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Tesla Inc Earnings Call
Tesla Inc Earnings Call
Company Participants
Elon R. Musk, Chief Executive Officer
Martin Viecha, Vice President of Investor Relations
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Unidentified Speaker
Vaibhav Taneja, Chief Financial Officer
Other Participants
Colin Langan
George Gianarikas
Pierre Ferragu
Rod Lache
William Stein
Presentation
Martin Viecha {BIO 17153377 <GO>}
Good afternoon, everyone, and welcome to Tesla's Third Quarter 2023 Q&A Webcast. My
Bloomberg Transcript
name is Martin Viecha, VP of Investor Relations, and I'm joined today by Elon Musk,
Vaibhav Taneja, and a number of other executives. Our Q3 results were announced at
about 3 p.m. Central Time in the update that we published at the same link as this
webcast.
During this call, we will discuss our business outlook and make forward-looking
statements. These comments are based on our predictions and expectations as of today.
Actual events or results could differ materially due to a number of risks and uncertainties,
including those mentioned in our most recent filings with the SEC.
During the question-and-answer portion of today's call, please limit yourself to one
question and one follow-up. Please use the raise hand button to join the question queue.
But before we jump into the Q&A, Elon has some opening remarks.
Elon?
Thank you, Martin. So just a Q3 recap. Last quarter was impacted by downtime for global
factory upgrades that will help us reduce cost per vehicle as well as increase production.
We remain focused on three main objectives, which is the cost reduction of our products,
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
investments in artificial intelligence, and other growth projects like Optimus, and
continued free cash flow generation.
Regarding vehicle cost, our team was able to reduce the cost per vehicle further in Q3
despite headwinds from factory idle costs and ramp-up of new factories, and we believe
there's still a meaningful room for improvement there. Regarding Autopilot and AI, our
vehicles now driven over 0.5 billion miles with FSD beta, Full Self-Driving beta, and that
number is growing rapidly. We recently completed a 10,000 GPU cluster of H100s. We
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think probably bringing it into operation faster than anyone's ever brought that much
compute per unit time into production, since training is the fundamental limiting factor on
progress with full self-driving and vehicle autonomy.
We're also seeing significant promise with FSD version 12 versus the end-to-end AI where
its photon count-in controls out, or really you can think of it as there's just a large bitstream
coming in and a tiny bitstream going out, compressing reality into a very small set of
outputs, which is actually kind of how humans work. The vast majority of human data input
is optics from our eyes, and so we are like the car, photons in, controls out, with neural
nets -- just neural nets in the middle. It's very interesting to think about that.
We will continue to invest significantly in AI development, as this is really the mass game-
changer. And, I mean, success in this regard in the long term, I think, has the potential to
make Tesla the most valuable company in the world by far. If you have fully autonomous
cars at scale and fully autonomous humanoid robots that are truly useful, it's not clear
what the limit is.
in Q3. And as this business grows, the energy division is becoming our highest margin
business. Energy and service now contribute over $0.5 billion to quarterly profit.
The Cybertruck, I know a lot of people are excited about the Cybertruck. I am too. I've
driven the car. It's an amazing product. I do want to emphasize that there will be
enormous challenges in reaching volume production with the Cybertruck, and then in
making the Cybertruck cash flow positive. This is simply normal for, when you've got a
product with a lot of new technology, or any new vehicle -- brand new vehicle program,
but especially one that is as different and advanced as the Cybertruck, you will have
problems proportionate to how many new things you're trying to solve at scale. So I just
want to emphasize that while I think this is potentially our best product ever, and I think it
is our best product ever, it is going to be -- require immense work to reach volume
production and be cash flow positive at a price that people can afford.
Often people do not understand what is truly hard. That is why I say prototypes are easy,
production is hard. People think it's the idea or you make a prototype, you design a car.
And as soon as they're designing a car, it's just anyone can do it, it does require taste, it
does require effort to design a prototype. But the difficulty going from a prototype to
volume production is like 10,000% harder to get to volume production than to make the
prototype in a first place. And then it is even harder than that to reach positive cash flow.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
That is why there have not been new car startups that have been successful for 100 years,
apart from Tesla.
So I just want to temper expectations for Cybertruck. It's a great product, but financially, it
will take, I don't know, a year to 18 months before it is a significant positive cash flow
contributor. I wish there was some way for that to be different, but that's my best guess. So
really the demand is off the charts. We have over 1 million people who have reserved the
car. So it's not a demand issue, but we have to make it, and we need to make it at a price
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And lastly, I wanted to thank all of our employees, who are making a lot of extra effort
during uncertain times. Thank you very much for your hard work and the impact that
you're making.
Thank you very much, Elon. And our CFO, Vaibhav, had some opening remarks as well.
Thanks, Martin. Vehicle deliveries in Q3 outpaced production, and we had yet another
record quarter of profitability in our energy business. Congratulations to the Tesla team for
the continued focus on operational excellence, as we navigate through a period of
economic uncertainty, higher interest rates, and shifting consumer sentiment. As Elon
mentioned, our Q3 operational and financial performance was impacted by planned
downtimes for our factory upgrades. This was necessary to allow for further factory
improvements and production rate increases.
Despite such factory shutdowns, our cost per vehicle decreased to approximately $37,500.
We saw sequential decreases in material cost and freight. Reducing the cost of our
vehicles is our top priority.
On the operating expenses front, R&D expenses continued to rise due to Cybertruck
prototype builds and pilot production testing combined with spend on AI technologies
like Full Self-Driving, Optimus, and Dojo. We have and will continue to make investments
in these areas, and hence our capital expenditure and R&D will continue to grow in the
near term. However, our focus is to continue making investments through positive cash
flow from operations. This year itself, we have generated operating cash flows of
approximately $8.9 billion and free cash flows of approximately $2.3 billion.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
Our other businesses are becoming more prominent on a standalone basis, with energy
business leading the charge primarily from the growth in megabyte deployments. Our
services and other businesses, on a year-on-year basis, also continue to show positive
momentum as we benefit from our growing fleet. As regards our pricing strategy, in
addition to what we have shared before, I want to elaborate that most car buying happens
with one or other form of financing, and hence, we also view pricing in terms of monthly
costs for the customer.
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And therefore, as interest costs in the U.S. have risen substantially, it has required us to
adjust the price of our vehicles to keep the monthly cost in parity. We have tried to offset
such adjustments via a focus on reducing costs. However, there is an inherent lag in cost
reductions, which in turn impacts margins. To that extent, we recently announced a partner
vehicle leasing program in the U.S., whereby you can get a standard range Model Y for as
low as $399 a month.
Thank you very much. And now let's go to investor questions. The first investor question
comes from Craig. How many Cybertruck deliveries do you anticipate for 2024?
Now I can say that if you say, well, where will things end up? I think, we'll end up with
roughly 0.25 million Cybertrucks a year. And -- but I don't think we're going to reach that
output rate next year. I think we'll probably reach it sometime in 2025. That's my best
guess.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
Thank you. The second question is, can you provide a progress update on the 4680 cell,
particularly progress towards performance improvements and cost savings you outlined
on Battery Day? Thank you.
A - Unidentified Speaker
Sure thing, Martin. 4680 cell production in Texas increased 40% quarter-over-quarter.
Congrats to the Texas team for producing their 20 million cell off of line one. Texas is now
our primary 4680 facility. We're heavily focused on quality. Scrap is down 40% quarter-
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over-quarter. With the increased volume and yield improvements, cell costs consistently
improved month-over-month within the quarter, although we have a lot more work to do
to achieve our steady state goals. And that is our priority.
The Cybertruck cell with 10% higher energy than our Model Y cell started production on
line two in Texas. This quarter, we convert to building 100% Cybertruck cells to simplify
and focus the factory as we ramp all four lines in Phase 1 over the next three quarters.
Phase 2 of the Texas 4680 facility is currently under construction. The additional four lines
incorporate further capital efficiencies over Phase 1, and our target is for them to start
producing in late 2024.
Lastly, in Kato, we're retooling to enable large-scale pilot runs of our next generation cell
designs. Kato's long-term goal is to be the launchpad for new cells, one generation ahead
of our mass production facilities, enabling faster iteration and smoother ramp-ups of new
designs.
update on capacity expansion plans for companies, factories in Berlin and Austin, and the
opening schedule of Gigafactory in Mexico?
A - Unidentified Speaker
Berlin and Austin factories, the current priority is actually maximize the output from our
existing lines by laser focus on efficiency improvement. As always, maintaining a high
quality and reducing per unit cost will be as critical as growing production volume.
For Mexico, we're working on infrastructure and factory design in parallel with the
engineering and development of the new production that well be manufacturing there.
That's all I can share for now.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
So -- and we are tracking, I believe at this point, for Model Y to be the best-selling car on
earth, but not just in revenue, but in unit volume. If you compare that to the other vehicles
that are number 2 and number three and whatnot, they cost much less than our car. So,
we're just hitting law of large numbers situations here.
I know people want us to advertise and we are advertising. I think there is some -- there's
something to be gained on the advertising front. I don't think it's nothing. But informing
people of a car that is great, but they cannot afford doesn't really help. And -- so that is
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really the thing that must be solved is to make the car affordable, or the average person
cannot buy it for any amount of money. They can't afford it. They can't afford it. So this is
big deal.
Current sell-side consensus assumes that Tesla will deliver 2.3 million vehicles in 2024,
representing 28% growth versus 2023 guidance. Is this growth rate achievable without any
mass market launches in 2024, and when does Tesla expect to return to its 50% long-term
CAGR?
options, and we'll be able to provide a much more meaningful update at our next
earnings call.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
(inaudible)
think over time the price of FSD will increase proportionate to its value, so it would regard
the current price as a kind of a temporary low.
A - Unidentified Speaker
I mean, I think it's important to remember for everyone that Mercedes' system is limited to
roads in Nevada and some certain cities in California. It doesn't work in the snow or the
fog. They must have a lead car and marked lanes, only 40 miles per hour. Our system is
meant to be holistic and drive in any condition, so we obviously have a much more
capable approach, but with those kind of limitations, it's really not very useful.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
approval before deploying things, whereas in the U.S., you can deploy things at risk or at
least you take liability for what you deploy. So it's -- whereas most countries require some
sort of extensive approval program.
So we only want to go through that extensive approval program when we think it's kind of
ready for prime time in that country. I apologize it's not out in those countries, but we
keep finding ways to make it better. And I -- it really -- it needs to drive such that it exceeds
the, even unsupervised, significantly exceeds the probability of injury of a human, or
significantly better, a lower probability of injury than a human by far.
I think we're tracking to that point very quickly. Obviously in the past, I've been overly
optimistic about this. The reason I've been overly optimistic is that the progress tends to
sort of look like a log curve, which is that you have kind of rapid initial improvements, and
that if you were to extrapolate that rapid, fairly linear rate of improvement, you get to self-
driving quite quickly, but then the rate of improvement curves over logarithmically exhaust
the asymptote. That's not happened several times. I would characterize our progress in
real-world AI as a series of stacked log curves.
I think that is also true in other parts of AI, like LLMs and whatnot, a series of stacked log
curves. Each log curve gets higher than the last one, so if you keep stacking logs,
eventually you get to FSD.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
volume until its third year of production. Should we have a similar anticipation for the
ramp of the next-gen platform, or is there any reason that we should be maybe more
optimistic or pessimistic about the ramp profile there? Thank you.
A - Unidentified Speaker
I mean, there's like unique complexity to Cybertruck.
A - Unidentified Speaker
Yes. In terms of the technologies we're putting into it, we didn't have to invent how to
bend full hard stainless steel or have mega 9,000 ton castings or the largest hot stamping
in the world or new high-voltage, low-voltage architectures. It's learning from everything
we have done. So we hope we ramp faster than the technology -- (Multiple Speakers)
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
A - Unidentified Speaker
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Yes, exactly.
A - Unidentified Speaker
Yes. I mean, the simplification makes it easier to automate. It also makes it lower cost. It's
intrinsically lower cost.
A - Unidentified Speaker
That's not 14 inches of travel under suspension.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
ultimate values of FSD, which is to be able to handle like the robotaxi, is not going to
necessarily interest everybody. And you have a bit of a degraded version that would be
like a chauffeur service where the car drives by itself, but you still have to be in the car and
around. And then there is like the hands on eyes on version of the service. And I guess,
there should be like much lower costs, lower feature kind of variance of the service that
could have a very large penetration on your install base and more expensive one that
would remain at a lower penetration level. So I'm just wondering if you're taking that bit.
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And last but not least, like the simplest version of FSD are available and are going to work
from a technical perspective probably before like the ultimate robotaxi version can work, if
ever. And so, I'm wondering how you take that into account in how you're thinking like the
financial contribution of FSD over time and whether you could evolve your pricing along
that kind of tiers to increase adoption.
So I mean, it's -- yes. It's like the economics of the system are just insanely positive. If given
that the car -- like all of the cars we're making and have made for a while, we believe are
capable of full autonomy. So then if you're able to say increase the utility of that car by a
factor of 5 which still only means that you -- it's being used, or maybe 50 hours a week out
of 168. So you still notice -- you still assume -- you best still assume it's less than a third of
Bloomberg Transcript
the hours of the week is doing something useful. You've increased the value of that by 5,
but it still costs the same. Like you have something, then we're a hardware company with
software margins.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
impact for the quarter. And when you look at the other pieces which we are trying to do,
we did see certain of our other factories ramping up pretty well, right? And they actually
contributed pretty well to the margin for this quarter. In fact, one of the factories came
pretty close to in terms of per-unit costs to where we are for one of our other established
factory, which is Fremont. So that was a positive in the quarter.
And when it comes to energy margins, we have -- Megapack deployment was the key
driver there. And that product has done well. I mean, on the cost curve also, we've been
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able to do a lot there. But I do want to caution that, Megapack deployments are a bit
lumpy. So, yes, we had a great quarter this period, but depending upon where we are
trying to deploy that product in different markets, you would see periods where there
would be downward pressure on deployment because of us trying to get the product to
that place where it's --
unmute yourself.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
Plus, like Elon mentioned, we're going to be ramping Cybertruck, which is going to be
another headwind, which we will be dealing with. On top of all that, there's overall
uncertainty in the macroeconomic environment, which even makes it harder to predict
precisely as to where we'll land. But yes, this is something which -- it's an evolving thing
which we're observing every day and reacting to it on a daily basis.
A - Unidentified Speaker
I would just say that on the cost reduction efforts, like we are not -- we are unflagging in
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our pursuit of additional cost downs for 2024. We do have a good pipeline of them and
work on both the engineering side and the factory operation side, and our intention is to
like maintain or exceed the trend that you saw. We're trying as hard as we possibly can.
So yes, it's -- that's reality for most people. It's sometimes difficult for people who are high
income members, and I'd say high, it'd be like someone who's earning over $200,000 a
year to understand what life is like for someone who is earning $50,000 or $60,000 or
$70,000 a year, which is most people. So for a lot of people like these tax credits, they
can't front $7,500 for 18 months or even six months, to get for the tax credit. And they
actually don't, it's okay, so even have that $7,500 of taxes. So it's really just the best regard
to people is how much money do they have to pay immediately and how much per
month. That's it. And you can stop right there. And a car is still much more expensive than
RAV4 when you look at it that way.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
Yes. One other thing which I'll add, when you look at car buying in general, we're trying to
get to the next set of EV adapters.
Exactly.
We have to make our cars more affordable. The people can buy it and I keep harping on
this interest thing, but I mean, it's just raises the cost of the car. I mean, we're looking at an
internal analysis, which. I know we feel like we think is more or less on track that when you
look at the cost or the price reductions we've made in, say, the Model Y, and you compare
that to how much people's monthly payment has risen due to interest rates, the price of
Bloomberg Transcript
A - Unidentified Speaker
Page 14 of 20
Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
Yes, there's also just fewer options. Even if they plan to hand out credit, there's fewer
banks to go there.
few shoes to drop on the bad credit situation. Commercial real estate obviously is in
terrible shape. Credit card debt has been rising significantly. The credit card interest rates
are usurious, over 20% interest rates, meaning like, which over time is just -- becomes
extremely punishing. If someone is paying 20% interest on their credit card, it means they
cannot pay them off. And if you cannot pay them off, and you're still accruing interest at
20%, that's headed to a bad place.
And if I can sneak one in, please, there are press reports, and I know how perilous it is to
Bloomberg Transcript
believe some of these, but they say that you've included RADAR as an option in some
Model Ys in China. And I'm just here to ask you if that's true, and if so, why? Thank you.
Because -- I mean, the car is looking in all directions at once, and we don't have eyes in
the back of my head. So -- and the computer never gets tired, it never gets distracted, get
drunk, hopefully. And so, RADAR is -- what really matters is how much does it affect the
probability of an accident. And in order for the RADAR to be effective, you have to be able
to do RADAR-only braking, or you have to do actions that are RADAR-only. Otherwise, you
get this disambiguation problem between vision and RADAR. That's why we actually
turned off the RADAR in cars historically that we had shipped. All 3 and Y used to have
RADAR, but we turned it off, because the RADAR actually generated more noise than
signal.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
Now the Tesla-designed RADAR is a high-resolution RADAR, that has some potential to be
useful, but the jury is still very much out on whether that is, in fact, the case.
A - Unidentified Speaker
On the cost question, I guess, from the vehicle side, like, as Drew mentioned earlier, we
are always trying to engineer our products to be cheaper to make and more efficient to
make. That comes, obviously, on the engineering side as we come up with new
innovations, but as well on the supply chain side with our partners, we work with them to
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automate some of their lines, remove their bottlenecks and their high costs as well. On the
logistics side, getting parts to the factory. It's not like a one thing that -- you have to attack
cost everywhere. And we do it ruthlessly at all times.
A - Unidentified Speaker
We play it willingly.
A - Unidentified Speaker
That's a penny.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
A - Unidentified Speaker
It's worth more than a penny.
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So it's sort of like, yes, you actually have to eat less food and work out. That's the actual
way and doctor's advice. Yes, super fun, because food is delicious. And I personally, I'm
not a huge -- I don't love working out. I know some people do, I wish I could, but I don't.
Unless moving the mouse consists of working out, in which case I love moving the mouse.
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
It is just the same as increasing the price of the car. So I just don't have visibility into it. If
you can tell me what the interest rates are, I can tell you when we should build the factory.
We're going to build it. And I mean, I think we'll start the initial phases of construction next
year. But I am still somewhat scarred by 2009 when General Motors and Chrysler went
bankrupt. So well, that's now 14 years ago. It's -- that is seared into my mind with a
branding iron. Because Tesla was just hanging on by a thread during that entire time. And
I mean, we closed off a financing round in 2008 at 6 p.m., December 24th, Christmas Eve.
And if we had not closed that financing round, we would have bounced payroll two days
after Christmas. So we actually closed that round on the last hour of the last day that it was
possible. Stressful, to say the least. And then barely made it through 2009.
So I'm like, I want to just -- I don't want to be going at top speed into uncertainty. A lot of
wars going on in the world, obviously, as well. So -- and we have room here, like, in Texas,
you said we still have room in this building. It's not full with Cybertruck and the why and
there's plenty of growth opportunities still to have inside the building where our team
already is. We also have 2,000 acres here.
A - Unidentified Speaker
There's also a (inaudible)
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Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
So yes. So I don't know. I mean, I'm just curious. Like, I just -- I'm not saying things will be
bad. I'm just saying they might be. And I think, like, Tesla is an incredibly capable ship, but
it is, but if -- we need to make sure like as if the macroeconomic conditions are stormy,
even if the best ship is still going to have tough times, the weaker ships will sink. We're not
going to sink, but even a great ship in a storm has challenges. Now that storm will apply to
everyone, not just us. And not just the auto industry, but apply to everyone, I think. So
apart from necessary sort of staples, like food and stuff, but -- so I don't know. If interest
rates start coming down, we will accelerate.
very well in good economic times and they have -- do good as well in tough economic
times. So it's -- whereas if somebody is selling bread, then I think people still eat half
bread. Yes, you need bread, you need food all the time, but new car, you don't have to
have (inaudible).
This transcript may not be 100 percent accurate and may contain misspellings and other
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Page 19 of 20
Company Name: Tesla Inc
Company Ticker: TSLA US Equity
Date: 2023-10-18
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