Tesla (TSLA) Q2 2021 earnings call transcript

I would now like to hand the conference over to your speaker today, Martin Viecka, Senior Director of Investor Relations. Please go ahead. Thank you and good afternoon, everyone. Welcome to Tesla's second quarter 2021 Q&A webcast. I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q2 results were announced at about 1 p. m. Pacific time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actually, actual events and results could differ materially due to a number of recent 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 press star one now if you would like to join the question queue. But before we jump into Q&A, Elon has some opening remarks. Elon?

Sure. So to recap, Q2 2021 was a record quarter on many levels. We achieved record production deliveries and surpassed over a billion dollars in gap net income for the first time in Tesla history. I'd really like to congratulate everyone at Tesla for an amazing job. This is really an incredible milestone. It also seems that public sentiment towards EVs is at an inflection point, and at this point, I think almost everyone agrees that electric vehicles are the only way forward.

Regarding supply chain, while we're making cars at full speed, the global chip shortage situation remains quite serious. For the rest of this year, our growth rates will be determined by the slowest part in our supply chain, which is a wide range of chips that are at various times the slowest parts in the supply chain. I mean, it's worth noting that if we had everything else, if we had vast numbers of vehicles themselves, we would not be able to make them. Everything except the chips, we wouldn't be able to make them. The chip supply is fundamentally the governing factor on our output. It is difficult for us to see how long this will last because we don't have – this is out of our control, essentially.

It does seem like it's getting better, but it's hard to predict. So, in fact, even achieving the output that we did achieve was only due to an immense effort from people within Tesla.

We were able to substitute alternative chips and then write the firmware in a matter of weeks. It's not just a matter of swapping out a chip. You also have to rewrite the software. So, it was an incredibly intense effort of finding new trips, riding new firmware, integrating with the vehicle, and testing in order to maintain production. And I'd also like to thank our suppliers who work with us.

And there have been many calls, you know, midnight, 1 a. m. , just with suppliers in resolving a lot of the shortages. So thanks very much to us, suppliers. Let's see, in terms of FSD subscription, we were able to launch full self-driving subscription last month, and we expected to build slowly, but then gather a lot of momentum over time. And obviously, we need to have the full self-driving build widely available for it really to take off at a high rate and make a lot of progress there.

So, yeah, I think FSD subscription will be a significant factor probably next year. We got to Giga Texas and Giga Berlin. We're actually doing this earnings call from Giga Texas, so we're in the factory right now doing this earnings call. And the team has made incredible progress here. You can see the pictures online, and see that there's basically nothing a year ago, and there's a largely complete, large factory. We will see a few more people in the Tesla and then team there So we expect to be producing the sort of new design of the Model Y in both factories in limited production later this year So, it's always like, it's hard to sort of explain to people who have not been through the agony of a manufacturing ramp, like, why can't you just turn it on and make, you know, 5,000 a week?

This is, it is so hard to do manufacturing. It is so hard to do production. In the first approximation, there are 10,000 unique parts and processes that have to work, and the rate of growth of production goes as fast as the least lucky and dumbest of those 10,000 things. And a bunch of them are not even in our control, so it's like, it's insanely difficult. I'm fond of saying that prototypes are easy and production is hard. And arguably, the really remarkable thing that Tesla's done is not to make an electric car or to be a car startup, because there have been hundreds of car startups in the United States and outside the United States. So the thing that's remarkable is that Tesla didn't go bankrupt in reaching volume production.

That's the amazing part, because everyone else did. Because they all put the prototype or the idea was the hard part, and it is not. It is trivial by comparison with actual production.

So it's always worth noting that of all the American car companies, There are only two that have not gone bankrupt, and that is Ford and Tesla. So, you know, the seeds of defeat are sown on the day of victory, and we must be careful that we do not do that. So often, if you look at history, so often, the seeds of defeat are sown on the day of victory. We will endeavor not to make that the case at Tesla.

So, let's see, the Model Ys in Texas and made in Texas and Berlin will look very much like the Model Ys we currently make, but there are substantial improvements in the difficulty of manufacturing. So, for example, the Model Y made here and in Berlin will have a cast front body and a cast rear body, whereas the one in California has a cast rear body but not a cast front body. We're also aiming to do a structural pack with 4680s, which is a mass reduction and a cost reduction. But we're not counting on that as the only way to make things work. We have a backup plan with a non-structural pack and 2170s, essentially. So, but at scale production, we obviously want to be using 4680s and structural bat.

From a physics standpoint, this is the best architecture, and from an economic standpoint, it is the lowest cost way to go. So the light is the lowest cost. But there's a lot of new technology there, so it is difficult to predict with precision when does it work and when do you reach scale production. And Drew's going to talk a bit more about the 4680 production.

Yeah, so we are making great progress on 4680 cells, but there is a tremendous amount of innovation that we're packing into that 4680 cell. And so it's not simply a sort of minor improvement on state of the art. There are, and we went through this on the battery cell day, We've had really half a dozen major improvements and dozens of small improvements. So I think it will be great, but it's difficult to say when the last of the technical challenges will be solved.

So in conclusion, our team continues to make huge efforts to make our factories run at full speed, which is very difficult. We have had some factory shutdowns due to part shortages, and we hope those will be relieved in the coming weeks and months.

And we're making great progress on full-soft driving. Some of the progress is not easy to see because it's at a foundational software level, and so it ends up being sort of a two-steps-forward, one-step-back situation. But over time, you do two steps forward and one step back and keep going. You do move forward. So, I'm highly confident that the cars will be capable of full self-driving. If they have a full self-driving computer and the cameras, I'm confident that they will be able to drive themselves with a safety level substantially greater than that of the average person.

Once again, thanks to all of our employees who are making this a breakthrough year for Tesla and an incredible quarter. Thank you, guys.

Thank you very much, and we have some follow-up remarks from Zachary Curricorn. Yeah, thanks, Martin, and thanks, Elon. Just to reiterate, Q2 was a great quarter for the Tesla team with strong improvements across the business. In particular, auto gross profit and margin, excluding credits, increased substantially. This was primarily driven by better cost optimization across our factories, good execution against our cost reduction plans, as well as increases in production and delivery volume.

There was some benefit from pricing action, mostly in North America, however, it was small in the context of the other contributors. Note that the Model S and X program was at a slight loss for the quarter due to the relatively low volume. And supply chain challenges, including expedites, continue to provide cost headlands. Additionally, it's encouraging to see the progress made on profitability within our energy and services and other businesses.

While there's some benefit to looking at our progress quarter over quarter, I find it more helpful to look at progress over a slightly long-term horizon. Over the last two years, our vehicle delivery volumes have more than doubled. This volume increase was made possible by a steady decrease in ASPs of more than 10%, driven by a roadmap to increase affordability and shifting mix towards our more affordable vehicles.

Yet over that same period of time, our auto gross margin, excluding credit, has increased nearly 10 percentage points to our highest yet since the introduction of Model 3. This is only possible because our average cost per vehicle has reduced by more than the reduction in average price. This is a remarkable achievement in the context of the volume growth and ASP reduction I've mentioned, and a testament to the hard work by the Tesla team.

Additionally, OpEx as a percentage of revenue has declined, and in particular SG&A, representing the work we've done to become more efficient as we scale the company while still making the required R&D investments to support our future. As a result, our GAAP operating margins have risen from negative to double digit in line with what we have guided. By managing our overhead costs and driving higher volumes, our P&L is benefiting from the marginal profitability of each incremental unit. Or said differently, we are recognizing the benefits of scale and improved fixed cost absorption.

With strong operating cash flows and cash balance, we are putting that cash to use. CapEx continues to tick up, primarily driven by capacity investments in Austin, Berlin, and Shanghai. Additionally, each quarter we are using our cash to retire legacy debt, which was taken on at a time when interest rates and company risk were much higher than in today's environment. As I've mentioned before, our 2021 volumes will skew towards the second half of the year as we push for continued sequential increases in volume. Despite the great work so far managing the instability of the supply chain, these challenges remain and are unfortunately increasing in pain with the higher volume. As we work through the uncertainty, we want to ensure we do our best to manage customer wait times, as well as the impact these interruptions have on our employees and costs.

And as Elon mentioned, volume growth will be determined by part availability, as we have the factory capacity ready and are in a strong demand position. I'm excited to see the progress made by the Tesla team as we continue building the business and strengthening our financials. Thank you very much.

Great. Thank you very much, Zach. And now let's go to the retail investor questions on say. com. The first question from Robert M. is, Tesla's website still says Cybertruck production is expected to begin in late 2021. Can Tesla share more details on the current status of the Cybertruck and confirm if production is still expected?

Okay. Lars, do you want to? Sorry, we cut out there for a second.

Yeah, the Cybertruck is currently in its alpha stages. We finished basic engineering architecture of the vehicle. With the Cybertruck, we're redefining how the vehicle is being made. As Elon said, it carries much of the structural pack and large casting designs of the Model Y being built in Berlin and Austin. Obviously, those take priority over the Cybertruck, but we are moving into the beta phases of Cybertruck later this year, and we'll be looking to ramp that in production in Gicka, Texas, after Model Y is up and going.

Yeah, it's just worth reemphasizing that the extraordinary difficulty of ramping production of large main-tashed items, the risk of being repetitive, It's actually easy to make prototypes or sort of handle small-volume production, but anything produced at high volume, which is really what's relevant here, is it's going to move as fast as the slowest of the, say, a ruck order of magnitude, 10,000 unique parts and processes. And so you could have 9,999, but just one is missing. I mean, we were missing, for example, like a big struggle this quarter was the module that controls the airbags and the seatbelts. And obviously, you cannot ship a car without those. And that limited our production civilian worldwide in Shanghai and in Fremont.

So, it wouldn't have mattered if we had like 17 different car models, because they all need the airbag module. So, it's irrelevant.

So, in order for Sattuck and Semi-Air to scale to volume that's meaningful for customer deliveries, we've got to solve the chip shortage, or working with our suppliers. And people sometimes say, why don't you just build a chip pad? Okay, well, okay, that would take us, you know, even moving like lightning, 12 to 18 months. So it's not like you can just whip up a chip pad. It's just like, yeah, just make a quick chip pad. But so, you know, some of these things are, you know, yeah, anyway, it is quite a trial dealing with all of the constraints of scaling a large manufactured object. I think it may be the case that Tesla is scaling, I think we might be the fastest in history ever for scaling a large manufactured object.

I think maybe the Model T would have been comparable back in the day, the Ford Model T. I think we may be scaling large manufactured objects at the fastest rate in history, or I'd like to know who did it faster so we can learn from them. So it's worth just noting that, you know, in the grand scheme of things, it's not bad. So, yeah, so Cybertruck and Semi, actually both are heavy use of cell capacity.

So we've got to make sure we have cell capacity for those two vehicles, or it's kind of pointless. We can make a small number of vehicles, but the effective cost if you make a small number of vehicles is insane. Like, they would literally cost, you know, a million dollars a piece. There's a reason why you do things in volume production, which is to get the economies of scale that get the class down.

So, we are looking at a pretty massive increase in cell availability next year, but it's not like in January 1. It comes through, you know, it ramps up through the course of next year. But even without Tesla's intelligence, even without Tesla's intelligence, we believe our suppliers will be able to deliver deliver about twice as much cell output in next year as this year.

And Drew, do you want to talk more about that?

Yeah. Given concerns over cell bottleneck and growth, our target is to grow cell supply ahead of the 50% year-on-year growth targets of the vehicle business and also enable increased energy storage deployments.

Yeah. So, yeah, our cell suppliers are tracking to double their production in 2022. Yeah, it's worth noting, like, if you have a target of a certain number, that doesn't mean it happens, like, as sure as night follows day. It is a target. So if there is some calamity in the world that interrupts the supply chain, then it will be less. But the contracts that we have with cell suppliers call for roughly a doubling of cell supply to Tesla in 2022.

And we have to juggle these exponential, this whole bunch of exponential graphs sort of overlaid on top of each other, and small changes in where you are on the x-axis of time. It can quite substantially change the area under the code. So what we're thinking of doing is like, depending on, it's basically overshooting on cell supply for vehicles. And then, as we have, say, excess cell supply in one month or another, then routing that cell output to the Megapack and Powerwall.

Or by the same token, if we're prioritizing vehicle production, if there's a shortage of cell output for some reason, then we will throttle down Megapack and Powerwall production. So something's got to get, basically. Or if there's a disruption to vehicle production, you have an outlet for the cell capacity.

Yes, exactly.

There's a tremendous amount of inertia in the supply chain. So if we say to a supplier, we want you to double sell output, well, even doing that in a year is very difficult. And then that system has a tremendous amount of momentum. It is like a flotilla of super tankers. It's insane.

Speaking of which, from a raw materials perspective, we also have long-term contracts to secure our supply chain to also enable this growth. So we're not just looking at the suppliers, but upstream from there.

Yeah. Which is more flotillism.

Yeah. Exactly.

As mentioned, things will move as fast as the slowest part of the entire supply chain, which goes all the way back to raw materials. You know, lithium and nickel and that kind of thing. And there's sometimes a misperception that Tesla uses a lot of cobalt, but we actually don't. Apple uses, I think, almost 100% cobalt in their batteries and cell phones and laptops, but Tesla uses no cobalt in the iron phosphate And almost none in the nickel chemistries So on a weighted average basis we might use 2 cobalt compared to say Apple 100 cobalt Anyway so it really just not a factor We expect to basically have zero cobalt in the future So you know I do I think probably there is a long shift more in the direction of iron lithium cells over nickel As the energy density of iron or what's called to be iron phosphate, might as well just call it iron, the phosphate is not taken for granted.

But iron-based cells, lithium-ion cells, and nickel-based lithium-ion cells, I think probably we'll see a shift, my guess is probably to two-thirds iron, one-third nickel, or something on that order. And this is actually good because there's plenty of iron in the world. There's an insane amount of iron. But nickel is, there's much less nickel, and there's way less cobalt. So it is good for relieving the long-term scaling to move to iron-based cells mostly. And I think long-term, possibly all, there's a good chance that all stationary storage, that is Powerwall and Megapack, moves to iron.

This is most likely the case, since you do not need to transport it, and there's less volume of mass constraint for stationary storage. So then nickel would be for really for long-range road transports, you know, ships and aircraft and that kind of thing.

Thank you. Let's go to the second question from retail, which is, Elon has said that Tesla will be opening up the supercharger network to other EVs later this year. Can you share some more details on how this will be structured? Will this be a select brand, or will they contribute to the growth of this network?

Yes, we're currently thinking it's a real simple thing where you just download the Tesla app, and you go to a supercharger, and you just indicate which store you're in. So you plug in your car, even if it's not a Tesla, and then you just access the app and say, turn on the store that I'm in for how much electricity.

And this should basically work with almost any manufacturer's cars. There will be a time constraint. If the charge rate is super slow, then somebody will be charged more because the biggest constraint at the supercharger is time.

How occupied is the stall? And we'll also be smarter with how we charge for electricity at the superchargers. So, you know, rush hour charging will be more expensive than all-fours charging because there are times when the superchargers are empty and times when they're jam-packed. And so it makes sense to have some time-based discrimination.

Yeah, we've been doing that, and it's been working, and people respond. It helps with utilization.

Yeah, exactly. So, yeah, I think we're, in Europe and China and most parts of the world, it's the same connector for everyone. So this is a fairly easy thing to do. We developed our own connector, which, in my opinion, is actually developed supercharging. Tesla was the only one who had high-power charging, and there was no standard. So we developed our own connector, which, in my opinion, is actually the best connector. It's small and light, and it looks good. So an adapter is needed to work for TVs in North America, but people can buy this adapter, and we anticipate having it available at the superchargers as well if people don't sort of steal them or something.

We have a good solution for that. Okay. So, you know, that's a constraint on North America things. Yeah. That's basically a vestige of history. But I think we do want to emphasize that our goal is to support the advent of sustainable energy. It is not to create a walled garden and use that to bludgeon our competitors, which is sometimes used by some companies. I think it's also important to comment that increasing the utilization of the network actually reduces our costs, which allows us to lower charging prices for all customers, makes the network more profitable, allows us to grow the network faster.

That's a good thing there. And no matter what, we're going to continue to aggressively expand the network capacity, increasing charging speeds, improving the trip planning tools to protect against site congestion using dynamic pricing, as Elon mentioned. And just continue to focus on minimum wait time for all customers.

Yeah, obviously, in order for this to be, for the supercharger to be useful to other car companies, cars, we need to grow the network faster than we're growing vehicle output, which is not easy. We're growing vehicle output at a hell of a rate. So, superchargers need to grow faster than vehicle output. So, this is a lot of work for the supercharger team, but it is only useful in the grand scheme of things, it's only useful to the public if we're able to grow faster than Tesla vehicle output. So, that is our goal.

Thank you very much. And the third question is, Elon said 4680 cells aren't reliable enough for vehicles. Is this referring to cycle life, degradation, or something else? Please update us on progress of 4680s and what still needs to be done to make them reliable enough for vehicles.

Yeah, I mean, really, this is not... we'll definitely make the 4680 reliable enough for vehicles, and I think we are at the point where in limited volume, it is reliable enough for vehicles.

The, again, going back to, like, you know, limited production is easy, or prototype production is easy, but high volume production is hard. There are a number of challenges in transitioning from small-scale production to large volume production.

And, you know, not to get too much into the weeds of things, but right now we have a challenge with basically what's called calendaring, or basically squashing the cathode material to a particular height. So it just goes through these rollers and gets squashed, like pizza dough, basically, but very hard pizza dough.

And it's causing, it's denting the calendar rolls. This is not something that happened when the calendar rolls were smaller, but it is happening when the calendar rolls were bigger. So it's just like, we're like, okay, weren't expecting that.

Yeah.

It's not a, like, science problem. It's an engineering problem. It's not a question of if, it's a question of when, and the team is 100% focused on resolving these limiting processes as quickly as possible.

Exactly.

Yeah, and on the reliability side, as Elon mentioned, we have successfully validated performance and the lifetime durability of the 4680 cells produced in CATO, and we're continuing ongoing verification of that reliability. We're actually accruing over 1 million equivalent miles on our cells that we produce every month in our testing activities. The focus on that is very clear. We want high-quality cells for all of our customers.

And, yeah, we're just focused on the unlucky limiting steps in the facility, and with the engineers focused on those few steps remaining, we're going to break through as fast as possible.

In the meantime, we have a massive amount of equipment on order and arriving for the high-volume cell production in Austin and Berlin. And given what we've learned with the pilot plant, which which is in Fremont, which is really quite a big plant by most standards. We will have to modify a bunch of that equipment, so it won't be able to start immediately. But it seems like, let me correct me if I'm wrong, but we think most likely we will hit an annualized rate of 100 gigawatt hours a year sometime next year. We'll have all the equipment installed to accomplish 100 gigawatt hours, and it's possible that by the end of the year, we will be at an annualized rate of 100 gigawatt hours by the end of the year.

Yeah. Yeah.

I mean, my guess is more likely than not, about 50% of reaching 100 gigawatt hours a year by the end of next year on the annualized rate, something like that. Yep. But it could shift by a little bit. But it's nothing fundamental, just a lot of work.

Yeah, and even to the large roller question, Elon, right? Like, on the anode side, the large rollers work great, no concerns. And so we're just learning as we go. And the nice thing about having that facility, you know, on the fast track, like we had it and we talked about it at Battery Day, was really de-risking the big factories here. That's what we've done, and we've learned a lot. And with each successive iteration, the ramp-up and the equipment installation will be faster and more serious.

All right. Thank you very much. And the last question from retail is from Emmett. Can Elon do an interview with one of our YouTube channels once or twice a year? I would nominate David Leon Investing or Rod Maurer's Tesla Daily channels as first possible candidates.

Yeah, I guess I'll do an interview. I mean, spare my mind, like, if I'm doing interviews, then I can't do actual other work, you know, so it's not, you know, I don't have so much time in the day, so.

But yeah, I'll do it once. I wouldn't do it annually, but I'll do it once. I think also, like, this is the... I wouldn't say the last time I'll do earnings calls, but this is the... I will no longer be default to doing earnings calls. So, obviously, I'll do the annual shareholder meeting. I think going forward, I will most likely not be on earnings calls unless there's something really important that I need to say.

Okay, thank you. Let's go to institutional questions. The first one, and we covered a lot of this already. Can you please update us on timelines for the start of production of Berlin and Austin, Model Y, Cybertruck, and the Semi? Do you expect the ramp of Cybertruck to be as difficult as it is a new process?

I think Cybertruck ramp will be difficult because it's such a new architecture. It's going to be a great product. It might, I think, be our best product ever. But there's a lot of fundamentally new design ideas in Cybertruck. Nobody's ever really made a car like this before, a vehicle like this before. So there will probably be challenges because there's so much unexplored territory.

Yeah.

Thank you. I think question two and question three we can skip, given we have already addressed it. I'll go to question four. In five years' time, how much faster or better could you be at manufacturing capacity expansion using cut and paste? And what are the biggest issues you need to solve to get to that rate?

Well, like I said, I think we might be the fastest-growing company in history for any large manufacturing item. So those who have not actually been involved in a manufacturing ramp have just no idea how painful and difficult it is. It's like, you know, you've got to eat a lot of glass, and for a manufacturing ramp, it's hard.

Yeah, I mean, I think, you know, if you look at the expansion we've done in Shanghai, you know, That factory was built in less than a year and ramped in five to six months to full volume. Too long from that. Too long from that. About a year. And when you consider cut and paste, we've repeated that in Fremont and whatever, but now with Berlin and Austin, we have new factories and new designs. And so there's always challenges, as you said, Elon, with new designs and ramping that. But I think having teams in three locations or three continents will definitely expand our ability and our capacity to, you know, grow more lines rather than just having the one factory in Fremont that we had, you know, a year ago.

Yeah. So, I mean, for Shanghai, it was an incredible team, both of the factory in 11 months, but it took longer than building the factory, which was hot. It took longer than that to actually reach high volume production.

So, it took about a year. So, when you put a factory in a new geography, in order for that factory to be efficient, you have to localize the supply chain. So, there's no such thing as cut and paste. It does not exist. It would obviously be insane to do vehicle production in Europe, but send vast numbers of parts from North America. That would make the producing in Europe, for example, just crazy. You've got to look like the supply chain to have efficiency, and then you're moving as fast as your least lucky, least good supplier. Yeah, it's only the supply chains where you go like, you know, three or four layers deep.

It's frankly, I feel at times that we are inheriting all force majeure of Earth. So if anything goes wrong anywhere on Earth, something happens to mess up the supply chain. So, yeah.

Yeah. I think the human capital growth, though, of having factory here, Berlin, Shanghai, Fremont, does allow us to, maybe not exponentially grow, but, well, hopefully.

We are exponentially growing. Yeah, hopefully maintain that exponential growth.

Yeah.

So, yeah, it takes a while to hire older people and train older people to operate the factory. A factory is like a giant cybernetic collective, and you can't just hire 10,000 people and have them have it work instantly. It's not possible. I really encourage more people to get involved in manufacturing. I think, especially in the U. S. , this has just not been an area where all that many smart people have gone into. I think the U. S. has an overallocation of talent in finance and law.

It's both a criticism and a compliment. But saying we shouldn't have people in finance and law, I'm just saying this might be, maybe we have too many smart people in those areas. Maybe. So... Manufacturing is fun.

Yeah, manufacturing is great. It's a very interesting problem to solve, and obviously you can't have stuff unless someone makes it. That's how you get stuff.

Yeah.

Okay, thank you very much, and let's go to the last investor question. Does Tesla plan to offer more services beyond FSD or high-speed connectivity as part of its subscription bundle going forward?

What areas in particular present an opportunity Yeah we don have a lot of ideas on this to be frank Really, full self-driving is the main thing. You know, things are obviously headed towards, you know, fully autonomous electric vehicle future. I think TES is well positioned and frankly is the leader objectively in both of those reasons, electrification and autonomy.

So it's always tempting to try to find analogies, but with other companies or whatever, but really the value of a fully electric autonomous fleet is It's insanely gigantic. It muggles the mind, really.

So that will be one of the most valuable things that is ever done in the history of civilization.

Thank you very much. And now let's go back to analyst Q&A, please.

Yeah, it's not worth commenting on right now. It's not meaningful. We really need full-time driving, at least the beta, to be widely available so anyone who wants it can get it. Otherwise, it would be pointless to read anything into where things are right now.

At least in the U. S. , we don't see regulation as a fundamental limiter. We've also got to make it work and then demonstrate that the reliability is significantly in excess of the average human driver or to be allowed for people to be able to use it without paying attention to the road. I think we have a massive fleet, so it will be straightforward to make the argument on statistical grounds, Just based on the number of interventions, especially interventions that would result in a crash at scale, we think we'll have billions of miles of travel to be able to show that it is the safety of the car with the autopilot on is 100% or 200% or more safer than the average human driver.

At that point, I think it would be unconscionable not to allow the autopilot, because the car just becomes way less safe. It would be sort of like, take the elevator analogy. Back in the day, you used to have elevator operators with a big sort of switch that operate the elevator and move between floors. But, you know, that gets hired or maybe drunk or something, or distracted, and every now and again, somebody would be kind of shared in half between floors.

That's kind of the situation we have with cars. Autonomy will become so safe that it will be unsafe to manually operate the car, relatively speaking. And, you know, today, obviously we just get an elevator, we press the button for which floor we want, and it just takes us there safely.

And it would be quite alarming if elevators were operated by a person with a giant switch. That's how it would be with cars.

Thank you.

Yeah, it's really difficult for us to make specific predictions. It's very difficult. I think we feel confident of at least a 50% growth year over year next year, and maybe it's 100%, but that's, you know, you need a lot of crystal balls to figure out exactly what it's going to be, and it is literally impossible to, I'm not sure if you make a specific prediction. But, you know, at least 50, maybe 100, something like that.

We're running the full-scale cathode calendar. We're working through some improvements that we need to make to that equipment and to the actual raw material itself to not have those limitations. But again, it's an engineering problem. It's not a question of if, it's a question of when. On the mixing side, we haven't actually really had any challenges, specific to your question. Fundamentally, we're still happy with the dry process direction in terms of the factory footprint, complexity, utility consumption, space, and overall complexity simplification.

Yeah. And, I mean, and the cost associated with everything that I just mentioned. Yeah. And if you don't want to overemphasize dry cathode, I mean, it is a, you know, I don't know, maybe it's like 10%. 10 or 15 percent of the cost improvement or something like that. I don't know, 20 percent maybe? Over the way? Oh, yeah. 10.10.10 percent. Yeah. So it's like, just like people don't think like this is like the Messiah or something. You know, wet versus dry reduces to dry is like 10 percent less cost than wet. So it's not, you know, not 10%, you know, still not to sneeze at, especially if you're making, you know, hundreds of gigawatt hours a year.

But it's not the size, basically. Yeah.

Thank you very much.

Yeah, we are in fact working with our existing suppliers to produce 4680 format cells. And, you know, this is just a guess right now, but, you know, I see it sort of like consolidating around a 4680 nickel-based structural pack for long-range vehicles, and then not necessarily a 4680 format, but some other format for iron-based cells. And so, right now, we kind of have the Baskin-Robbins of batteries situation where there's so many formats and so many chemistries that it's like we've got like 36 flavors of batteries. This results in an engineering drag coefficient where each variance of cell chemistry and format requires a certain amount of engineering to maintain it and troubleshoot, and this inhibits our forward progress.

So it is going to be important to consolidate to maybe ideally two form factors, maybe three, but ideally two, and then just, you know, one nickel chemistry and one iron chemistry. And so we don't have to troubleshoot so many different variants.

Yeah, and towards that end, we are engaging with the suppliers that we've had good partnerships with on 4680 Designs to enable that simplification, and so far so good. They're bringing their core competencies to bear on that. We're not mandating what's going on inside, but it's been a good collaboration.

Yeah. We do expect to see significant increases in supply from our existing suppliers in addition to the sales that Tesla is making. So it's both. Sometimes I get questions from our sales suppliers of like, are we just going to make all the sales ourselves? And we're like, no, please make as many as you possibly can and supply them to us. We have a significant unmet demand in stationary storage. Megapack is basically sold out through the end of next year, I believe. We have a massive backlog in PowerWool demand. The demand of PowerWool versus production is an insane mismatch. Now, part of that problem is also the semiconductor issue. So we use a lot of the same chips in the power wheel as we do in the car.

So it's like which one do you want to make, cars or power wheels? So we need to make cars, so therefore power wheel production has been reduced. But as the semiconductor storage is alleviated, then we can massively ramp up power wheel production. I think we have a chance of hitting an annualized rate of a million units of PowerWool next year, maybe, on the order of 20,000 a week. But again, depending on cell supply and semiconductors. But in terms of demand, I think there's probably demand for in excess of a million PowerWools per year. And actually, just a vast amount of mega-packs for utilities. As the world transitions to sustainable energy production, solar and wind are intermittent and by their nature really need battery packs in order to provide a steady flow of electricity.

And when you look at all the utilities in the world, this is a vast amount of batteries that are needed. That's why, you know, long-term, we really think, you know, sort of combined Tesla and suppliers need to produce at least 1,000 gigawatt hours a year and maybe 2,000 gigawatt hours a year.

Zach here. I think we're still early in understanding how FSD subscription will unfold, but a couple of data points here. So we took a look at our backlog to see, you know, of customers in our backlog who have ordered FSD, did they cancel, you know, presumably to go to subscription after they take delivery? And the level of cancellations there was in whom we lead to go to subscription after they take delivery. And the level of cancellations there was immaterial. So we're not seeing cannibalization there. It's possible that that changes. But that was also part of our pricing strategy at $99.199.

Yeah, I mean, you know, it's like any given price is going to be wrong. So we'll just adjust it over time as we see, you know, the value proposition makes sense to people. I'm not thinking about this a lot right now. We need to make full self-driving work in order for it to be a compelling value proposition. Otherwise people are betting on the future. I mean, like right now, does it make sense for somebody to do an FSD subscription? I think it's debatable. But once we have full-stop driving widely deployed, then the value proposition will be clear. And at that point, I think basically everyone will use it. Or it could be a rare individual who doesn't.