• Tesla’s performance in Q1 2021 has set a new record, with demand stronger than ever before. Q1 was Tesla’s biggest supply chain challenge in history due to chip shortages.
• Elon Musk: Model 3 has been on the market for 3 and a half years and has surpassed the BMW 3 Series to become the best-selling car model in the world in its class. At the same time, the Model Y is highly likely to become the world’s best-selling car model in 2022, not only in the electric car or SUV segment, but in all car models.
• The team is advancing the FSD beta, and the development of FSD requires a lot of data. Fully autonomous driving requires a full visual solution rather than radar.
• The Model S/X redesign has its challenges, but production capacity may be increased in May.
• According to plan, the new Model X will start production in Q3 2021, with a projected weekly capacity of 2,000 for Model S/X. After adjustment, the cost of Model S/X is not high. The Berlin Gigafactory and Texas Gigafactory are expected to be put into operation on a large scale next year.
• Tesla has reduced its position in bitcoin investments by 10%, earning $272 million.

Questions from Retail Investors:

About Dojo

Musk said: “In terms of hardware and energy usage costs, Dojo is the best solution we can take. If others want to use Dojo, Tesla can provide public use permission.”

About solar roofs:

Solar panels and solar roofs must be tied to Powerwall, and installation does require some difficulty, requiring adjustments to the installation of solar panels and solar roofs based on the user’s actual situation. Musk reiterated the importance of solar roofs related products for home charging of electric vehicles.

About virtual currency:

Zachary Kirkhorn answered the question, reiterating Tesla’s optimistic attitude towards Bitcoin investment and will continue to support Bitcoin payments for purchasing Tesla. Kirkhorn said that for Tesla, Bitcoin is an excellent way to store cash reserves.

About the Texas car accident

Musk stated that mainstream media reports are often not true. According to Lars Moravy, Vice President of Vehicle Engineering, Tesla is working with Texas authorities to handle the accident and is cooperating with the authorities to conduct research and investigation, discovering that the steering wheel of the accident car has been deformed and someone was sitting in the driver’s seat and all safety belts were untied at the time of the accident.

Questions from Institutions:

About production capacity

Musk said that people still cannot understand how difficult it is to mass produce, saying “Prototype is child play, production is haaaaard.”

Questions from Analysts:

About 4680 battery and its production capacity.# Musk’s response:

Tesla has a small 4680 battery experimental factory with an annual capacity of 10 GWh, but currently we believe that the 4680 produced is not yet suitable for direct application in cars. However, we are not far from our goal and it will take about a year or a year and a half for mass production. Tesla has already ordered relevant equipment for the Berlin and Austin factories, and we also hope to work with existing suppliers such as CATL, LG, and Panasonic to improve the 4680 production capacity.

The following is the transcript of the conference call in English:

Tesla, Inc. (NASDAQ:TSLA) Q1 2021 Earnings Conference Call April 26, 2021 5:30 PM ET

Company Participants

Martin Viecha – Senior Director, Investor Relations

Elon Musk – Chief Executive Officer

Zachary Kirkhorn – Chief Financial Officer

Lars Moravy – Vice President, Vehicle Engineering

Andrew Baglino – Senior Vice President, Powertrain and Energy Engineering

Conference Call Participants

Pierre Ferragu – New Street Research

Rod Lache – Wolfe Research

Dan Levy – Credit Suisse

Operator# Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Tesla First Quarter 2021 Results and Q&A Webcast.
At this time, all participants are in a listen-only mode.

After the presentation, there will be a question-and-answer session.

Please be advised that today’s conference is being recorded. （Operator Instructions）

I would now hand the conference over to your speaker today, Martin Viecha, Senior Director of Investor Relations.

Martin Viecha

Thank you, Carmen, and good afternoon, everyone.

And welcome to Tesla’s first quarter 2021 Q&A webcast.

I am joined today by Elon Musk; Zachary Kirkhorn and a number of other executives.

Our Q1 results were announced at about 1 p.m. Pacific Time and 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 Q&A, Elon has some opening remarks. Elon?Great. Thank you.

So Q1 2021 was a record quarter on many levels. Tesla achieved record production, deliveries and surpassed $1 billion in non-GAAP net income for the first time. We have seen a real shift in customer acceptance of electric vehicles and our demand is the best we have ever seen. So this is — we are used to seeing a reduction in demand in the first quarter and we saw an increase in demand that exceeded the normal seasonal reduction in demand in Q1.

So Model 3 became the best-selling mid-sized premier sedan in the world. In fact, I should say, the best-selling luxury sedan of any kind in the world. The BMW 3 Series was for the longest time best-selling premium sedan. It’s been exceeded by the Tesla Model 3 and this is only three-and-a half years into production and with just two factories.### For Model 3 to Outsell Combustion Engine Competitors

It’s quite remarkable to see Model 3 outselling its combustion engine competitors. We delivered approximately $0.25 million Model 3s in the past few quarters at an annualized rate of $0.5 million per year.

Model Y Expected to be Best-Selling Vehicle

We believe that Model Y will become the best-selling car or vehicle of any kind in the world, possibly even next year. While I’m not 100% certain, I believe it is highly likely that by 2022, Model Y will be the best-selling car or truck of any kind in the world.

Full Self-Driving Making Great Progress

Full Self-Driving is making great progress and is likely one of the most challenging technical problems ever to exist.And really, to solve this issue, we essentially need to tackle a substantial aspect of artificial intelligence, specifically real-world artificial intelligence. And that type of AI doesn’t necessarily need to be compressed into a fairly small computer, but rather a highly efficient computer that we have designed – although still a small computer using approximately 70-80 watts.

So this task is much more difficult than if you were to use, for example, 10,000 computers in a server or something of that nature. It needs to fit onto a smaller screen. And with the elimination of radar, I believe we are finally eliminating one of the last uncertainties.# English Markdown

Radar was really — it was making up for some of the shortfalls in vision, but this is not good. You actually just need vision to work and when it works, it works better than the best human because it’s like having eight cameras. It’s like having eyes in the back of your head the size of your head and three eyes at different focal distances looking forward. This is — yeah — and processing it at a speed that is super human.

There’s no question on my mind with a pure vision solution. We can make a car that is dramatically safer than the average person. So, but this is a hard problem because we are actually solving something quite fundamental about artificial intelligence. We basically have to solve real-world vision AI.# Translation

And yeah, so, and the key to solving this is also having some massive dataset. So, just having well over a million cars on the road that are collecting data from very sort of corner-case rare situations, sort of like data so many weird things in the world like a truck carrying a truck or a car with a — one example is a car. This is an actual example.

A car with a kayak on the roof where the kayak has a little weight dangling from the front of the kayak in front of the car, and yet the car must ignore this and just look at the road. So it’s really quite tricky. But I am highly confident that we will get this done.

So, yes, this quarter I think we will continue to see that a little bit in Q2 and Q3. So Q1 was — had some of the most difficult supply chain challenges that we have ever experienced in the life of Tesla.### Insane difficulties with the supply chains

We encountered insane difficulties with our supply chains, affecting the whole range of parts. We were particularly upset about the chip shortage — a huge problem. In addition to that, we struggled to scale production in China, as COVID quarantine restrictions prevented critical engineers from being on-site.

As a result, Tesla’s global operations became reliant on drive units produced in our Nevada factory. This was a very challenging situation, but we have mostly resolved this problem. Nonetheless, these were just two of many challenges that the team faced in dealing with severe supply chain shortages.## Translated English Markdown Text
So, regarding the Model S and X, the Plaid Model S (or the Paladium program) faced more challenges than anticipated during development. However, it resulted in a new version of the Model S and X, which now possess a revised interior, new battery pack, new drive units, new internal electronics, and a high-end infotainment system.

Many issues arose when ensuring that the new factory abided by strict safety measures, which proved to be difficult. It took a significant amount of development to guarantee the safety of the new S/X battery.“`markdown
Then, we are trying to get

So I think as we ramp up I think probably the demand for the new S/X will be quite high. So surely it’s going to be a question of ramping supply chain and internal production processes. So probably we are — like we are going to aim to produce over 2,000 S/X per week, perhaps, if we get lucky, upwards of 2,400 or 2,500.
“`This again is contingent on global supply chain issues, which involve many factors beyond our control. However, I believe this issue will be resolved in due time, and we will be able to produce over 2,000 S/X vehicles per week. Not only is it cost-effective for us to produce, but it is also a superior product.

In conclusion, we have many exciting developments lined up for 2021 and 2022. We are constructing factories as fast as we can, with Texas and Berlin making good progress. We anticipate limited production from these factories this year, and volume production from both Texas and Berlin starting next year.

Furthermore, we will continue to increase production of the Model Y in Shanghai in the next three months. In the meantime, we are diligently working on the development of the Semi, Cybertruck, Roadster, and other products.

We would like to thank everyone at Tesla who contributed to our success this year.

Now, let’s move on to the Q&A.

Martin ViechaThank you very much. We have some remarks from Zachary Kirkhorn as well.

Elon Musk

Okay.

Zachary Kirkhorn

Yeah. Thanks, Martin. Thanks, Elon. So congratulations to the Tesla team on breaking multiple records in the first quarter of 2021, as Elon had mentioned, which is typically the most difficult of the year for many reasons.

To summarize the quarter, I think, it’s best understood by three key items. First, we successfully launched and began the ramp of Model Y in Shanghai, achieving positive gross margin in the first quarter of production and receiving a great reception from the market.

Second, as Elon mentioned, although we began the production process for the Model S during the quarter, we had not yet begun customer deliveries. The reduction in Model S and X deliveries from Q4 to Q1 were a meaningful headwind to free cash flows and profit generation.“`markdown
For example, we incurred an estimated $200 million of direct P&L impact relating to this program in Q1, the majority of which is reflected in COGS and that’s before even considering the impact of lost revenue and profits as a result of the transition. And as Elon mentioned, we expect the first deliveries to begin shortly.

Third, as we continue to work through the instability of the global supply chain, particularly around semiconductors and port capacities. While the Tesla team in partnership with our suppliers did tremendous work keeping our factories running, we did experience high expedite costs in the quarter and they were also higher than they were in Q4, with some minor interruptions to production over the course of the quarter. We believe that this landscape is improving, but it does remain difficult and it’s an evolving situation.
``If we **double click** withinnet income, **auto gross margin excluding credits** improved **sequentially** and **year-over-year**. This is in spite of the costs mentioned forSNXandexpedites` and a reduction in global ASPs as our cost structure as a company is reducing at an even faster pace. So as we look out over the course of the year, we feel optimistic about our gross margin strength, particularly as some of these headwinds we are experiencing start to be resolved.

On Services and other margins, these have recovered and are trending towards profitability, aided by strength in the used car business, operational improvements in service and additional service revenue opportunities that help absorb fixed overheads.

Double clicking on cash flows, we continue to generate positive free cash flows and this was despite the significant working capital headwinds from SNX. Additionally, we are making progress reducing various forms of debt.

We also invested $1.5 billion in Bitcoin during the quarter, then trimmed our position by 10%, which contributed to a small gain in our Q1 financials. Taking a step back, we have generated $8 billion in operating cash flows and $4 billion in free cash flows over the past four quarters.

As we look forward, our plans remain unchanged for long-term growth of 50% annually and we believe we are on track to exceed that this year as we guided to last quarter. Global demand remains meaningfully higher than production levels, and so we are driving as fast as we can to increase our production rates.# As we think about Q2 and Q3, these quarters should largely be driven by execution on SNX, as we have discussed, continued ramp of Model Y in Shanghai and the associated cost reductions of these programs, and we expect profitability and cash generation to evolve over the course of the year in line with those improvements.

And then as we get towards the end of the year, our story will pivot towards the launch and ramp of our newest factories in Austin and Berlin. So there’s certainly no shortage of exciting things for us to work on and look forward to.

Thank you and we will open it up for questions.

Q&A Session

A – Martin Viecha

Thank you very much. And we will first take a retail questions from, say, our website. The first question is, how is how is Dojo coming along? Could Dojo unlock an AWS-like business line for Tesla over the next few years?

Zachary Kirkhorn

I will jump in here. So with respect to…

Elon Musk

Sorry about that. My apologies. I was on mute.Zachary Kirkhorn

Go ahead, Elon.

Elon Musk

So, yeah, so it’s basically saying that the, like, right now people think of Tesla has — a lot of people think Tesla is a car company or perhaps an energy company. I think long-term people will think of Tesla as much as an AI robotics company as we are a car company or an energy company.

I think we are developing one of the strongest hardware and software AI teams in the world and so we appear to be able to do things with Self-Driving that others cannot. So and if you look at the evolution of what technologies we have developed, we developed them in order to solve the problem of Self-Driving.

So we couldn’t find a powerful enough neural net computer, so we designed and built our own. The software out there was really quite primitive for this task and so we built a team from scratch and have been developing what we think is probably the most advanced real-world AI in the world.“`markdown
And then it sort of makes sense that this is kind of what needs to happen because the road system is designed for a neural net computer, our brain. Our brain is a neural net computer. And it’s– the entire system is designed for vision with a neural net computer, which is because it’s designed for eyes and a brain.

And so if you have a system which has very good eyes, you can see in all directions at once and see three focal points forward, it never gets tired. It’s never texting, it has redundancy and its reaction time is super-human. Then it seems pretty obvious that such a system would achieve an extremely high level of safety, far in excess of the average person. So that’s what we are doing.

Then Dojo is kind of the training part of that. So because we have over a million cars and perhaps next year we will have 2 million cars in active use providing vast amounts of video training data that then needs to be digested by a very powerful training system.
“`And currently, we are using Tesla training software. We have developed a lot of training software and labeling software that can perform surround video labeling, which is quite challenging. This means labeling videos over time from all eight cameras simultaneously, at 36 frames per second per camera. There was no existing tool for this, so we developed our own labeling tool.

Taking it a step further, the ultimate goal is order labeling. We are now becoming quite proficient at order labeling, whereby the trainers train the training system and the system then automatically labels the data. The human laborers only need to confirm that the labeling is correct and make edits if necessary. Every time an edit is made, it further trains the system. This creates a flywheel effect that continues to spin up, and the only way to achieve this is with vast amounts of video data.# So then we need to train this efficiently.

To achieve this efficiency, Dojo is a supercomputer optimized for neural net training. We estimate that Dojo is likely to be ten times more efficient in terms of cost, hardware, and energy usage per frame of video compared to solutions based on DPUs or other solutions currently available.

So then possibly that could be used by others.

It is conceivable that Dojo could be utilized by others, given its potential efficiency gains.

It does seem as though over time, I mean, just an observation

Over time, there seems to be a trend towards neural net-based computing or AI-based computing becoming more prevalent in the compute stack.We are — conventional computing is called perhaps (inaudible) based computing. It’s still going to be important, it’s still going to be very important, but it will become — but neural net will become a bigger and bigger portion of compute. So anyway, long story, but I think, probably, others will want to use it too and we will make it available.

Martin Viecha
Thank you very much. Let’s go to the second question from retail investors. The recent price changes on Solar Roof have been a bit discouraging for customers and investors. Could Tesla share more about Solar Roof challenges and if the outlook has changed at all, i.e. 1,000 roofs per week?

Elon Musk
Yeah. First of all, I should say, the demand for the Solar Roof remains strong. So despite raising the price, the demand is still significantly in excess of our ability to meet the demand to install the Solar Roofs. So production has gone fine, but we are choked at the installation point.We found that we made significant errors in assessing the difficulty of certain roofs. However, the complexity of roofs varies greatly. Some roofs are two or three times easier than others, so a one-size-fits-all approach is not feasible.

If a roof has many protrusions, or if the core structure is rotted or weak, the cost could be double or triple our initial quote.

In these situations, we must provide customers with a deposit refund. We cannot afford to lose a significant amount of money. Our priority is to refund the deposit.> But what I believe to be most important about the Solar Roof situation, which I tweeted about this past week, is that we are transitioning the entire solar situation – the solar power, the solar factory situation – to having only one product and configuration for every house. However, we will not sell a house solar without a Powerwall. This solar can either be a retrofit with conventional panels installed on the roof, or it can be the Tesla Solar Glass Roof. But in all cases, the Powerwall will be present to provide backup power – and this is essentially a bonus Powerwall – denoting higher peak power capability. Thus, since approximately November of last year, all Powerwalls made have had significantly more peak power capability than what is specified on the website.They are approximately twice as powerful, depending on how you measure power. Peak power is approximately twice as high, while steady-state power is oddly twice as high as stated on the website. The energy output remains the same, but the power output is approximately doubled.

Regardless of the installation type, Powerwall units will be included. The difficulty of the installation will either dramatically increase or be greatly reduced, as the power generated by Solar Roof, Solar Glass Roof or solar panels will only flow directly into the Powerwall.

Furthermore, the Powerwall will only be installed between the utility main and the house’s main power panel, meaning the home’s circuit breakers will never need to be accessed.# Effectively almost every house, therefore, looks the same electrically instead of being a unique work of art and requiring exceptional ability to rewire the main panel. So this is extremely important for scalability. It’s the only way to do it, really.

This means that every solar Powerwall installation in a house or apartment, will function as its own utility. So even if there is a power outage in the neighborhood, you will still have power. This provides people with energy security. Additionally, we can use the Powerwalls to stabilize the overall grid by working with the utilities.

For example, in a situation like the peak power demand in Texas where the grid lacked the ability to buffer the power, the Powerwalls could be used to stabilize the grid and prevent shutdowns due to lack of storage for the excess energy.“`markdown
However, with a whole bunch of Powerwalls at houses, we can actually buffer the power. So if the grid needs more power, we can actually then with the consent, obviously, of the homeowner and the partnership with the utility, we can then actually release power on to the grid to take care of peak power demand.

So, effectively, the Powerwalls can operate as a giant distributed utility. This is profound. I am not sure how many people will actually understand this. This is extremely profound and necessary, because we are headed towards a world where, as we just talked about earlier, where people are leaning towards electric vehicles. This will mean that the power needs in — at homes and businesses will increase significantly. We will need — there will need to be a bunch more electricity coming somewhere.
“`## Translation

In fact, if you rely entirely on renewable electricity, we will require approximately three times as much electricity as we currently possess. So, roughly speaking, if all transportation switches to electric, we will require twice as much electricity, and if all heating goes electric, we will require three times as much electricity.

Therefore, I believe this is a prosperous future for both Tesla and utilities, because, in fact, if this transition is not made, utilities will be unable to serve their customers and unable to react quickly enough when faced with challenges.

We will witness more and more occurrences like what is happening in California and Texas, where people experience brownouts and blackouts, and the utilities are unable to respond due to the significant changes associated with the transition to electric transportation and the growing prevalence of extreme weather events. This is a recipe for disaster, which underscores the importance of having solar and battery systems at each home’s local level.In addition, it is important to have large battery storage at the utility level so that solar and wind, which are the main forms of renewable electricity can be — that electricity can be stored because sometimes the wind doesn’t blow. Sometimes it blows a lot. Sometimes it blows too much and at times it doesn’t blow enough.

But if you have a battery, you can store the energy and provide the energy to the grid as needed. The same goes for solar because, obviously, the sun does not shine at night and sometimes it is very cloudy.And so, by incorporating battery storage power with solar and wind, a long-term solution is provided for a stable energy future. This applies at both the local and utility level. Otherwise, a massive increase in power lines and plants would be required to establish long-distance and local power lines throughout. Additionally, substations would need to be enlarged. Needless to say, this would result in a nightmare scenario. This leads to the undeniable conclusion that the use of solar energy combined with battery storage is the only way forward. So, yeah.

Martin Viecha

Thank you very much. The next question we have is for the Master of Coin. Can you share any information regarding Tesla’s plans for digital currency? Or when we can expect any major developments to be announced?

Zachary KirkhornSure. Thanks, Martin. As noted in our opening remarks and previously announced, Tesla invested $1.5 billion into Bitcoin in Q1 and subsequently sold a 10% stake in that. We also enable customers to make vehicle deposits and final vehicle purchases using Bitcoin.

Regarding our Bitcoin story, allow me to provide some context. Elon and I were seeking a place to store cash that wasn’t immediately being used. We aimed to yield some return while preserving liquidity.

With the launch of Austin and Berlin on the horizon, and uncertainties surrounding semiconductors and port capacity, quick access to cash is crucial for us at the moment.And there aren’t many traditional opportunities to do this or, at least, that we found and in talking to others that we could get good feedback on, particularly with yields being so low and without taking on addition risk or sacrificing liquidity.

And Bitcoin seemed, at the time, and so far has proven to be a good decision, a good place to place some of our cash that’s not immediately being used for daily operations or maybe not needed until the end of the year and be able to get some return on that.

And I think one of the key points that I want to make about our experiences in the digital currency space is that there’s a lot of reasons to be optimistic here. We are certainly watching it very closely at Tesla, watching how the market develops, listening to what our customers are saying.## But thinking about it from a corporate treasury perspective, we have been quite pleased with how much liquidity there is in the Bitcoin market. So our ability to build our first position happened very quickly. When we did the sale later in March, we also were able to execute on that very quickly.

And so as we think about kind of global liquidity for the business and risk management, being able to get cash in and out of the markets is something that I think is exceptionally important for us.

So we do believe long-term in the value of Bitcoin. So it is our intent to hold what we have long-term and continue to accumulate Bitcoin from transactions from our customers as they purchase vehicles.> Specifically, with respect to things we may do, there are things that we are constantly discussing. We are not planning to make any announcements here. We are watching this space closely. So when we are ready to make an announcement on this front, if there’s one to come, we will certainly let you all know.

Martin Viecha

Thank you. And the fourth question from retail investors is, does Tesla have any proactive plans to tackle main stream media’s imminent massive and deceptive click bait headline campaigns on safety of Autopilot or FSD, perhaps a specialty PR job of some sort?

Lars Moravy

Well, I will take this one, guys. From the safety side, I continue to say, he is driving on too.

Elon Musk

Yeah.

Lars Moravy

Go ahead, Elon.No. Please go ahead. I think, just with — just going through the facts of what I mean, specifically, there were — there was an article regarding a tragedy where there was a high speed accident in Tesla and it was really just extremely deceptive media practices where it was claimed to be Autopilot, which is completely false and those journalists should be ashamed of themselves. Please go ahead, Zach.

Lars Moravy

Yeah. Thanks, Elon. So I was just saying, we are committed to safety in all our designs and that’s number one in what we do here. Regarding the crash in Houston, specifically, we worked directly with the local authorities and NTSB, so wherever applicable and whenever they reach out to us for help directly on the engineering level and whatever else we can support.“`markdown
In that vein, we did a study with them over the past week to understand what happened in that particular crash and what we have learned from that effort was that Autosteer did not and could not engage on the road condition that as it was designed.

Our adaptive cruise control only engaged when the driver was buckled and above 5 miles per hour, and it only accelerated to 30 miles per hour with the distance before the car crashed. As well, adaptive cruise control disengaged the car fully to complete to a stop when the driver’s seat belt was unbuckled.

Through further investigation of the vehicle and the accident remains, we instructed the car with NTSB and we saw in the local police and were able to find that the steering wheel was indeed deformed, so it was leading to a likelihood that someone was in the driver’s seat at the time of the crash and all seat belts post-crash were found to be unbuckled.
“`We were unable to recover the data from the SD card at the time of impact, but the local authorities are working on doing that and we await their report. As I said, we continue to hold safety in high regard and look to improve our products in the future through this kind of data and other information from the field.

Martin Viecha

Okay. Thank you very much. Let’s go to the next question from institutional investors. The first question is, proponents of alternative grid storage technologies claim that lithium ion is unsuited to long-term storage at scale due to vampire drain. Could 4680 cells address this limitation? Is the limitation even relevant for changing the energy equation?

Lars Moravy

Yeah. Just let me jump in on the vampire drain. That’s definitely not the issue. Good lithium ion cell self-discharges less than 0.001% of its energy per day, so the vampire drain is maybe not…

Elon Musk

Myth.

Lars Moravy

Yeah.

Elon Musk

As mythical as vampires.Lars Moravy

Yeah. I think the challenge with seasonal storage is that the value proposition drops from hundreds of useful cycles per year to less than maybe 10, or even less than five cycles per year. So it’s just a different type of technology altogether that would make sense, given that it’s more than an order of magnitude different use case.

Elon Musk

Yeah. We have a long way to go before we deal with seasonal technology issues. But certainly, a way to deal with seasonal technology would be to have wind and solar already on the site of more southerly latitudes and across a variety of longitudes.

So essentially, let’s say in the U.S., for example, if there was a 100-mile by 100-mile grid of solar, you can actually power the entire United States. Sometimes people don’t quite understand how much solar energy is needed to power the United States?Almost nothing of these can be substantially required by this and it is true of almost any country in the world. The solar incidence is a gigawatt per square kilometer. This is insane. In fact, if you took the clear area, just the area, say, for nuclear power plants, the area that is considered not useable because a nuclear power plant is there. In most cases, if you just put solar there it would generate more power than the nuclear power plant, because they typically have pretty wide clear areas.

And –so it really — so if you have say 25% efficient solar panels and then those are 80% efficient in how they are laid out, you are going to do about 200 megawatts per square kilometer. Therefore, 5 square kilometers is a gigawatt, which might be typical sort of power plant. It’s really not much area at all and a lot of places can have wind and solar put in place.Anyway, it is completely possible to power the entire Earth using a small percentage of its surface area, and then transmit that power through high voltage DC lines. No new technology required. You don’t need room temperature superconductors. That’s also a myth, and in my opinion, they’re almost irrelevant. What’s really important is low-cost, long-distance power lines that use copper or aluminum.

Heating is determined by I squared R, where “I” stands for current and “R” stands for resistance. As you increase the voltage, you can significantly reduce the current and heating, to the point where they are of minor relevance. For example, with high voltage DC power lines, you might only lose 5% to 7% of the power.So I want to be clear. No, this is not certain. No new materials are necessary. We just need to scale this thing up. We — the technology exists today to solve renewable energy. And some people say, well, why don’t we do it? That’s because the energy basis of the earth is gigantic, super mega insanely gigantic.

So you can’t just go and do a zillion terawatts overnight. You have got to build the production capacity for the cells, for the battery cells, for solar cells. You have got to put that into vehicles. You have got to put that into stationary storage packs. You have got to put that into solar panels and Solar Glass Roofs and you have got to deploy all of this stuff.But certainly, we can accelerate this, and we should try to accelerate it. From an economic standpoint, and almost any economist would agree, we should have a carbon tax, just as we have taxes on cigarettes and alcohol, which we believe are more likely to be bad than good, while we tend to tax fruits and vegetables less. The same should hold true for energy – we should tax energy that we believe is probably bad and support energy that we believe is probably good. Just like with cigarettes and alcohol, just like with fruits and vegetables. It’s just common sense.

And on the positive side, I am not suggesting anyone be complacent. But sustainable energy, renewable energy, will sell. It is being sold, but it matters how quickly we can sell this – the faster, the better for the world.

Martin Viecha

Thank you very much.

Elon MuskThere’s no doubt in my mind that the energy storage problem can be solved with lithium-ion batteries, period. I want to make it clear, absolutely. I believe the preference will tend to be towards iron-based, lithium-ion cells. Lithium-ion, people typically associate lithium as a major ingredient of the cells. In reality, it only makes up around 1% to 2% of the cell. The cathode is the main component of the cell, in terms of mass and cost.

For high energy cells, such as those used in most Teslas, nickel-based lithium-ion cells are utilized, which have a higher energy density and longer range compared to iron-based cells. However, for stationary storage, energy density is not as crucial since it simply remains in place. Thus, the majority of stationary storage will probably use iron-based lithium-ion cells with an iron phosphate cathode, technically speaking. However, the phosphate component is unnecessary. The crucial factor is really just the iron or nickel.## 英文 Markdown 文本

I am assuming the terminology. Just think of it as iron and nickel and there’s an insane amount of iron in the world, more iron than we could have possibly used and there’s also more lithium than we could possibly use. Basically, there is no shortage of anything whatsoever in iron phosphate lithium-ion cells.

Martin Viecha

Thank you very much. Let’s go to the next question from institutional investors which is, you have suggested that between a 5x to 10x improvement is achievable in automotive production versus the first Model 3 line on a first-principles physics analysis. Where does Berlin sit relative to that limit?

Elon Musk

I think we are still quite far away from it. I mean, the thing to bear in mind with production is for those who have never done production, they just don’t understand how insanely hard production is.# I want to really be very, very emphatic here. Prototypes are trivial. They are child’s play. Production is hard. It is very hard. Now you say production at large scale with higher liability and low-cost, insanely difficult.

But what Tesla achieved on the automotive side was not to create an electric car. The truly profound thing on the car side is that Tesla was the first American car company to achieve volume production of a car in 100 years and not go bankrupt.

So this is — this — basically myself and NIO and Tesla had to basically have several aneurysms to get this done. It was so hard. You have no idea. So anyway, and the thing about making a large complex manufactured object is let’s say that you have a closer approximation 10,000 unique items. If even one of those items is slow, that sets your rate, just one. Isn’t that so trivial?

We encountered two production stops: one due to a carpet issue in the trunk, and another due to a shortage of USB cables. For the Model S car, we bought out every electronics store in the Bay Area for several days to secure enough USB cables. This is just one example of many similar stories.

Solving these issues was extremely challenging due to the sheer scale of our operations, which includes millions of cars in over 50 countries and navigating many regulatory regimes. This logistics problem makes World War II look trivial.

In terms of the urban transport vehicle mentioned in Master Plan Part Deux, we are exploring the development of a smaller vehicle with greater passenger capacity achieved by removing the central aisle. Updates on this goal will be shared as they become available.

Martin Viecha

Thank you. Our last question comes from an institutional investor.Not at this time.

Martin Viecha

Okay. Thank you very much. So let’s move to analyst Q&A.

Operator

Thank you. First question is from Pierre Ferragu with New Street Research. Your line is open.

Pierre Ferragu

Hi, guys. Thanks for taking my question. I’d love to get actually the data on what you presented on the Battery Day. In the last six, seven months, I was wondering how much progress you have made on that front, first in terms of process development. So how are things coming together on your pilot line, are you getting to the kind of productivity throughput you are aiming for? And second, actually on your production ramps, I was wondering in which size you are ramping production capacity cells with 4680 cell and where you stand on ramping up that capacity as well? And I have a quick follow-up on energy rate as well.

Elon MuskWell, so we have the — I call it the Atlas, but we have a small cell power plant which is still big by normal standards. We expect to have like a 10-gigawatt-hour per year capability in Fremont, California and we have made quite a few cells.

We are not quite yet at the point where we think the cells are reliable enough to be shipped in cars, but we are getting close to that point. And then we have already ordered most of the equipment for battery production in Berlin and then electric for Austin, as well. So we are really down to the nitty-gritty on this. But overall, I think, we are still quite optimistic about achieving volume production of the 4680 next year.

Zachary Kirkhorn

Yeah. I think…

Pierre Ferragu

Thank you.

Zachary KirkhornYeah. I think, Pierre, just one thing I’d add is, there’s been a lot of questions about yield. Actually, I noticed people asking about that. The yield progress isn’t really strong and we were really still in Commissioning phases with most of the tools to the point that we were confident that the yield trajectory aligns with our internal cost projections. We did talk about yield also at Battery Day which is one of the reasons why it’s useful to check in on that.

It takes a while, as Elon Musk just mentioned, to go from prototype to production and it’s not just parts, it’s processes, it’s equipment, but as we have matured the process equipment, we have gotten to where we need to be on the yield side.Yeah. And basically, this is just a guess because we don’t know for sure, but it appears as though we are about 12, probably not more than 18 months away from volume production of the 4680. Now, at the same time, we are actually trying to have our cell supply partners ramp up their supply as much as possible. So this is not something that is to the exclusion of suppliers. It is in conjunction with suppliers.

Zachary Kirkhorn

Yeah.

Elon Musk

So we want to be super clear about that. This is not about replacing suppliers. It is about supplementing suppliers. So — and we have a very strong partnership with JBL, with Panasonic, and LG.

And we would — our request to our strategic partners for cell supply is, please supply us with as much as you possibly can. Provided the price is affordable, we will buy everything that they can make.

Zachary Kirkhorn

Yeah. Yeah. And specific to that, we are on track to more than double the supplier capacity over the next, we think.Elon Musk

Yeah. We expect suppliers to double the cell output next year compared to this year.

Pierre Ferragu

Okay. And I have a follow-up question for Zach regarding your Energy business. I understand the Solar Roof ramp will impact the gross margin, but I am curious about the gross margin for the Storage business. What is your ambition in terms of gross margin in that business, and how do you plan to grow it in the coming years? This is important for long-term modeling.

Zachary Kirkhorn

Yeah. We are aiming for comparable margins in storage as in vehicles. However, it’s important to note that the vehicle segment is more mature than storage. While we already have active margins with the Powerwall, additional work is needed for the Megapack to achieve good margins.

Operator

Thank you.

Andrew BaglinoYeah. Sorry. Just jumping in, Elon. Absolutely agree. Yeah. Powerwall is mature. We have been producing Powerwall 2 for three years now and we are at good margins there, but Megapack has more room to go to achieve our targets.

Elon Musk

We have a clear runway for improving the cost for the megawatt hours for the Megapack.

Andrew Baglino

Absolutely. Yes, we do.

Martin Viecha

Thank you. Let’s go to the next question, please.

Operator

From Rod Lache with Wolfe Research. Please go ahead.

Rod Lache

Hi, everybody. I was hoping maybe just first, you could talk a little bit about how you are thinking about the rollout of version 9 of SSD and the transition of the subscription models. It sounds like some of this is about to roll out next month. I am not sure if that’s just a subscription model. But maybe you could just spend a little time talking about how impactful you expect that to be.

Elon Musk

So go ahead, Zach.

Zachary KirkhornYeah. 我们正在努力推动FSD订阅。有几个内部技术依赖。但从业务模型的角度来看，我们正在努力推出这个服务。

这里要提到的关键一点是，FSD订阅有很大的循环收入潜力。如果您看看我们的车队规模和那些没有事先购买FSD的客户数量，或者那些想尝试FSD的客户，这对他们来说是个绝佳选择。

我们需要关注的其中一件事情是：有些原本打算购买FSD现金付款的客户，可能会转而购买FSD订阅服务。因此，在短期内，现金支付可能会有所减少，随着订阅客户持续增多，订阅服务对我们来说将成为一个相当强大的业务。但我们希望尽快推出并看看市场对此的反应。Rod Lache

Okay. Great. I was hoping, Zach, that you could provide some insight on OpEx. There was a noticeable increase this quarter, even excluding SBC, and a lot is going on. Can you explain how we should approach this going forward?

Zachary Kirkhorn

Sure. Regarding R&D, as I mentioned in my opening remarks, we are currently experiencing a convergence of various programs, and our R&D OpEx spend relates to where we are at in different product cycles.

At this point in time, we are winding down investments in what we internally call Paladium, which includes the new Model S and Model X. We anticipate that this will decrease over time, but it was high in Q1 for many reasons that Elon previously mentioned.We are also heavily involved in the development of the 4680 battery, a project led by Drew and his team, as well as the associated structural battery pack. These are not only new technologies for Tesla, but also for the industry.

As a result, we are making significant investments in R&D to resolve any issues. We anticipate continued spending in these areas as we progress through the development cycle.

Additionally, I previously mentioned Dojo and its potential. Our neural net and custom silicon investments remain focal points for continued spending and investment.On the SG&A side, the business is quickly shifting towards a global focus and China is experiencing rapid growth. We aim to stay ahead of this growth by increasing our sales and store capacity, investing in IT and other local initiatives, in order to manage the growth effectively. By doing so, execution challenges will be minimized compared to similar periods of growth in the past. We are proactively making investments in anticipation of this growth.

Looking at OpEx as a percentage of revenue throughout the year, we expect to see a significant decrease from 2020 to 2021, especially as volumes pick up in the latter part of the year.

Martin Viecha

Thank you. Let’s move on to the next question.

Operator

Thank you. We have Dan Levy from Credit Suisse on the line.Hi. Good evening. Thanks. Two questions. One is on COGS, I think, you have gotten from Battery Day a pretty good feel about the potential for COGS reduction related to Powertrain. But I’d like to get a sense of the path to reducing COGS ex-Powertrain as you would still need a meaningful reduction on that front to make the math work on a 25,000 vehicle. So what levers do you have to reduce in your cost ex-Powertrain, is it just more scale, better supply pricing or is it just based on ongoing cost reductions?

Elon Musk
I think all of the above.

Zachary Kirkhorn
Yeah. I mean, on the vehicle side, there’s plenty of opportunity as well. Obviously, building a car like a Model S is quite complex and has various moving parts. Model 3 and Model Y were steps of improvement in that.

But when you look at some of the other advancements that we are including in the Model Y, factories into Austin and Berlin, we have reduced the body pound by as much 60%. And the part costs money.# English Markdown Text

So we continue to find optimizations there as well as we get economies of scale. When we start to talk about the volumes, we are considering worldwide with four factories building the same vehicle. So both of those things on the vehicle side will improve our COGS as well and the Powertrain continues to be integrated into that.

Dan Levy

Great. And then just related, as we see Berlin and Austin ramp, I’d like to just get a sense on the comparison of Fremont versus the new capacity, obviously, Fremont is non-optimized because you bought the old NUMMI facility. You had to retrofit that to your need. So maybe you can give us a sense of how your new capacity is going to differ versus Fremont. What are the areas that you have efficiencies that you previously didn’t have and maybe how much does that add up to improved COGS over time to help you achieve that 25,000 vehicle?

Elon MuskYeah. 我们总是谈论过多关于未来产品开发。赚钱电话并不是我们发布重要产品公告的恰当场所，所以我们会走到那一步。我们稍后会提供。

Martin Viecha

All right. 非常感谢。不幸的是，今天我们的时间到此为止。非常感谢您的参与和收听，我们将在大约三个月后再与您交流。谢谢。

Elon Musk

谢谢。谢谢大家。

Operator

此次电话会议到此结束。感谢您的参与。您现在可以断开连接。

🔗Information source: Seeking Alpha

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.