• The Fremont factory in the United States has been upgraded to maximum capacity. The Shanghai Gigafactory produces over 5,000 Model 3 cars per week and continues to expand.
• All models are equipped with heat pumps; pushing for mass production of the integrated casting for Model Y.
• Building a battery factory in the Bay Area of the United States, its capacity will rank in the top ten in the world.
• The new Model S/X has begun production; Model S will be delivered in February, and Model X will be delivered later.
• FSD Beta is currently being tested by nearly 1000 people.
• Elon Musk: confident that the reliability of autonomous driving will surpass that of humans this year.
• In Q4, the gross margin of the automotive business is mainly affected by two factors: first, we invested in improving the products of the Fremont factory, including the new Model S and X, promoting mass production of the integrated casting for Model Y, and introducing heat pumps to Model 3. Second, logistics and labor costs are affected due to the unstable supply chain and inefficiency caused by the epidemic.
• The expected long-term compound growth rate can reach 50%, and the growth figures for 2021 may exceed this expectation.
• Specifically in Q1, capacity expansion will benefit from the production of the Model Y at the Shanghai Gigafactory. Then, the production of Model S/X will decrease due to the redesign.
• Tesla is working hard to overcome the impact of semiconductor shortages and insufficient port throughput.
• Tesla is committed to becoming a leader in the solar energy field. The reason why it has not been achieved is that the company has been focusing on improving the production of the Model 3 in recent years.
• Currently, Tesla has not considered the issue of whether car owners can transfer FSD to new vehicles. There are currently no plans to provide online transfer services.
• Tesla is continuously improving its battery production capacity and promoting the production curve of the S model.
• The battery capacity of the Fremont Kato factory has reached 10 GWh, and it is expected that the battery production capacity will reach 200 GWh in 2022.
• Regarding the development of autonomous driving technology, Musk stated that he is very confident in this based on the understanding of the technology roadmap and the progress made in each iteration of the test version. Now we just need to improve the reliability in extreme situations, so that the reliability in accidents can reach 99.9999%.
• In response to the question of whether Tesla plans to license software applications, especially FSD, to third-party OEMs, Musk stated that it is necessary to prove that Tesla Autopilot is fully capable of autonomous driving, which may be achieved by the end of this year. After the capabilities of Autopilot are proven, Tesla is willing to license other automakers to use it.
• Tesla will open its Supercharger network to other automakers.
• Only about 1% to 2% of users in the Chinese market choose FSD; it is hoped that FSD can be promoted in China this year.- Tesla’s own-produced batteries are aimed at accelerating development, rather than getting rid of dependence on suppliers. Tesla hopes that suppliers can increase supply, whether it is Ningde Times, Panasonic, or LG, all of them hope to increase production and supply. Of course, in order to control the price of cars, battery prices must also be controlled. Battery production determines automobile production.
• Tesla has completed the industrial design of the Cybertruck and will use an 8000-ton die-casting machine to produce Cybertruck, while a 6000-ton die-casting machine is used to produce Model Y. Cybertruck is expected to start delivery at the end of this year and mass production in 2022.
• In terms of capacity expansion, qualified labor is also a limiting factor. Tesla has not further accelerated the development of new products because of the constraint of battery production capacity.
• The potential of FSD has not been fully tapped, and its computing power can support full self-driving.
• In terms of batteries, Tesla plans to reduce prices by 50% and increase endurance by 50% in the next three years.
• In terms of FSD hardware, there is no significant difference between Semi and other models, but the control algorithm will emphasize its differences because the steering control of Semi is different from other models.

Tesla, Inc. (TSLA) CEO Elon Musk on Q4 2020 Results – Earnings Call Transcript

Company Participants

• Martin Viecha – Senior Director, Investor Relations
• Elon Musk – Chief Executive Officer
• Zachary Kirkhorn – Chief Financial Officer
• Jerome Guillen – President, Automotive
• Andrew Baglino – Senior Vice President, Powertrain & Energy Engineering

Conference Call Participants

• Colin Rusch – Oppenheimer
• Dan Levy – Credit Suisse
• Alex Potter – Piper Sandler
• Joseph Spak – RBC Capital Markets
• Emmanuel Rosner – Deutsche Bank
• Ben Kallo – Baird
• Gene Munster – Loup VenturesOperator

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Tesla’s Q4 2020 Financial Results and Q&A Webcast. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. (Operator Instructions) Please be advised that today’s conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker, Mr. Martin Viecha, Senior Director of Investor Relations. Please go ahead, sir.

Martin Viecha

Martin Viecha

Thank you, Sherry and good afternoon everyone. Welcome to Tesla’s fourth quarter 2020 Q&A webcast. I’m joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q4 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. 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. (Operator Instructions) But before we jump into the Q&A, Elon has some opening remarks. Elon?

Elon MuskThank you. So, just to recap the year, 2020 was a defining year for us on many levels. Despite a challenging environment, we reached an important milestone of producing and delivering 0.5 million cars. I’d just like to, once again, thank the people at Tesla for an incredible effort. We delivered almost as many cars last year as we produced in our entire history. So, really an incredible growth rate and despite a very challenging 2020. So, my hat is off to such a hard work with such great people at Tesla.

So — and full year, we achieved free cash flow of nearly $2.8 billion after spending more than $3 billion on building new factories and other expenditures. We reached industry-leading GAAP operating margins in addition to positive net income and record cash flow.## Regarding capacity expansion

While we focus on execution, we are continuing to build a lot of new capacity. We have started producing the model out of Fremont and have almost reached full production speed. We have ramped up the Model 3 in Shanghai to more than 5,000 cars per week sustainably, and Shanghai continues to grow rapidly.

We have introduced the heat pump to all of our vehicles. We have also ramped up production of the single-piece castings for the Model Y, starting from scratch and achieving volume production. For the first time in history, the entire rear third skeleton of the car is being cast as a single piece, using the largest and most advanced casting machine ever made.We built a Model Y factory in China from start to finish in one year. We’re also building Giga Berlin and Giga Texas, which we expect to start production later this year. And lastly, we built a cell — a battery cell factory in the Bay Area. And this — even though it is a pilot plant, it is — its capacity is large enough that it would be in the — probably the top 10 battery cell factories on earth despite being a pilot plant.

Regarding the new Model S and X, we are launching the — we’re super excited to announce the new Model S and Model X production now and will be delivered in February. So we’ve been able to bring forward the fab, Model S and X. And Model S will be delivered in February and X a little later. The Model S pad, and we’re actually in production now, and we’ll be delivering next month.## Translation

So this is a tri-motor Model S with a completely new interior. There are actually a lot of great things about this. I’ll do another call about the Model S later. But it’s really a tremendous improvement over the prior version.

And the Model S will be the first — this Model S pad will be the first production car ever that is able to go 0 to 60 miles an hour in under 2 seconds. So no production car ever has been able to get below 2 seconds 0 to 60.

This is a luxury sedan that is able to go 0 to 60 in less than 2 seconds, and will have the ability to seat up to seven people with the third row seats. So this is pretty nice. This is faster, to be clear, than any car. It’s not like there was a different type of car, like a two-door sports car that was able to do that faster. This is the fastest accelerating car ever made for — that is allowed to go on roads in history. And like I say, we’ll start delivering it in a matter of weeks.

And, 显然，我们将在本周晚些时候或下周详细讨论 Model S 的变化。但从许多方面来说，它的确更好。我们实际上将为这些新型号的 Model S 提高价格，因此人们需要支付比旧型号多 10,000 美元的价格。
希望如果有人上个月购买了旧款型号，现在需要支付更高的价格而不会太沮丧。是的，我们认为这可能是当今世界上以任何价格可用的最好的汽车品牌。

然后关于全自动驾驶方面，我们在全自动驾驶方面取得了巨大进展。我建议观看我们的公共测试版的视频。我们目前约有 1,000 人参与测试版。And with each successful release of the beta – of the FSD software, just — it’s improving rapidly. It’s not very common for — I drive the latest roads. It’s very common for me to have no interventions on drives that I do, including drives to a place that I’ve never been to. So these are not preplanned routes.

There are — the car has never been there before. And it’s now actually more — it’s more common than not for the car to have no interventions, even on a complex drive. So — and this is — basically, I’m highly confident the car will drive itself for the reliability in excess of a human this year. This is a very big deal.And considering how to justify the company’s valuation, there may be a way to do so through some rough calculations. For example, if Tesla hypothetically ships vehicles worth $50 billion or $60 billion, and those vehicles become capable of Full Self-Driving and are utilized as robotaxis, then the utility of those vehicles could potentially increase from an average of 12 hours a week to 60 hours a week, resulting in a 5x increase in utility. Even if we assume a more conservative doubling of utility instead of 5x, it would still result in a doubling of the company’s revenue, which is mainly composed of gross margin.“`markdown
So it would mean, it would be like if you made $50 million — $50 billion worth of cars, it will be like having $50 million of incremental profit basically from that because it’s just software. So — and the pace you get 20 PE on that, it’s like $1 trillion and the company is still in high-growth mode. So I think there is a way to sort of like justify the valuation of the company where it is using just the cars and nothing else, the cars with FSD. And I suspect at least some number of investors are taking that approach.

So in conclusion, while 2020 was a turning point for Tesla and in terms of profitability, we believe this is just the beginning. We think 2021 is going to be even more exciting. And you don’t know what to expect in a given year. Obviously, last year, we did not hear many things, we do not expect. But assume that ’21 is a relatively normal year from an external standpoint. I think it’s going to be a great year for Tesla.
“`We have a multitude of new and impressive products set to launch soon. Our cutting-edge factories are now up and running, making it even simpler to establish a presence with a factory in Berlin and another in Texas, which is strategically advantageous for logistics. With Texas being able to supply the eastern regions of the U.S. and Berlin able to supply Europe, we can provide automobiles with a smaller capital commitment and much more efficiently transport these vehicles to our customers.

Having factories on every continent, and 2 in the U.S. alone, will unquestionably improve our company’s fundamental efficiency. I am thrilled about what the future holds and eager to bring it to fruition. Thank you.

Martin Viecha

Thank you, CFO Zach Kirkhorn, for your opening statements.Yes. Thanks, Martin. As Elon mentioned, 2020 has been an extremely successful year while managing through many unforeseen and unexpected challenges. On cash, we continue to generate strong free cash flows, reaching a record $1.9 billion in Q4, alongside growth and investment for future programs. Additionally, we’ve been able to reduce our use of debt and various working capital lines, including settling $2 billion of convertible debt in Q4, which will continue into Q1.

For net income, we achieved our first calendar year and 6 sequential quarters of profitability. In addition, auto gross margin excluding credits improved from 2019 to 2020, despite reductions in ASP and inefficiencies from new product launches and transitions.## On Q4 specifically, this was a noisy quarter so let’s unpack a few things.

Stock-based compensation increased, part of which was driven by the rise of the stock price over the course of our 2020 employee performance grant process, and a portion of which is unique to Q4 only. The impact of SBC increases can be seen across both cost of goods sold (COGS) as well as operating expenses.

Automotive gross margin in Q4 was primarily impacted by two things.

Firstly, we invested in improving products built in Fremont, including converting to the new Model S and Model X, launching single-piece castings on Model Y, and introducing the heat pump on Model 3. Secondly, logistics, and labor costs were impacted due to supply chain instability and pandemic inefficiencies.Adjusting for items such as these as we do in our internal management views, we saw an improvement in auto gross margin. Our services and other P&L were impacted by many of the same factors just mentioned, including onboarding costs associated with new service capacity. However, what’s most important here is that we’ve accelerated the growth in service capacity and we’ll continue to drive capacity expansion as fast as possible.

On energy gross margin, we saw an impact from Solar Roof related ramp costs and typical seasonality in the lease PPA business. OpEx as a percentage of revenue continues to reduce despite impacts from items mentioned, as well as increased investment in the development of future products.

Finally, the early settlement of our convertible notes resulted in an additional $100 million of interest expense for the quarter. All that being said, nothing has changed about our view that operating margin will continue to grow and remain industry-leading.<!–
As we look forward, 2021 may be our most meaningful step forward yet, as we see the benefits of long-standing investments in capacity and technology. The range of possible outcomes this year is wide, given the magnitude of launches. That’s a few things we should keep in mind.

We continue to expect a long-term volume CAGR of 50%, of which we may materially exceed this in 2021. As we increase production rates, volumes will skew towards the second half of the year, and ramp inefficiencies will be a part of this year’s story and are necessary to achieve our long-term goals.

Specifically for Q1, our volumes will have the benefit of early Model Y ramp in Shanghai, However, S and X production will be low due to the transition to the newly architected products. Additionally, we’re working extremely hard to manage through the global semiconductor shortage, as well as port capacity, which may have a temporary impact.
–>

Looking ahead, 2021 could be our most significant advancement yet as we reap the rewards of long-term investments in capacity and technology. This year’s potential outcomes are wide-ranging due to the magnitude of launches. These are a few points to keep in mind.

We still expect a 50% long-term Volume Compound Annual Growth Rate (CAGR) which could be significantly exceeded this year. As we ramp up production rates, volumes will heavily favor the second half of the year. Ramp inefficiencies will be prominent and necessary for achieving our long-term goals.

In particular, for Q1, we’ll benefit from the early Model Y production in Shanghai, but S and X production will be limited due to the switch to newly designed products. Furthermore, we’re striving hard to overcome the global semiconductor shortage along with port capacity issues which may have some temporary impact.We will continue to heavily invest in supercharging and service capacity, while driving reductions in costs, including OpEx as a percentage of revenue. Global demand still exceeds production, and we are moving as quickly as possible with a focus on the long-term. I look forward to providing progress updates throughout the year.

Question-and-Answer Session

Martin Viecha
Thank you very much. Now, let’s move on to questions from Say Technologies. The first question from institutional investors is, what is currently preventing Tesla from becoming the market share leader in solar?

Elon Musk
Yeah. So, we actually experienced tremendous growth in solar quarter-over-quarter last year. And we had our best quarter, I believe, since 2018 in Q4. So, we do expect to become the market leader in solar and then surpass it. Unfortunately, there were a few years where we had to focus our entire company on Model 3 production and building.We are essentially taking the entire company, including those working on solar and automobile industries. However, since we have more resources now, we are focusing our efforts on solar and it is rapidly expanding. Therefore, I believe it will not be long before Tesla becomes the clear market leader in solar.

Zachary Kirkhorn
Having an industry-leading cost structure is crucial to our solar strategy as it enables us to offer industry-leading pricing. We have achieved this goal over the past year and I have mentioned before, this is a critical step in becoming the leader in the space.

Elon MuskYes. And in fact, an important aspect is achieving better integration between the Tesla Powerwall, Tesla Retrofit Solar, and Tesla Roof. We are confident that we will achieve excellent integration with the Powerwall and Tesla Solar, whether it is for retrofit projects or for new installations before the end of the year.

Overall, we have a solid strategy in place. As Zach mentioned earlier, we are focusing on reducing installation time and complexity, and we are making great progress in this area. I believe that we will have a well-refined product by the end of the year.

Martin Viecha:
Thank you. The second question is whether current owners could have the ability to transfer their Full Self-Driving (FSD) capability to their next vehicle. This would be a significant benefit for customer loyalty and would also increase overall sales of vehicles that offer FSD as a feature on the used car market.

Elon Musk:抱歉，我们目前不考虑这一点。实际上，我们提供的具有 FSD 的汽车的价格要比没有 FSD 的汽车价格高。我认为当前市场低估了消费者市场。股票市场销售可能会低估 FSD 的优秀程度。但我们目前不计划在线转让。

Martin Viecha
谢谢。

Elon Musk
我们很快将提供订阅服务，可能在下一个月或两个月内。这应该可以解决很多人担心无法获得 FSD 的问题。

Martin Viecha
非常感谢。第三个问题是，你可以给我们关于电池电极的干涂层的进展更新吗？在 Battery Day 上，Elon 说：“我不会说这完全确定，因为收益率很低。”

Elon Musk
安德鲁？

Andrew Baglino

At the same time, the cell engineering teams have been refining designs and deepening their understanding, which has reinforced our confidence in the drive process and 4680 design to meet both performance and cost targets. From a capacity perspective, we already have 10 gigawatt hours worth of equipment landed at Kato, nearly all production staff hired and our material supply chain established. The team is on track for full production ramp this year. Additionally, we have developed enough engineering confidence with our 4680 design and the production process and equipment to kick off manufacturing equipment and facility construction in order to support our 100 gigawatt hour goal for 2022.

Martin Viecha: Alright, thank you very much. The next question is, why do you have confidence that Tesla will achieve Level 5 autonomy in 2021, and why is Dojo not necessary to get there?

Elon Musk:I guess, based on my understanding of the technical roadmap and the progress we’re making between each beta iteration, I’m confident. Yes, as I’m saying, it’s not remarkable at all for the car to completely drive you from one location to another through a series of complex intersections. Now, it’s about improving the corner case reliability and getting it to 99.9999% reliable with respect to accidents.

Essentially, we need to surpass human biometric factors by at least 100% or 200%. The business is rapidly expanding because we have so much training data from all the cars in the field. The software is also improving dramatically. We even write software for labeling, which is quite challenging. We’re transitioning everything to video labeling, so that all video inference will be based on it. There are still a few new methods that need to be upgraded to video training inference.“`markdown
And really, as we transition to each net to video, the performances become exceptional. So, this is like a hot thing. The video — the labeling software that we work for, video labeling, making that better has a huge effect on the efficiency of labeling. And then, of course, the Holy Grail is auto labeling. So, we’re — we put a lot of work into having the labeling tool to be more efficient when we used, as well as enabling auto-labeling where we can.

Dojo is a training supercomputer. We believe it will be — we think it may be the best neural net training computer in the world by possibly an order of magnitude. So, it is a whole thing in and of itself. And this is offer potentially as a service. So, some of the others need neural net training, we’re not trying to keep it to ourselves.
“`So, I believe there is potential for an entire business line to develop. Additionally, we aim to utilize vast amounts of video data for training purposes in order to achieve reliability that is 100% to 200% better than the average human or even up to 2,000% better. This will prove advantageous moving forward.

Martin Viecha
Thank you. Next, what is Tesla’s current gigawatt-hour run rate for 4680 cell production? How do you anticipate this production rate evolving by mid or end of 2021?

Elon Musk
We have addressed this previously. Essentially, the figure to focus on is the total production of 100 gigawatt-hours of Tesla cells in 2022. It is less important to track the progress leading up to this point as this tends to improve exponentially. However, we plan to install capacity for 200 gigawatt-hours annually in 2022 and anticipate achieving 30% of targeted design capacity by that time.

Zachary KirkhornYes, Martin. Thank you for the question. We are definitely aware of this issue and have been taking steps to improve our service experience. One example is the deployment of our Tesla Mobile Service units, which can address many issues directly at customers’ locations. We are also expanding our service center capacity and optimizing our scheduling systems to better accommodate customer needs. We understand the importance of providing exceptional service and are working diligently to meet and exceed expectations.Yes. Well, in terms of providing the best service, we believe that the best service is no service at all. Therefore, we have invested a lot of resources into enhancing the quality and reliability of our cars. As a result, over the past two years, the frequency of service visits has decreased by one-third. Our ultimate goal is for customers to require service less often. However, when service is needed, we strive to make it as seamless and effortless as possible.

A significant effort in achieving this goal is through our mobile service program, which accounts for over 40% of all visits in North America. Our aim is to increase this to 50% this year. Additionally, 50% of service visits are completed in under two hours. We prioritize servicing vehicles quickly, ensuring that customers can get back on the road as soon as possible.## And in terms of service appointment, it continues to improve.

We now have 140 service centers in North America, and for 100 of them, appointments can be made in less than 10 days. Our goal is to ensure that all service centers have short wait times.

We’re accelerating the pace of opening new service centers.

In December, we opened 11 centers in North America, and we plan to open 46 more in the first half of this year.

Our emphasis is on the Tesla app.

We want all communications to go through the app, as it provides a better user experience than phone calls.

It can directly spot alerts from the car and schedule a service appointment. Additionally, all communication between the customer and the service team can be recorded in writing. It’s possible to include pictures in the communication, and payment can be taken care of without entering credit card information. Updates pertaining to the service are provided as well.

More features will be added to the app in the next few months, including the ability to locate your service technician, find out their distance from your car, and check on their progress. We’re investing everything in the app, just like most other companies. That’s the way of the future.

Martin Viecha

Thank you very much. Now, let’s move on to institutional investor questions. The first question is, what are the key milestones we need to achieve to evolve current FSD to a commercial Level 4, Level 5 ridesharing solution?

Elon Musk
Yes. So it really goes back to what I was saying a moment ago, which is, we need to transition over the neural nets in the car to video. And in order to do that, the whole stack has to be changed to video. That means gathering video clips and using synchronized frame rates from 8 cameras operating simultaneously to create 8 frame surround video. Then, everything in that video snippet must be labeled, and that labeled data used to train the neural nets to operate the car.
So – and this is coming from the past where we would label, the neural nets would be a single camera, single frame. So no video and not combining the cameras. And then we went from single frame, one frame at a time, one camera at a time, neural nets to surround camera — neural nets would look at all — all 8 cameras but only 1 frame at a time, and now to where we include the time dimension, and that’s video.

So, I really see this as a question of efficiently completing the work. We’re currently making progress, as demonstrated by the rapidly improving FSD betas that are already available – and we plan to expand the FSD beta program to more and more people. From my perspective, it seems like a straightforward and clear path towards the development of a vehicle that can drive 100% safer than a human driver. I don’t perceive any significant challenges that cannot be overcome.

Martin ViechaThank you. And the second question from institutional investors is: Does Tesla have any plans or expectations to license any of its software applications, particularly FSD and auto-bidder, to third-party OEMs?

Elon Musk
We are very open to licensing our software to third parties, including preliminary discussions about licensing autopilot to other OEMs. We are more than happy to do this. However, we need to do more work to demonstrate that Tesla Autopilot is capable of full self-driving, which we expect will become clear later this year. Once that is achieved, we are more than happy to license it to other car companies.We’re definitely not trying to keep it to be a Tesla exclusive situation. And I think the probably same goes for Autobidder. We haven’t thought as much about Autobidder, but the Tesla philosophy is definitely not to create walled gardens. We’re going to allow other companies to use our supercharge networks. And yes, using our autonomy software and Autobidder be fine to.

Martin Viecha
Thank you. The next question is, key differences in product, customer preferences, FSD strategy between China and the rest of the world. Do we need to do things differently to win the Chinese EV market?

Elon Musk
Well, we currently are winning that — we are currently the leader in the Chinese EV market. So I think we’re mostly doing something right if we’re the best-selling electric car in China.That being said, I believe only a very small portion of our customers in China, perhaps as low as 1% or 2%, have actually opted for the FSD (Full Self-Driving) option. This is significantly lower compared to the rest of the world. Therefore, it is crucial that we ensure the FSD works well in China, and if it does, we will achieve a Grade 4 FSD.

In my experience, Chinese Tesla owners are some of the most discerning in the world, with an incredible attention to detail. I am confident that once FSD is operational, they will be eager to purchase it, and hopefully, we can launch it later this year.

Martin Viecha

Thank you. The next question is, would it be reasonable to suggest that the best approach to the company’s long-term earnings potential is linked to profit per unit of battery capacity? Given the three-terawatt target from Battery Day, this implies that half of the long-term battery capacity is allocated to storage, depending on assumptions for pack size, and taking into account Elon’s 20 million vehicle unit goal?

Elon MuskYeah. It is. So the fundamental limit on electric vehicles right now, in general, is total availability of cells. What’s the output of factory cells in gigawatt hours? And you can’t grow faster than that. Now at Tesla, we’ve improved the efficiency of cars dramatically, such that you can actually get a pretty good range even with the standard range battery pack.

It’s in the high — it’s approaching — for Model 3, it’s approaching the high 200s. And some slight continued improvements, we’ll start to get to a 300-mile range even with standard pack and an order 500 kilometers.

So there’s efficiency improvements in the car. But fundamentally, the growth is dependent on cell production. And there’s, obviously, a lot of other companies that want to — that have a need for cells.So — the reason why Tesla is venturing into its own cell production is to accelerate growth, not to reduce reliance on cell suppliers. Instead, Tesla intends to increase its purchases from cell suppliers, including CATL, Panasonic, and LG. We have made it clear to them that we will take as many batteries as they can produce and have encouraged them to ramp up their production capacity. However, there are some price considerations to ensure that the cars remain affordable. We want to emphasize that Tesla’s goal in making its own cells is not to eliminate the need for our suppliers, but rather to supplement them. We have asked our suppliers to increase their production and intend to take over any amount that they are either unable or unwilling to produce.So it’s an acceleration over and above the most that our suppliers say they can produce for us. And so we — since the cell output drives vehicle output, the – and then – I mean probably the Roadster value of Tesla is just what’s the cell output that implies vehicle output, and then at least double that for autonomy revenue probably one level. And that’s how you figure out the value of the company, I think, long term.

Martin Viecha

Thank you very much. The next question is about 4680 cells which we already covered in the retail section of this call. So let’s go straight to the last question from institutional investors, which is, where are you in Cybertruck development? What are your expectations for Cybertruck deliveries in 2021?

Elon MuskAll right. 所以我们已经完成了几乎所有的Cybertrack工程。所以我们已经不在设计中心层面或设计层面进行迭代。我们已经固定了设计。我们将很快订购制造Cybertruck所需的设备。我们实际上将使用更大的特斯拉机器来制造Cybertruck的后车身，因为你显然有一个更大的车辆和一个拥有很多负载的长货箱。

因此，我们将使用8,000吨铸造压力机进行后车身铸造，而Model Y的铸件为6,000吨。所以6,000吨是世界上最大的铸件。8000吨，比这还大很多。我认为这将是一辆令人难以置信的车辆。如果我们有幸的话，我们将能够在今年年底交付一些货物，但我预计批量生产将在2022年开始。

Martin Viecha

非常感谢。现在我们可以开始排队提问了。

操作员Thank you. Our first question will come from Colin Rusch with Oppenheimer. Please go ahead.

Colin Rusch
Thanks so much, guys. Can you talk a little bit about the regulatory environment for FSD and how you’re seeing that play out? Obviously, it’s a bit of a moving target right now, and you guys are really in the way here, but we’d love to understand how those conversations are going and how you see that impacting the rollout of FSD throughout the balance of this year and into next year?

Elon Musk
Okay. Zach, do you want to – I don’t know, Zach and Jerome?

Zachary Kirkhorn
The – what we’re seeing right now in the U.S., for example, is pretty dynamic space, but it’s overall not particularly limiting on a rule basis, but what we’re going to expect is to have to work with regulators to demonstrate really, really high reliability, as Elon said before.The rest of the world is fairly dynamic. In Europe, we see a general slowdown, generally not reaching past Level 3 right now with some impetus to start working on new working groups to reach past that. And China showed an interest in working on Level 4 or even Level 5 later this year. So we expect a pretty dynamic 2021 in the regulatory space. We have leadership in the U.S. looking for manufacturers to demonstrate really good launches and really high reliability before releasing to wider and wider groups.

Colin Rusch
Thanks, guys. And then just a quick follow-up around inflation on some of the materials markets. Obviously, there’s a lot going on as low interest rates flow through the basic material space. Can you talk a little bit about the supply chain and how you’re migrating some of your exposure around some of your raw material costs?

Jerome Guillen# This is Jerome.
Yes, regarding the supply chain, our top priority now is addressing disruptions caused by COVID and shipping, particularly between Asia and North America. However, we also have our sights set on pricing and are closely monitoring all component prices. We are currently entering into a series of long-term agreements with preferred suppliers to ensure not only sufficient quantities to support the 50% CAGR growth mentioned by Zach earlier, but also competitive pricing with appropriate risk sharing.

Operator

Thank you. Our next question comes from Dan Levy with Credit Suisse. Please go ahead.

Dan Levy# Hi, good evening. Thank you.

Two questions, one on 2021 and just one on capital.

First, on 2021.

Any expectations for what we should see on regulatory credit sales?

And then the second question is on capital.

Obviously, you raised a lot of capital in 2020. What should we think about the use of those funds beyond just covering some of the maturities?

And can you just give us a sense of what the elevated liquidity does and doesn’t buy?

Meaning, to what extent does elevated capital enable you to accelerate plans on building capacity or expanding vertical integration, accelerating timing on full self-drive features?

So, those are the questions. Thank you.

Zachary KirkhornSure.

On the regulatory and credit sales side, this is not always an area that is extremely difficult for us to forecast. However, 2020 regulatory credit sales ended up being higher than our expectations and it is difficult to provide guidance on that matter. As we stated before, in the long-term, regulatory credit sales will not be a material part of the business and we don’t plan the business around it. While it’s possible that it remains strong for a handful of additional quarters, it’s also possible that it’s not.

Most of our regulatory credit revenue from Q4 was not lined up prior to the beginning of the quarter. These were discrete deals that were struck over the course of the quarter. Hence, it’s a space that’s extraordinarily difficult for us to forecast. Unfortunately, I could not provide you with more information on this, Dan.### On the second side, with respect to capital, a couple of things that we’re thinking through there.

As I mentioned in my opening remarks, debt reduction is an important thing that we’re focused on now. Early conversions, these are things we don’t have a choice on. We did around $2 billion of that in Q4. We currently have $1.4 billion that we expect to go out in Q1 as a result of early conversions or conversions on convertible debt. That number may increase and so debt reduction is important. That’s helpful on interest expense as well.We are also utilizing the funds to invest in future capacity. As we are constructing capacity, specifically in Austin and Berlin, we are now able to plan for the end state of capacity and bring forward some of those investments, instead of gradually adding capacity. This is a significant aspect of capital efficiency that we did not have the privilege of doing in the past. It is remarkable to have the financial resources to concentrate on this plan.And more broadly, as Jerome mentioned, the expansion of our services is crucial to the company’s future strategy. As you saw in our Q4 figures, there was a significant increase in the number of service centers and mobile services compared to Q3, and it was also significantly higher than the first half of the year. Therefore, we are now able to make investments in these areas as well as in the supercharging network, in anticipation of future demand. This may result in higher costs in the short term, but it is the right long-term strategy for both our customers and our company.

Operator
Thank you. Our next question comes from Alex Potter with Piper Sandler. Please proceed.

Alex Potter
Great. Thank you. I was wondering, given your plans to increase your purchases of cells from suppliers, do these suppliers need to have the capability to build the structural 4680 cells that are being used in the newer vehicle models?No, it does not. Although, we are talking with them about making the 4680 form factor, but it is not required. For example, the new S currently uses the 18650 form factor. So they’re just a more advanced cell, and we think we’ll continue to use that form factor for at least a few years.

But we will, over time, be retiring the form factors and trying to move to a consistent form factor. But it is not a requirement that we place on our suppliers because it would result in fewer cells. So it’s better for us to deal with the complexity of different cell form factors than insist on a single form factor for our suppliers today. Like I said, over time, it will make sense to have a consistent form factor.

Alex PotterOkay. It makes sense. And then one additional, maybe qualitative question on capacity expansion. You’ve mentioned in the past, I mean, access to dollars is one thing, but access to human beings that are sufficiently qualified is another. Have you run up against any issues on that front that would potentially limit your growth in any way? Thanks.

Elon Musk
That is one of the things that limits focus or limits the growth rate. It doesn’t limit the ultimate size, but it limits the growth rate, which is the rate at which we can onboard great people and get them trained in the right areas.

You usually can’t instantaneously–if you’ve got a factory that has 20,000 employees, you can’t just hire 20,000 people instantly. They’re usually doing something else. So they’ve got to transition from whatever they were doing or move from some other part of the country. And so there’s a certain amount of time required for that.# I mean, that said, we do think that we can maintain a growth rate in excess of 50% per year for many years to come. And at least, I’d like to — yes, at least, look forward to many — for many years to come. I think this year, we may track to a fair bit about 50%, but we don’t want to commit to that, but at least that’s what it would appear, and the same again next year. It appears to be meaningfully above 50%.

Operator
Thank you. Our next question will come from Joseph Spak with RBC Capital Markets. Please go ahead.

Joseph SpakThank you, Elon. In 2018, you tweeted about the potential of electric vans and expressed interest in working with Daimler and Sprinter. However, there haven’t been any updates on this since then. Since then, we’ve seen many established players and startups enter the market with electric vans and last-mile solutions. While you have mentioned having many projects in the works, could you offer us an update on your thoughts about this market and if it is something that interests Tesla?

Elon Musk
I believe that Tesla will definitely manufacture an electric van in the future. It’s important to remember the constraint on battery cell output. It’s incredibly difficult to scale production, which is often underestimated by those not involved in manufacturing. Prototyping is easy, but scaling production is the hardest thing in the world.## So a big part of the reason – the main reason we have not accelerated new products – is – like, for example, Tesla Semi is that we simply don’t have enough cells in our group. We – this – if we were to make the Semi right now, which we could easily go into production with the Semi, but we would not have enough cells built for it right now.

We will have cells in our group for Semi when we are producing the 4680 volume. But for example, Semi would typically use 5x the number of cells that a car would use, but it would not sell for 5x what a car would sell for. So it kind of doesn’t make sense for us to do the Semi right now, but it will absolutely make sense for us to do it as soon as we can address the cell production constraint. The same would go for that.

Joseph SpakOkay. Thank you. And then maybe if I could dig into your past on one more item. About 2 years ago, at the Autonomy Day, you stated that you’re working on the next-gen Tesla chip which was about 2 years away. So is there any update on that front?

Elon Musk
Yes, to be clear, we are still not — the software still does not fully use the capabilities of the FSD in 1 computer. It is really just an incredibly powerful computer and I am personally certain that you can create full self-driving with safe level 5 presence just using the Full Self-Driving version 1 computer.

The version 2, we expect to be about 3x as powerful. And this needs to be paired with higher resolution cameras. And so it’s quite a — it requires a bunch of things to change simultaneously. But we have not been rushing the version 2 of the chip. It’s coming along well, and it’s in good shape.## Translation

But因为我们目前的系统可以实现全自动驾驶，所以如果我们现在引入特斯拉全自动驾驶芯片2，这实际上会分散我们的精力，并会严重拖延我们在软件上的进展。而软件是实现全自动驾驶的关键。

所以我不会太担心这个问题。这只是一个改进，而不是一个彻底的改变。我们需要改变的是让软件能够正常工作，让所有的神经网络都能够进行视觉处理，这才是真正的改变。

运营商
谢谢。下一个问题由Emmanuel Rosner代表德意志银行提出。请开始提问。

Emmanuel RosnerThank you very much. My first question is about your in-house cell manufacturing efforts. So in addition to building up capacity, some of the goals you highlighted were to cut the pricing or the cost by about 50%, boost the range by about 50% over a number of years. So I want to know if your initial efforts are trending in that direction? What is the timeline to achieve these goals? And maybe related to this, how are you thinking about the timeline for the cheaper Tesla, the entry model, eventually?

Elon Musk:
I think we feel very confident about achieving those targets, let’s say, over a three-year time frame. I don’t know if it will take longer, it’s not like year one. So maybe three or four years, give ourselves a little room. But for three or four years, I would say.

Zachary Kirkhorn:
Yeah. We put together the trajectory on Battery Day, and we’re still on that trajectory. I think that’s probably the best reference for the cost trajectory we’re on.

Elon Musk:Yeah. We’re aspiring to surpass Battery Day, but we’re confident that we’ll at least achieve what we presented on Battery Day.

Operator
Thank you. Our next question is from Ben Kallo with Baird. Please go ahead.

Ben Kallo
Hey, guys. Thank you, Elon. Congratulations to the whole team. So, we’re trying to piece everything together. If I remember correctly, going back 10 years, you talked about stepping down as CEO and becoming Chief Architect when a mass-market car was on the road. And then there’s the Hawaii project, subsea lair, and x.com, and I’m trying to connect the dots. There are a lot of questions there. Thank you.

Elon Musk
Sure. Well, I expect to be CEO of Tesla for several years. So I think there’s still a lot that I’m super excited about doing. And I think it would be hard to leave projects that I love halfway or partially done. So, I do expect to run the company for several years into the future.“`markdown
Now, obviously, nobody is or should be CEO forever. So I don’t expect to be — like the sheer amount of work required to be CEO of Tesla is insane. And I do — I think I do probably more — I definitely do more technical work than is typical for a CEO.

So it would be nice to have a bit more free time on my hands as opposed to just working day and night, from when I wake up to when I go to sleep seven days a week, pretty intense.

So — but I think the mission isn’t over yet, and we still got a long way ago before we can really make a dent in the world on accelerating the advent of sustainable energy. I mean, the goal Tesla, from beginning, has been to accelerate sustainable energy. And — but if you say like what percentage of cars on the road are electric today, it’s still very, very tiny, like an order of 1%, or less than 1% of the total fleet worldwide.
“`>So that’s the full have long way to go for on the order of 1% of the fleet is electric. There’s also a tremendous way to go on solar power, although it’s exciting to see the advent of very cost-competitive wind and solar and geothermal. And of course, we need a large volume of stationary battery packs. I mean basically, maybe the three legs of a sustainable energy future are sustainable energy generation, led by solar, wind, geothermal and hydro and a few others. And I’m actually not against nuclear fission. I actually think nuclear fission is – with a well-designed reactor in a situation that is not subject to bad weather or seriously bad weather is actually is a good thing to do.So, the second thing that is needed is stationary storage – batteries, because most renewable energy is intermittent. The wind doesn’t blow all the time, and the sun doesn’t shine all the time. Therefore, a lot of batteries are needed, and they need to be long-lasting with high cycle life. Additionally, electric transport is needed. With these three things, we have a very bright future with respect to energy and the environment. There is still a long way to go, and I am still very much fired up to work on that.

Martin Viecha
Fantastic. Let’s move on to the last question, please.

Operator
Thank you. Our final question comes from Gene Munster with Loup Ventures. Please go ahead.

Gene Munster
I was pleased to see the update on the timing of the Semi and had a couple of related questions. First, since Semi Trucks typically travel predictable highway miles, will Tesla Semi be the first to achieve full autonomy?I think that’s quite likely, yes. Yes, I can’t imagine – I’m not sure who would be number two, but yes, it seems highly likely, yes.

Gene Munster

Okay. And then my…

Jerome Guillen

The hardware, it’s the exact same part numbers on the Semi on the Tesla cars. There’s no difference.

Elon Musk

Yes. That’s true. Yes. As it is, we need to modify the parameters, software parameters change for Autopilot or Self-Driving because it needs now to Model 3, Model Y, Model X or Model S. And so this is – we just need to inform the vehicle, inform the Full Self-Driving brain that it is now in a Semi Truck.

Gene Munster

Would it need to be retrained then as part of that?

Elon Musk

No. I think there will be – you have a different control functions because there are turns that you could do in a regular car that you cannot do in a Semi, like you do want to try to parallel park this thing on the street in a city. It needs to know its limitations being a giant truck.Gene Munster
Makes sense. My follow-up question was related to if you could just help us explain why battery electric will win versus hydrogen cell fuel tech?

Elon Musk
Yes, it certainly does. I’ve been asked this question countless times, even back in the early Roadster days, when we hadn’t yet released the Roadster. People were convinced that hydrogen would be a better means of energy storage for cars compared to batteries, which just wasn’t the case.

Hydrogen happens to be at the top of the periodic table, but it has very low density – even as a liquid, it’s as dense as styrofoam. Additionally, it’s only a liquid at an incredibly low temperature near absolute zero, so it’s not practical to keep it in its liquid state.## You want to have it as a high-pressure gas that has even lower density.

So you need a gigantic fuel tank volumetrically, and it’s got to be very high pressure.

It’s a big pain, yes, basically.

If somebody is going to say, use an ultimate chemical energy storage mechanism to hydrogen, I’d say just use propane or something like that, or methane– those will be way better than hydrogen.

And then having it be a fuel cell just adds even further complications to the situation.

It’s just crazy basically.# And we’re extremely confident that we could a long-range trucking with batteries. The math works out. You don’t — if you could just like take, say, watt-hours per kilogram of currently available cells, and say, okay, how much — what weight would you need to go, let’s say, 500 miles? And to what degree does that affect your payload? And it’s like, okay, do this. If you do it right, you basically have no effect on your payload or almost nothing, and you can have a long-range truck. I mean, Jerome, do you want to add to that?

Jerome Guillen
I agree there. And we see also an increase on the regionalization of trucks. And I think it will be perfect. The Tesla Semi will be perfect for it, yes. And I’m very — I’m looking forward to having some additional ones on the road very soon.

Elon Musk
But basically, we do not see any issues with creating a compelling long-range truck with batteries. The problem is cell supply; cell supply is the only thing.

Gene Munster# It’s going to be awesome.

Elon Musk
Yes.

Martin Viecha
All right. Thank you very much. And unfortunately, that’s all the time we have today. So, thanks for all of your great questions, and we will speak to you again in about three months. Thank you.

Elon Musk
Thanks so much. Bye.

Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.