 vehicle to going straight to the Servo taxi type of a situation.
Rob Maurer:
And now Elon giving us a timeline on that, saying perhaps failing that next year and aspire to reach volume production of that in 2024. And it's already 2022. We're already in Q2 of 2022, so that's two years, maybe two years and six months. But that's very soon. I mean the Cybertruck was unveiled less time ago or more time ago than that would be from now.
Rob Maurer:
It's been two and a half years since the Cybertruck unveiling so I guess it would be about the same. So we're pretty close. The Cybertruck unveiling to me doesn't feel that long ago, obviously the delays make it feel a little bit longer, but we're pretty close.
Rob Maurer:
The one thing I want to add on this is that this does become then a risk for... If you don't think Tesla can solve FSD, if you don't think they're going to actually be able to do level four type of driving in that timeframe, it presents risk to Tesla's roadmap until that is solved. And I think from an institutional investor perspective, a lot of institutional investors would probably prefer that Tesla talked about having plans for [inaudible 01:11:28] vehicles beyond the Model 3 and the Model Y that are meant for purchase by consumers. I think one of the analysts even asked, "Can people buy that?"
I don't think they got a clear answer on that, but this, over the next two, three years, this is going to be a super hot topic of debate and the cause of conflict between Tesla and Wall Street, until Wall Street starts to believe that "Oh, FSD is actually solved or very close to being solved or solvable." We're not at that point yet where Wall Street believes that. I think that's still fair.
Rob Maurer:
What's already happening; you can hear from the analyst on these calls; is they're trying to figure out how to build their models for 2024, 2025 and beyond. And when you've got a $25,000 Tesla on the roadmap, you can very easily build a model for that because you can just look at what Tesla's done with the Model 3 and the Model Y.
You can make some cost assumptions and just plug that into a spreadsheet and all of it looks great. When that product suddenly falls off and then you replace it with this dedicated robotaxi; which these analysts aren't going to model earnings for because they can't back it up because Tesla hasn't solved this problem yet, that creates a whole giant set of question marks in where Tesla is heading.
Rob Maurer:
So it's going to cause some tension, conflict. We're just going to keep getting questions about what this looks like until it's solved. Because it creates a lot of risk for Tesla to go directly to a robot taxi from where they're at. And personally, I think Tesla would mitigate that risk just with Model 3 and Model Y. I don't think analysts are really understanding how high Tesla's going to go the volume for those vehicles and they can drive the prices down accordingly.
Rob Maurer:
So I think that's where Tesla's mitigating that. But even still, on those vehicles, there's probably some ceiling and that ceiling is probably below 20 million. So it's becomes a big question mark of how you get to 20 million if Robotaxis don't happen. So probably being a little bit wordy on that topic, but hopefully that makes sense.
Rob Maurer:
It's just going to be a constant battle with Elon saying, "Oh, we're doing Robotaxis, Wall Street saying, "How are you going to keep growing volume at 50% if you don't solve this?"
Rob Maurer:
So still aspire ahead to 20 millions per year. Basically 5% the way there. I would say they're probably closer to a 2 million production rate now than 1 million, when they actually have production fully up and running, so call it 10%.
Rob Maurer:
Optimist Elon, again, just reiterating people don't get it. Same thing there. People get the impact that this would have they just don't believe that Tesla's going to be able to pull this off. So same thing on that in terms of the push and pull with Wall Street. But I think it's very easy to understand the impact that would have and the financial benefit that could have as well.
Rob Maurer:
Insurance growing well. I see timelines. I wish they would've shared something on interventions per mile or something like that. Elon basically just saying, "Use the beta." I've been on the beta for, I don't know, six to seven to eight months. We've talked about this before. I think on an individual basis, it is difficult to assess progress. I definitely think things have improved, which is exciting.
And we've talked before about how there are probably a lot of underlying factors that are improving, that we just can't quite see, that Elon has visibility to, and an understanding of, and that shapes his experience and his context when he is experiencing FSD Beta. Even if he's on the same exact version that consumers are on, which most of the time he is not, he's usually using the alpha version, so we have to consider that when we consider his comments too, even having the same experience.
Rob Maurer:
So I guess from my perspective, I'm relatively neutral on FSD Beta progress. It has progressed, but coming into the beta, I would've hoped that it would've happened faster. But hopefully there are things behind the scenes that are actually happening at that rate. That will become more apparent, especially when we get to version 11.
Rob Maurer:
Again, thinks they'll achieve real-world AI this year. Shanghai coming back with vengeance so most likely vehicle production Q2 will be on par with Q1. It wasn't clear if he meant total production, worldwide production or just Shanghai. It doesn't really matter though, too much, because... Fremont wasn't super constrained. So if he means Shanghai, then Fremont should do a similar output and then worldwide would therefore be similar. If you only mean Shanghai, it ends up being the same thing. So not particularly important, but basically that means if Shanghai can do it, then the world can do it as well, in terms of the production.
Rob Maurer:
It also sounded like some pretty decent updates from the supply chain in China. I think that's been one of the risks that we've had a lot of uncertainty on and I think they clarified a lot around that. It sounds like they're not super worried about that beyond just the general challenges that are happening this year.
Rob Maurer:
A lot about pricing, [inaudible 01:17:04] architecture. That was pretty interesting. I don't think we really need to recap any of that though. In general I think there were pretty good questions about this call. Definitely some eye-rollers and I apologize for my reaction to some of those questions. Particularly with the one about costs and prices to consumer. Obviously robotaxi's Tesla's plan to address that. That's been clear for a decade. Not quite that long, but at least five years.
Rob Maurer:
Lithium, talked a lot about that. Not sure we need to go too much detail on that. So faster ramps in Berlin and Austin. Now this is a little bit surprising because the buildout for Berlin and Austin took quite a bit longer than Shanghai. You could call it about two times the amount of time.
Rob Maurer:
Hopefully that also means that once it is actually ready to start production, it's able to ramp up more quickly. That's what they're thinking. I'm not super convinced on that yet, just based on 46 80's. Tesla's still not in volume production, they're hoping to get there in Q3, Q4. Which obviously that would be great, that would be exciting.
We'll have to model that out a little bit too, but my expectations are, are tampered a little bit, just with that new technology and all the supply chain stuff. They didn't say it on this call, but the last couple of calls they've said that overall their production is constrained. In previous [inaudible 01:18:32] they could have produced more vehicles from Fremont and Shanghai so if that's the case, then you've got new factories; that doesn't really change. So that could be a factor limiting the production ramps of these new factories as well.
Rob Maurer:
They did say that they've got plenty of 2170 packs though, so that's definitely good because that was one of the things that was maybe a concern for Berlin for the next couple of quarters, is okay with these shutdowns in China, is that going to actually impact the availability of 2170 packs, which we know they're using from China in Berlin right now. But it doesn't sound like that's the case. So that's an exciting point.
Rob Maurer:
A little bit more on robotaxi and then the analyst questions, which we already talked about, some of those things.
Rob Maurer:
Alex Potter's question on the CEO compensation plan. It doesn't sound like Elon is planning to do another compensation plan. And in my model, I don't have one forecast. I think I would certainly be supportive of one, but I think Elon is content with his level of wealth from Tesla in his share count, as it stands, at this point.
So he's got strong incentive to continue to make Tesla work well and be financially successful from those shares. Which once the shares are vested, he needs to hold them for five years from this most recent plan. So he's going to be sticking around for a while, even without any other plan.
Rob Maurer:
Supercharge network, it's going well. Tesla insurance. I mean, we started there, but yeah... Super exciting with Tesla insurance. It sounds like the take rates high, the actual improvement in driver safety, that's the biggest cost of insurance. So the fewer accidents is going to make Tesla's margins or the cost on that, same thing.
We talk about always driving in the same direction, up-down, so it's good on that. I think I'm very excited about Tesla insurance and the fact that they're fully vertically integrated now and doing the underwriting. Partially explains to why they're keeping a lot of cash on hand. If you grow insurance to a huge scale, you're going to need some cash for that.
Rob Maurer:
I think that's it. Let me ... I do appreciate these super chats. I know I missed probably quite a few of them, but yeah ... Exciting day. I guess a few last thoughts to recap, probably the major highlights here. I'll make myself a little bit bigger.
Rob Maurer:
So I'm very excited about where Tesla's at right now. It's extremely clear that they're making a lot of strong progress in terms of the fundamental operation of their business, with controlling their costs, even during this period of difficult supply chain challenges, logistics challenges.
Rob Maurer:
Zach mentioned, they're continuing to do expediting. Even with those fees for expediting, we are still seeing an all-time high automotive gross margin, excluding regulatory credits of 30%. So a lot of strong, fundamental progress, at the same time that's all happening. Tesla's keeping their operating expenses under control.
The operating margin of 19%; yes, that does include the regulatory credits, but even extracting that out, Tesla is by far now at this point, the highest profitability automaker in the world. And as they say in their earnings deck, as they keep trying to hint at on the calls, more and more of their revenue is going to, or more and more of their profitability is going to come from software, and that's going to be high margin.
Rob Maurer:
So there's definitely a roadmap for this to just continue to improve, as Tesla scales to extreme size. The price to earnings ratios already coming down significantly. Just a quick note, if you were watching the video from earlier...
Rob Maurer:
I did have one mistake in there, in the Q4. I know I had the Q3 stuff that was linked to something else. Q4, my gap and non-gap earnings per share numbers, those were slightly inflated, because, in my model, I had been playing around with it and I'd removed the 340 million payroll tax from Q4. So that was inflated by 30 cents. So if you are using that number, the trailing 12 months gap earnings per share is now 737, not 766 like Ed said.
Rob Maurer:
Anyway, at the price, which doesn't look like unfortunately was refreshing here, let me check on that. I don't know why that stopped working. It's supposed to just automatically refresh.
Rob Maurer:
But it looks like Tesla's only up four and a half percent right now, which is a joke because it was down 5% on the day. So the fact that you can buy Tesla's share cheaper today than yesterday is pretty ridiculous given these results.
Rob Maurer:
I shouldn't be surprised given how stupid the market is; has treated Tesla is treating Tesla. It's just so clear. Look at Lars's response on comparing the Cybertruck to other pickup trucks. He's like, "Oh, I didn't even think about that, because it's just like, so irrelevant to what Tesla's doing." It just shows how core two Tesla's thinking first principles is. They're not looking at any of that competition; quote, unquote competition, because they just don't care. They know that their path is better and they're just trying to make that path as good as possible. So that's just an indicator of what is to come.
Rob Maurer:
I lost my train of thought a little bit. Just major recap. So I think the financial progress that Tesla's making is excellent. The roadmap is extremely exciting, though slightly more uncertain now, because of Tesla's more apparent shift into pushing all their chips in on Robotaxi, which we haven't seen come to fruition yet.
So could create some good opportunities if Tesla gets a new period where they haven't figured this out yet, and growth is not quite happening because they went all in on this Robotaxi and they're not going to, I mean, maybe they would, but ... If they have this production plan for a couple of million, a few million Robotaxis, and they haven't solved FSD yet, I don't know how they're going to sell those.
Rob Maurer:
So that's where the big question for Wall Street comes in. Hopefully 6, 12, months from now, 18 months, we won't have to worry about that. Hopefully Elon's right, in this case. It's not something I would bet on. Well, I guess I kind of embed on it. But the reason that I bet on it is because I think Tesla's business just, even excluding those things, is so strong. Super clear roadmap to multi-trillion-dollar valuation just from vehicles. And if Tesla can figure out anything real-world AI related, just adds to that.
Rob Maurer:
In summary, great financials. Really strong, fundamental progress. Robotaxi is super exciting, but also going to present a little bit of conflict with Wall Street. So that where we're going to leave it then. I'm sure we'll have a little bit more discussion on this tomorrow so make sure you are subscribed and sign up for notifications. You can also find me on Twitter @TeslaPodcast and we'll see you tomorrow for the Thursday, April 21st episode of Tesla Daily. Thank you.
