Just now, Tesla held the 2021Q2 earnings call, and here is the summary of the conference and the Q&A section:
Elon Musk
About chips:
In Q2 2021, the total revenue exceeded 10 billion, reaching a historical high. However, the impact of chip shortage is quite severe, and it’s hard to say how long it will last. We can’t control it, and it’s difficult to make predictions. If we change the chip, the software also needs to be rewritten.
About FSD subscription system:
The subscription system is gradually developing. With the development of ADAS, the FSD subscription rate may reach a high level.
About production:
As everyone can see from the comparison chart, the development of Tesla’s Texas Super Factory is very good, and the development speed is very fast. It was built in just one year. We are now having a conference call with everyone at the Texas Super Factory. This year, the Model Y will also be put into production in Texas and Berlin as planned. Production is very complicated and difficult to control. (Again, prototypes are easy, production is hard.) It is easy to start an electric car start-up, and there are many in the United States. But Tesla is the one that hasn’t gone bankrupt, and this is the hardest part.
The Model Y production line at the Texas and Berlin Super Factories will be similar to the existing ones, but there will be significant differences. The Berlin Model Y will use cast rear and front body parts. In terms of batteries, production will still use 4680 batteries.
Zachary Kirkhorn – Chief Financial Officer
The financial data for Q2 2021 was excellent. While maintaining the profit margin of the car, Tesla reduced the ASP because the company has optimized its operations to a considerable extent. Tesla’s financial data will be more impressive in Q3 and Q4.
Retail investor’s question:
Q1: Tesla stated that the Cybertruck will start mass production at the end of 2021. Can you share more details about the current situation of the Cybertruck and whether it can be put into production according to the plan?
Musk emphasized the complexity of production again. Prototypes are simple, and mass production is difficult. The car itself consists of thousands of parts. In terms of volume production of such a complex product, Tesla is the fastest in history. After the Model Y goes into production, the Cybertruck will be produced at the Texas Super Factory as planned.
At the same time, Musk pointed out that the production of Cybertruck and Semi will be affected by battery supply. But Tesla believes that even if it doesn’t self-produce the batteries, the suppliers can provide enough batteries. Tesla expects the battery supply to increase significantly next year, perhaps doubling, and this year’s supply has already broken records.Musk 表示他们正在加快柏林工厂和德州工厂的建设，并努力实现 Model Y 和 Cybertruck 的年底前首批交付。他补充道，Cybertruck 有着非常独特的设计和复杂的生产工艺，因此量产确实比较困难。但他们正在全力解决这些问题。至于 Tesla Semi，它将在下一步扩大产能计划中实现量产。### Q6: What do you think will be Tesla’s production and manufacturing development speed around the world over the next five years, and what will be the biggest challenge?
A: The development speed of Tesla’s Shanghai Super Factory is well-known, but spreading production lines globally poses a challenge for the supply chain. Production and manufacturing have never been as simple as cut-paste.
Q7: Apart from FSD, does Tesla plan to offer other similar subscription services?
A: Elon Musk stated that FSD will always be the company’s primary offering. Tesla will always be a leader in the fields of electric vehicles and autonomous driving.
Question from analyst:
Q8: Colin Rusch from Oppenheimer: FSD subscription rate target? What is the impact of regulation on FSD?
A: Musk replied that setting a specific target number now is meaningless. Tesla is focused on promoting the use of FSD. As for regulatory matters, at least in the US market, they have not affected Tesla.
Musk also stated that once it is proven that the autonomous driving system is safer than human drivers, it may become more welcome among regulatory agencies. He gave the example of elevator operators, which were once manual but are now fully automated. The same thing could happen with autonomous driving.
Q9: Rod Lache of Wolfe Research: Can you share more about the 4680 battery development plan?
A: Musk replied that making predictions is difficult, it’s like trying to gaze into many crystal balls. The financial report has already pointed out that the performance and lifespan of the 4680 battery have been verified at the Kato factory in California, and the production verification process is nearing completion, But 10% of the process is a bottleneck that is limiting production.
Q10: Pierre Ferragu News Street Research: What is the status of the 4680 battery supply chain?
A: Musk confirmed that Tesla is working with its existing suppliers to produce the 4680 battery. If battery supply is sufficient, Tesla’s Powerwall production next year could reach 1 million units. In the long term, Tesla and its suppliers will aim to achieve an annual battery production capacity of 1,000 to 2,000 GWh.
The following is the English original transcript of the conference call:
Tesla, Inc. (TSLA) CEO Elon Musk on Q2 2021 Results – Earnings Call Transcript
Company Participants# Elon Musk – Chief Executive Officer
Martin Viecha – Senior Director of Investor Relations
Zachary Kirkhorn – Chief Financial Office
Lars Moravy – Vice President of Vehicle Engineering
Andrew Baglino – Senior Vice President of Powertrain and Energy Engineering
Conference Call Participants
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Colin Rusch – Oppenheimer
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Rod Lache – Wolfe Research
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Pierre Ferragu – New Street Research
Operator
Good day and thank you for standing by. Welcome to the Tesla Second Quarter 2021 Financial results and Q&A webcast. At this time, all participants are in a listen-only mode. After the speakers’ 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 today, Martin Viecha, Senior Director of Investor Relations. Please go ahead.
Martin ViechaThank you for joining us today for Tesla’s Q2 2021 earnings call. During this webcast, we will discuss our business outlook and make forward-looking statements. Joining me today are Zachary Kirkhorn and several other executives. Our Q2 results were announced earlier today and can be found in the update deck using the same link as this webcast. Please keep in mind that our comments are based on current predictions and expectations, and actual events and results may differ due to various risks and uncertainties outlined in our recent filings with the SEC. Now, before we begin our Q&A session, I’d like to share some opening remarks. [Operator Instructions]Sure. To recap, Q2 2021 was the record quarter on many levels. We achieved record production delivery and surpassed over a billion dollars in GAAP net income for the first time in Tesla history. I’d really like to congratulate everyone at Tesla for the amazing job. This is really an incredible milestone. It also seems that public sentiment towards EVs is at an inflection point.
And at this point, I think almost everyone agrees that electric vehicles are the only way forward. Regarding supply chain, while we’re making cars at full speed, the global chip shortage situation remains quite serious. For the rest of this year, our growth rate will be determined by the slowest part in our supply chain which is a — there’s a wide range of chips that are at various times the slowest part in the supply chain.I mean, it’s worth noting that if we had everything else, if we had vast numbers of vehicles themselves, we would not yet be able to make them, everything except the chips, we wouldn’t be able to make them. The chip supply is fundamentally becoming a factor on our output. It is difficult for us to say how long this will last because we don’t have — this is out of our control, essentially. It does seem like it’s getting better, but it’s hard to predict. In fact, even achieving the output that we did achieve, was only due to an immense effort from people within Tesla.We were able to substitute alternative chips. And then, rewrite the firmware in a matter of weeks. It’s not just a matter of swapping out a chip. You also have to rewrite the software. It was an incredibly intense effort of finding new chips, writing new firmware, integrating with the vehicle and testing in order to maintain production. And I’d also like to thank our suppliers, who work with us. And there have been many calls, midnight, 1:00 AM, just to deal with suppliers in resolving a lot of the shortages, so thanks very much to our suppliers.
Let’s see. In terms of FSD subscription, we were able to launch a [Indiscernible] driving subscription last month. And we expect it to build slowly. And then gather a lot of momentum over time. Obviously, we need to have the Full Self-Driving build widely available for it really to take off at high rates, and we’re making a lot of progress there.So, yes, I think that the FSD subscription will be a significant factor, probably next year. Regarding Giga Texas and Giga Berlin, we’re actually doing this earnings call from Giga Texas. We’re in the factory right now, doing this earnings call, and the team has made incredible progress here. You can see the pictures online and see that, a year ago, there was basically nothing, and now, we have this large, mostly complete factory a year later. So, really great work by the Giga Texas team.
Also, there’s been great work in Berlin, out in Brandenburg, with the team there. We expect to be producing the new design of the Model Y in both factories in limited production later this year. It’s always difficult to explain to people who have not been through the agony of a manufacturing ramp.Like why can’t you just turn it on and make 5,000 a week. This is — it is so hard to do manufacturing, it is so hard to do production. To the best approximation, there are 10,000 unique parts and processes that have to work. And the greater growth of production goes as fast as the least lucky and dumbest of those 10,000 things. And a bunch of them are not even in our control, so it’s insanely difficult.
I’m fond of saying that prototypes are easy and production is hard. And arguably, the really remarkable thing that Tesla has done is not to make an electric car or to be a car startup because there have been hundreds of car startups in the U.S and outside the U.S so the thing that’s remarkable is that Tesla didn’t go bankrupt in reaching volume production.#### That’s the amazing part, because everyone else did. Because they all thought the prototype or the idea was the hard part and it is not; it is trivial by comparison with actual production.
It’s always worth knowng, that of all the American car companies, there are only two that have not gone bankrupt, and that is Ford and Tesla.
The seeds of defeat are sown on the day of victory. And we must be careful that we do not do that. They’re often — if you look at history, so often that the Caesars beat us on the day of victory.We will make every effort to avoid such a situation at Tesla. The upcoming Texas and Berlin model lines will bear a strong resemblance to the current Model Ys, but will feature key manufacturing improvements. For instance, the Texas and Berlin Model Ys will possess both a cast front and rear body, as opposed to the California model, which only has a cast rear body. Additionally, we are planning to utilize a structural pack with 4680 cells, which will both reduce weight and cost.
However, we are not solely reliant on this approach. We have contingency plans involving a non-structural pack and 2170s. For large-scale production, our goal is to implement the 4680s and structural pack, as it is the optimal architecture from a physics perspective and the most cost-effective, resulting in lighter weight and lower costs.“`markdown
But there’s a lot of new technology there so it’s difficult to predict with precision, when does it work and when you reach scale production. And Drew is going to talk a bit more about the 4680 productions. We are making great progress on the 4680 cells, but there is a tremendous amount of innovation that we’re packing into that 4680 cell. And so it’s not simply a minor improvement on state-of-the-art. There are, and we went through this on the battery cell day, really dozens of — half a dozen major improvements and dozens of small improvements.
So I think it will be great. But it’s simple to say when the last of the technical challenges will be solved. So in conclusion, our team continues to make huge efforts to make our factories run at full speed, which is very difficult. We have had some factory shutdowns due to parts shortages. And we hope those will be relieved in the coming weeks and months.
## And we're making great progress on Full Self-Driving.
We are making significant advancements in Full Self-Driving technology. Although progress may not be immediately apparent as it involves extensive foundational software development. Updates can sometimes result in a two-steps-forward, one-step-back scenario. However, with persistence, we are confident that progress will continue to be made.
## I'm highly confident that the cars will be capable of Full Self-Driving.
Given the cars have a Full Self-Driving computer and cameras, we are confident that they will operate autonomously with much greater safety levels than the average person. We extend our gratitude to all our employees for their contributions towards making this year a breakthrough for Tesla and achieving a remarkable quarter. Thank you.
**Martin Viecha**
Thank you very much. We now have Zachary Kirkhorn providing additional comments.
**Zachary Kirkhorn**Yeah, thanks Martin. And thanks, Elon. Just to **reiterate**, Q2 was a great quarter for the Tesla team, with a **strong improvement** across the business. In particular, **auto gross profit and margin, excluding credits**, increased substantially. This was primarily driven by better **cost optimization** across our factories, good **execution** against our cost reduction plans, as well as increases in **production and delivery volumes**.
There was some benefit from **pricing actions**, mostly in North America, however, it was **small** in the context of the other contributors. Note that the **Model S and X program** was at a slight loss for the quarter due to the relatively low volume. And **supply chain challenges**, including expedites, continue to provide cost **headwinds**. Additionally, it's encouraging to see the progress made on profitability within our **energy and services and other businesses**.# While there's some benefit to looking at our progress quarter-over-quarter, I find it more helpful to look at progress over a slightly long-term horizon.
## Success in the Long Run
Over the last two years, our vehicle delivery volumes have more than doubled. This volume increase was made possible by a steady decrease in ASPs of more than 10%, driven by a roadmap to increase affordability and shifting mix towards our more affordable vehicles. Yet over that same period of time, our auto gross margin, excluding credit, has increased nearly 10 percentage points to our highest yet since the introduction of Model 3. This is only possible because our average cost per vehicle has reduced by more than the reduction in average price.# This is a remarkable achievement in the context of the volume growth and ASP reduction as mentioned and a testament to the hard work by the Tesla team. Additionally, OpEx as a percentage of revenue has declined, and in particular SG&A, representing the work we've done to become more efficient as we scale the Company while still making the required R&D investments to support our future. As a result, our GAAP Operating margins have risen from negative to double-digit in line with what we have guided.
By managing our overhead costs and driving higher volumes, our P&L is benefiting from the marginal profitability of each incremental unit, or said differently, we are recognizing the benefits of scale and improved fixed cost absorption. With strong operating cash flows and cash balance, we are putting that cash to use. Capex continues to pick up, primarily driven by capacity investments in Austin, Berlin, and Shanghai.Additionally, each quarter we are using our cash to retire legacy debt, which was taken on at a time when interest rates and Company growth were much higher than in today's environment. As I've mentioned before, our 2021 volumes will skew towards the second half of the year as we push for continued sequential increases in volume. Despite the great work so far, managing the instability of the supply chain, these challenges remain and unfortunately increasing in [Indiscernible] with the higher volume.
As we work through the uncertainty, we want to ensure we do our best to manage customer wait time, as well as the impact these interruptions have on our employees and costs. And as Elon mentioned, volume growth will be determined by part availability as we have the factory capacity ready, and now we're in a strong demand position. I'm excited to see the progress made by the Tesla team, as we continue building the business and strengthening our financials. Thank you very much.Sure, I can take that. So, regarding the Cybertruck, as Elon mentioned earlier, we are currently focused on Model Y production in Fremont and Model 3 production in Shanghai. We are continuing to work on the Cybertruck and its production timeline, and we'll share more details when we have them.Sorry, we cut out there for a second. Yeah, the Cybertruck is currently in its Alpha stages. We finished basic engineering the architecture of the vehicle. With the Cybertruck, we're redefining how a vehicle is being made. As Elon said, it carries much of the structural pack and large casting designs of the Model Y being built in Berlin and Austin. Obviously, those take priority over the Cybertruck, but we are moving into the beta phases of the Cybertruck later this year, and we will be looking to ramp up production and take it to Texas after Model Y is up and going.
**Elon Musk**Yeah, it's just worth reemphasizing that they'd be -- the extraordinary difficulty of ramping production of large manufactured items. With risk of being repetitive, it is essentially easy to make prototypes, or handbook small volume production. But anything produced at a high-volume, which is really what's relevant here is, it's going to move as fast as the slowest of the say rough order magnitude 10,000 unique parts and processes. And so you can have 9,999, but when just one is missing -- We were missing, for example, like a big struggle this quarter, was the module that controls the airbags and the seatbelts.```markdown
And obviously you cannot ship a car without those. That limited our production severely worldwide, in Shanghai and at Fremont. it wouldn't have mattered if we had 17 different car models because we -- they won't need the airbag module so it's just irrelevant. In order for Cybertruck [Indiscernible] to scale to volume that's meaningful for customer deliveries, we've got to solve the chip shortage working with our suppliers. [Indiscernible] want to say, why don't you just build a chip fab? Well, okay that would take us -- even moving like lightning, 12 to 18 months.
So it's not like – [ Indiscernible] your bet. This is like, yah let's make the chip fab. So some of these things are -- Yeah, anyway, it is quite a trial, feeling with all of the constraints of scaling a large manufactured object. I think it may be the case that Tesla is scaling. I think we might be the fastest in history ever for scaling a large manufactured object.
Maybe the Model T would have been comparable back in the day, of the Ford Model T. Probably internet knows the answer, but I think we may be scaling large -manufactured object at the fastest rate in history, or I would like to know who did it faster., so we can learn from them. It’s worth just noting that in the grand scheme of things, it’s not bad.
So Yeah, so the Cybertruck consume a — actually both are heavy uses of cell capacity so we’ve got to make sure we have the cell capacity for those 2 vehicles or it’s kind of pointless. We can make a small number of vehicles, but the effect of cost if you make a small number of vehicles is the same. Like they would literally cost $1,000,000 a piece or more.There’s a reason why you do things in volume production, which is to get the economies of scale and pass down cost savings. We expect a significant increase in cell availability next year, but it will ramp up gradually throughout the year. Even without Tesla’s own cell production, our suppliers will be able to deliver twice as much output in 2022 as in 2021. Andrew, can you provide more information on this?
Andrew Baglino
Yes, given concerns about cell bottlenecking growth, our goal is to increase cell supply beyond the 50% year-on-year growth targets of the vehicle business and support increased energy storage deployments.
Elon Musk
Right.
Andrew Baglino
So our cell suppliers are on track to double their production in 2022.
Elon MuskYeah. It’s worth aiming, like if you have a target of a certain number, that doesn’t mean it happens like as sure as night follows day. It’s a target. So if there is some calamity in the world, that disrupts the supply chain, the number can be impacted. However, the contracts we have with cell suppliers involve a doubling of cell supply to Tesla in 2022. We need to manage these exponential graphs that overlap each other, and small variations in the timing can considerably affect the curve’s area.# So what we’re thinking of doing, depending on — is basically overshooting on cell supply for vehicles, and then as we have say excess cell supply in one month or another, then routing that so outputs to the Megapack and Powerwall.
Well, by the same token, if we’re prioritizing vehicle production, If there’s a shortage of cell upward from some reason then we will throttle down Megapack and Powerwall production. So that it could be something’s got to go, basically.
Andrew Baglino
What if there is a disruption in the vehicle production?
Elon Musk
Yes.
Andrew Baglino
And we have an outlet for cell.
Elon Musk
Yes, exactly. There is a tremendous amount of inertia in the supply chain. So if we said to the supplier, we want you to double cell output. Well, even doing that in a year, it’s very difficult. And then that system has a tremendous amount of momentum. It is like a plateau of supertankers. It’s insane.
Andrew BaglinoSpeaking of raw materials, we offer long-term contracts to secure our supply chain and enable [Indiscernible]. We look beyond just our suppliers and upstream from there.
Elon Musk
Yeah.
Andrew Baglino
Which offers more flexibility.
Elon Musk
As previously mentioned, our supply chain can only move as fast as its slowest part. This applies all the way back to our raw materials such as Lithium and Nickel. There is a misconception that Tesla heavily relies on Cobalt, but in reality, we do not. Apple, on the other hand, utilizes almost 100% Cobalt in their cellphone and laptop batteries.But Tesla uses no Cobalt in our [Indiscernible], and almost none in the nickel-based chemistries. On a weighted average basis, we might use 2% Cobalt compared to say Apple’s 100% Cobalt. Anyway, it’s really just not a pack that we expect to basically have 0 cobalt in the future. I do — bear with me — I think probably there is a long-term shift more in the direction of iron-based, lithium-ion cells, rather, over nickel.As the energy density of iron ores is opposed to that of iron phosphate, it might be better to support iron phosphates. They’re often taken for granted. However, there may be a shift towards using 2/3 iron and 1/3 nickel or something similar in iron-based cells, lithium-ion cells, and nickel-based lithium-ion cells. This is actually good news because there is plenty of iron in the world, whereas the amount of nickel is much less and there is way less cobalt. By moving towards using iron-based cells, there is potential to relieve long-term scaling issues.
In the long-term, it is possible that all stationary storage, including Powerwall and Megapack, might move towards utilizing iron. This is likely to be the case, as there is no need to transport it and the smaller volume would be less of a constraint for stationary storage. Nickel would then be reserved for long-range road transports, ships, aircraft, and similar applications.Martin Viecha
Thank you. Let’s move on to the second question from the retail sector. Elon mentioned that Tesla plans to open up its Supercharger network to other electric vehicles later this year. Can you give us more details about how this will work? Will it only be available for select brands? And how will this contribute to the network’s expansion?
Elon Musk
Yes. We’re currently planning to make it a simple process where you download the Tesla app, go to the Supercharger station, indicate which stall you’re using, and plug in your car – even if it’s not a Tesla. Then you use the app to activate the stall and choose the amount of electricity you need. This should work with almost any manufacturer’s cars, but there may be time limitations.If the charge rate is too slow, customers will be charged more due to the biggest constraint at the Supercharger being time and stall occupancy. In addition, we will be implementing smarter pricing strategies for Supercharger electricity, such as higher prices during rush hour when the Superchargers are busy and lower prices when they are empty. This time-based discrimination is a sensible approach.
Martin Viecha
Yes, we have already implemented this strategy and have received positive feedback. It also helps with better utilization of the Superchargers.
Elon Musk> Yeah, exactly. In Europe and China and most parts of the world, it’s the same connector for everyone, so this is a fairly easy thing to do. [Indiscernible] developed our own connector, which, in my opinion is actually the best connector, it’s small and light and looks good; up to our standard. So we developed our own connector, which, in my opinion, it’s actually the best connector. It’s small and light and looks good. So an adapter is needed to work for EVs in North America. But people could buy this adapter. And we anticipate having it available at the Superchargers as well if people don’t sort of steal them or something.
Andrew Baglino
We have a good solution to that.
Elon Musk
Yeah, exactly. It’s the same connector for everyone in Europe, China, and most parts of the world, making it an easy process. Tesla has developed their own connector, which, in my opinion, is the best – it’s small, light, and aesthetically pleasing. However, an adapter is required for North American EVs to work with this connector. Luckily, people can purchase this adapter, and it will also be available at Supercharger stations (as long as people don’t steal them).
Andrew Baglino
We have a good solution for that.
Elon Musk# Okay. So that’s constraint on long range thing. That’s basically a vestige of history. But I think we do want to emphasize that it is our goal, to support the advent of sustainable energy, it is not to create a wolf garden and use that to bludgeon our competitors, which is sometimes used by some companies.
Andrew Baglino
I think it’s also important to comment that increasing the utilization of the network actually reduces our costs, which allows us to lower charging prices for our customers and make the network more profitable, allows us to grow the network faster. That’s the good thing there. And then — and no matter what, we’re going to continue to aggressively expand the network capacity, increasing charging speeds, improving the trip planning tools to protect against site congestion using dynamic pricing, as Elon mentioned.
Elon Musk
Yeah.
Andrew Baglino
And just continuing to focus on minimum wait time for all customers.
Elon MuskYeah. Obviously, in order for the Supercharger to be useful to other car companies’ cars, we need to grow the network faster than we’re growing vehicle output, which is not easy. We’re growing vehicle output at a hell of a rate. So Superchargers need to grow faster than vehicle output. This is a lot of work for the Superchargers team, but it is only useful in the grand scheme of things. Just only useful to the public if we’re able to grow faster than Tesla vehicle output. That is our goal.
Martin Viecha
Thank you very much. And the third question is, Elon said 4680 cells aren’t reliable enough for vehicles. Is this referring to cycle life, degradation, or something else? Please update us on progress of 4680s and what is still needs to be done to make them reliable enough for vehicles.
Elon Musk“`
Really — this is not — we’ll definitely make the 4680 reliable enough for vehicles, and we, I think, are at the point where, in limited volume, it is reliable enough for vehicles.
Andrew Baglino
Yeah.
Elon Musk
Again, going back to limited production is easier, prototype production is easy but high-volume production is hard. There are a number of challenges in transitioning from a small scale production to a large volume production. And not to get too much into the reason of things, but right now, we have a challenge with basically what’s called calendaring, or basically squashing the cathode, with material to a particular height.
“`So it just goes through these rollers and gets squashed like pizza dough, basically. And — but very hard pizza dough. And the — it’s causing — it’s denting the calendar rolls. This is not something that happened when the calendar rolls were smaller, but it is happening when the calendar rolls are bigger. So it’s just like — we were like, okay, we weren’t expecting that.
Andrew Baglino
Yeah. It’s not like a science problem, it’s an engineering problem.
Elon Musk
Yeah.
Andrew Baglino
It’s not a question of if, it’s a question of when.
Elon Musk
Yeah.
Andrew Baglino
And the team is a 100% focused on resolving these limiting processes as quickly as possible.
Elon Musk
Exactly.
Andrew Baglino# On the reliability side, as Elon mentioned, we have successfully validated the performance and the lifetime durability of the 4680 cells produced in Kato, and we’re continuing ongoing verification of that reliability. We’re actually accruing over 1 million equivalent miles on our cells that we produce every month.
In our testing activities, the focus on that is very clear; we want high-quality cells for all of our customers. And yeah, we’re just focused on the unlucky limiting steps in the facility. And with the engineers focused on those few steps remaining, we’re going to break through as fast as possible.
Elon MuskMeantime, we have a massive amount of equipment on order and arriving, for the high-volume cell production in Austin and Berlin. But obviously, given what we’ve learned with the pilot plant, which is in Fremont. which is really quite a big plant by most standards. We will have to modify a bunch of that equipment, so it won’t be able to start immediately. But it seems like, correct me if I’m wrong, but we think, most likely, we will hit an annualized rate of a 100 GWh a year, sometime next year.
Andrew Baglino
We’ll have all the equipment installed to accomplish 100 gigawatt hours, and it’s possible that by the end of the year, we will be at an annualized rate of 100 gigawatt hours by the end of the year.
Elon Musk
My guess is more likely than not, above 50% of reaching 100 gigawatt hours a year by the end of next year on the annualized rate, something like that. It could shift by a little bit, but as Drew mentioned, nothing fundamental, just a lot of work.Andrew Baglino
Yeah, 怎么说呢，甚至对于大滚筒的问题，埃隆，也就是阴极侧面，大滚筒表现得很好，没有任何问题。我们在不断学习中。我们拥有像我们这样快速推进的工厂，而且就像我们在电池日提到的那样，真正降低了这里大型工厂的风险。没错，我们做了很多了解了很多。而且随着每一次更迭，我们的设备安装和推广会更快，更牢固。
Martin Viecha
好的，非常感谢。最后一个零售问题来自艾米特。埃隆可以在一年或两年内与我们的 YouTube 频道之一做一次采访吗？我会提名 David Lee on Investing 或 Rob Maurer 的 Tesla Daily 频道作为第一位可能的候选人。
Elon Musk
—Yeah, I guess I will be doing an interview, despite the lack of discernment. If I am doing interviews tonight, I can’t do any actual other work because there are only so many hours in a day. But yeah, I’ll do it once. I won’t do it annually, but I’ll do it once. I think this will also be the last time I’ll do earnings calls. From now on, I will no longer speak by default during earnings calls. Obviously, I will still have to attend the annual shareholder meetings, but going forward, I will most likely not be on earnings calls unless there’s something really important that I need to say.
Martin Viecha
Okay. Thank you. Let’s move on to the institutional questions. The first one is regarding the timelines for the startup production of Model Y in Berlin and Austin, Cybertruck, and Semi. Could you please provide an update? Do you expect the ramp-up of Cybertruck to be as difficult as it is a new process?
Elon MuskI think the ramp-up for the Cybertruck will be challenging due to its innovative architecture. However, it has the potential to be our best product to date, with many new and unique design concepts. The Cybertruck represents uncharted territory in terms of vehicle production, which may present some hurdles.
Martin Viecha
Thank you. Since we’ve already addressed questions 2 and 3, we can skip those. Let’s move on to question 4: How much faster and more efficient can your manufacturing capacity expand in the next 5 years, and what are the primary obstacles you need to overcome to achieve that level of growth?
Elon Musk# Well, as I said, I believe we may be the fastest-growing Company in history for any launched manufactured item.
Those who have not been involved in the manufacturing ramp-up process have no idea how difficult and painful it is. It’s like having to eat a lot of glass.
And for our manufacturing ramp, it’s hard.
Lars Moravy
Yeah, I mean, I think if you look at the expansion we’ve done in Shanghai, that factory was built in less than a year and ramped up in 5 to 6 months to full volume.
Elon Musk
[Indiscernible] of that. Took longer than that. It was about a year.
Lars Moravy# And when you consider cut-and-paste, we’ve repeated that in Fremont and whatever. But now with Berlin and Austin, we have new factories and new designs? And there’s always challenges as you said, Elon, with new designs and ramping that. But I think having teams in 3 locations or 3 continents, will definitely expand our ability and our capacity to grow more lines, rather than just having the one factory in Fremont that we had a year and a half ago.
Elon MuskYeah, I mean, for Shanghai, it’s an incredible team built the factory in 9 months but it took longer than — longer than building the factory. It took longer than that to actually reach volume production — a high volume production. It took about a year. And when you put a factory in a new geography, in order for that factory to be efficient, you have to localize the supply chain. So there’s no such thing as cut and paste. It does not exist. And it would obviously be insane to do vehicle production in Europe and send vast numbers of parts from North America.That would make production in Europe, for example, just crazy. You have to optimize the supply chains for efficiency, and move only as fast as your least efficient supplier. Yes. These supply chains can go 3 or 4 layers deep. Frankly, at times it feels like we are inheriting all of the Earth’s force majeure events. So if anything goes wrong anywhere on Earth, it can mess up the supply chain.
Andrew Baglino
I think having factories in Berlin, Shanghai, Fremont, and here contributes a lot to human capital growth, and hopefully helps maintain our exponential growth.
Elon MuskYeah. It’s also — it takes a while to hire old people and train them to operate a factory. A factory is like a giant cybernetic collective. And you can’t just hire 10,000 people and have them work instantly. It’s not possible. I really encourage more people to get involved in manufacturing. I think, especially in the U.S., this has just not been an area where all that many smart people have gone into. I think the U.S. has an over-allocation of talent in finance and law. It’s both a criticism and a compliment. I’m not saying we shouldn’t have people in finance and law, I’m just saying that maybe we have too many smart people in those arenas. Me. So —
Andrew Baglino
Manufacturing is fun.
Elon Musk
Yeah, manufacturing is great. It’s very [Indiscernible], and obviously, you can’t have stock unless someone makes it. That’s how you get stock. Yeah.
Martin ViechaOkay. Thank you very much. And let’s go to the last investor question. Does Tesla plan to offer more services beyond FSD or high-speed connectivity as part of its subscription bundle going forward? What areas in particular present an opportunity?
Elon Musk
Yeah, we don’t have a lot of ideas on this to be frank. Really, Full Self-Driving is the main thing. Things are obviously headed towards fully autonomous electric vehicle in the future. And I think tells us Tesla is well-positioned and in fact is the leader objectively, in this — in both of those arenas, electrification and autonomy. It’s always
Martin Viecha
Thank you very much. And now let’s go back to Analyst Q&A, please.## Question-and-Answer Session
Operator
[Operator instructions] In the interest of time, we ask that you please limit yourself to one question and one follow-up. Our first question comes from Colin Rusch with Oppenheimer. Your line is open.
Colin Rusch
Thanks so much, guys. Can you speak to the attached rates for FSD so far and where you’re targeting in terms of the subscription levels?
Elon Musk
Yeah, it’s not worth commenting on right now; it’s not meaningful. We really need Full Self-Driving, at least the Beta, to be widely available so anyone who wants it can get it. Otherwise, it’ll be pointless to read anything into where things are right now.
Colin Rusch
And then just the follow-up there is about the kin to the regulatory environment, keeping up with the technology. Are you seeing meaningful evolution in terms of the regulators really understanding the technology and beginning to set some standards here sometime in the near-term?
Elon Musk## At least in the U.S. we don’t see regulation as the fundamental limiter.
We’ve obviously got to make it work and then demonstrate that the reliability is significantly in excess of the average human driver for it to be allowed — use it without paying attention to the road.
But I think we have a massive fleet. It will be, I think, straightforward to make the arguments on statistical grounds, just based on the number of interventions, especially in events that would result in a crash.
At scale, it will have billions of miles of travel to be able to show that it is the safety of the car with Autopilot on is a 100% or 200% or more safer than the average human driver.At this point, I think it would be unconscionable not to allow autopilot, as the car would become significantly less safe. It’s similar to the analogy of shaking an elevator. In the past, elevator operators would manually operate the elevator and move it between floors. But they would sometimes become tired, distracted, or even drunk, resulting in accidents where individuals were trapped between floors.
Today, we have elevator automation where we simply press a button to indicate which floor we want to go to, and the elevator takes us there safely. Autonomy in cars will become so safe that manually operating a car will actually become relatively more unsafe. In fact, it would be alarming to have cars operated by a person with a giant switch. That’s how it will be with cars.
Martin Viecha
Thank you. Let’s move on to the next question, please.
Operator# Next question comes from Rod Lache with Wolfe Research. Your line is open.
Rod Lache
Hi everybody. Your cost of goods sold per vehicle’s already down to the mid $37,000 range in the quarter, it’s down $5,000 year-over-year, despite some of the inefficiencies that you talked about. And I know that a lot is going to change from here just given how mix is going to evolve. But if you’re successful on the structural pack and front and rear castings in the launch of the 4680 cell, can you just maybe give us a sense of what a successful outcome would look like maybe a year from now. Obviously a lot has to go right. But just any kind of broad framework for us to think about.
Elon MuskYes, really making specific predictions is a very difficult task. I believe we can confidently expect at least a few percent growth year-over-year next year, and maybe even as much as 100%. However, it is impossible to know for sure without a lot of crystal balls. As for the status of advancements in battery manufacturing, such as dry cathode mixing that we discussed on Battery Day, could you please clarify the timeline and how these advancements are evolving?We discussed this today in the Kato facility. Over 90% of the processes have demonstrated success, but we are limited by a few that have not. This is what we are working on. Elon mentioned one of them, which is the full-scale [Indiscernible] calendar. We are making improvements to the equipment and raw materials to remove limitations.
This is an engineering problem, not a question of if, but a question of when. We have not faced any specific challenges on the mixing side. We are satisfied with the dry process direction in terms of factory footprint, complexity, utility, consumption, space, and overall implications.
Elon Musk
Yes.
Andrew Baglino
And the cost associated with that.
Elon MuskYeah. 我们将会有干式阴极这些节目，我的意思是，我不知道，也许是设备成本的10%或15%？我不知道，也许是20%吧？
Andrew Baglino
是的，是10%。
Elon Musk
因此，就像人们不认为这就像弥赛亚一样，湿式与干式的区别降低了成本。干式比湿式成本低约10%。所以这不是10%的缓慢，不是什么值得注意的事情，尤其是如果你每年要生产数百GWh。但基本上，这不是救世主。
Andrew Baglino
是的。
Martin Viecha
非常感谢。我们接下来的问题，请。
操作员
下一个问题来自New Street Research的Pierre Ferragu。请发言。
Pierre Ferragu感谢您回答我的问题。实际上，我有另一个关于电池的问题，但是从略微不同的角度来看。我想知道您如何考虑采购 4680 电池的策略。您已经谈到了所有自主生产的工作，但是有没有考虑向其他电池制造商询问采用其自己的技术生产 4680 电池？也许比您们内部正在筹备的创新要少，我想知道我们看到的第一个 4680 电池是否肯定来自特斯拉自己的生产线，还是它可能真的来自外部供应商。然后我还有一个追问。
Elon MuskYeah. We are in fact working with our existing suppliers to produce 4680 format cells. And this is just a guess right now. But I see us consolidating around a 4680 nickel-based structural pack and — for long-range vehicles, and then not necessarily a 4680 format, but some other format for iron-based cells. So right now, we kind of have the Baskin Robbins of batteries situation, where there’s so many formats and so many chemistries, that it’s like we’ve got like 36 flavors of battery at this point.
This is just — this results in an engineering drag coefficient where each variants of cell chemistry and format requires as to an amount of engineering to maintain it and troubleshoot and this inhibits our forward progress. So it is going to be important to consolidate to maybe — ideally 2, 4 factors, maybe 3, but ideally 2. And then just 1 nickel chemistry and 1 iron chemistry and — so we don’t have to troubleshoot so many different variants.
Andrew Baglino# Yeah, and there is an end where we are engaging with the suppliers that we’ve had good partnerships with on 4680 designs to enable that duplication; so far so good. They are working on — they’re bringing their core competencies to bear on that. We’re not mandating like what’s going on inside, but it’s been a good collaboration.
Elon Musk
Yeah. We do expect to see significant increases in supply from our existing suppliers in addition to the cells that Tesla’s making. So it’s both. Sometimes I get questions from our cell suppliers with like, are we going to make all the cells ourselves? We’re like, no, please make as many as you possibly can and supply them to us. We have a significant unmet demand in stationery storage. Megapack is basically sold out through the end of next year, I believe.
Andrew Baglino
Yes.
Elon MuskWe have a huge backlog of Powerwall demand, and the ratio of demand to production is extremely imbalanced. The issue is partially caused by the shortage of semiconductors. Since we use a lot of the same chips in the Powerwall as in cars, it’s difficult to decide which product to prioritize. However, we need to prioritize car production, so this has resulted in a decrease in Powerwall production.
Once the semiconductor shortage is resolved, we can significantly increase Powerwall production. I believe we have the potential to achieve an annual rate of one million Powerwall units next year, which is equivalent to producing approximately 20,000 units per week. However, this is dependent on the supply of cells and semiconductors. In terms of demand, we estimate the demand for Powerwalls to exceed one million units per year, as well as significant demand for Megapacks for utilities in transitioning to sustainable energy production.# Solar and Wind Power Need Battery Packs for Steady Flow of Electricity
Solar and wind power sources are intermittent and require battery packs for providing a continuous flow of electricity. Considering the global utility industry, a vast amount of batteries is needed to make this possible. That’s why it is imperative for Tesla and its suppliers to aim for producing at least 1,000 GWh-2,000 GWh of batteries annually in the long-term.
-Pierre Ferragu-Okay. Great. Thank you. And I have a quick question. I know, Elon, you don’t think it’s meaningful today, but I’d be curious to know if you have any thoughts about when you announced the new pricing on the FSD ring from 10,000 and thrown to 199 without looking. I’d be curious to understand how it’s affected behavior in issues, so like a massive effect effect, affecting the service. And I’m not thinking about people looking at it as a message, but more to try the most advanced version of autopilots, and to try it. In the first days, even on the pricing, have you seen a very significant spike in the tech rate? And can you give us a sense of how big it was?
Elon Musk
Okay. Are you asking if the FSD subscription was motivated by the tech rate being too expensive? Or did you mean something else?No, my question is regarding the increase in take rate after announcing the $199 FSD subscription. How many people opted for the subscription instead of paying the upfront cost of $10,000 for the new car?
Zachary Kirkhorn
Yeah. This is Zach here. We are still in the early stages of understanding the impact of FSD subscription. However, we have looked at our backlog of customers who have ordered FSD to see if they cancelled and switched to subscription after taking delivery. We did not see significant cannibalization at this point, but it is possible that this may change. This was also part of our pricing strategy at $99 and $199.
Elon Musk
Yeah, I mean, we —
Zachary Kirkhorn
Also, the pricing strategy of $99 and $199 was a factor.Yeah. 我的意思是，任何一个给定的价格都会是错误的，所以我们会随着时间的推移对其进行调整，看看价值主张是否对人们有意义。所以实际上，我现在并没有思考这个问题。我们需要使全自动驾驶工作起来，才能使它成为一个令人信服的价值主张。否则，人们就是在赌未来。
就像现在，有人进行 FSD 订阅是否合理？我认为这是可以争议的。但是一旦我们广泛部署全自动驾驶，那么它的价值主张就会变得清晰。到那时，我认为基本上每个人都会使用它，或者只有极少数人不使用。
Martin Viecha
好的。非常感谢你的帮助。我想今天我们的时间就到这里了。感谢大家的提问，我们将在三个月后再次与您交谈。祝大家有美好的一天。
Elon Musk
好的，谢谢。
运营商This concludes today’s conference call. Thank you for participating. You may now disconnect.
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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.