Earnings Call: Q2 2018

Aug 1, 2018

Good day, ladies and gentlemen, and welcome to the Tesla Q2 2018 Financial Results and Q and A Webcast Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Mr. Martin Viecha, Senior Director of Investor Relations. Mr. Viecha, you may begin. Thank you very much, Sherry, and good afternoon, everyone. Welcome to Tesla's Q2 2018 Q and A webcast. I'm joined today by Elon Musk, JB Straubel Deepak Ahuja Robin Wren, our Head of Sales Jerome Guillen, our VP of Trucks and we also have our Autopilot team with us here Andre Karpathy, Director of AI Stuart Bowers, our VP of Engineering and Pete Bannon, our Director of Silicon Engineering. Our Q2 results were announced at about 1 p. M. Pacific Time in the update letter 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. Before we jump into Q and A, Elon has some opening remarks. Elon? Hi. Thank you for joining. First of all, I'd like to say we're incredibly proud of the Tesla team for producing 7,000 Model 3, Model S and Model X vehicles in last week of June. It was an amazing effort. It's an honor to work with such a great team to produce that incredible result. It's like mind blowing. We continue to achieve 5,000 mile 3s per week, 7,000 combined SX and 3 multiple weeks in July, showing that we're able to do this on a sustained basis. We expect to in the absence of a force majeure or some very, very unexpected events, be able to achieve an average of 5,000 Model 3s or above for Q3 and 2,000 Model 3 Model Sxs or above per week for Q3 as well. So essentially 7,000 cars a week plus for on average for Q3. That's an amazing jump from only a year ago, we were producing 2,000 vehicles a week. It's really kind of a mind blowing leap forward for a manufacturing company. So yes, it's incredible work by the team to do that. Many, many late nights, weekends, extreme amounts of effort and lots of smart ideas, it's amazing. One of the results you're seeing is that Model 3 market share has surpassed all competitive premium midsized sedan buying. So Model 3 market share is now a majority or July was a majority of all preincidents. That trend is, we think, likely to continue. So it's not and we do not think that we'll stop there. I have Ron Moren here, who is our worldwide Head of Sales to talk about some of the interesting elements that we're seeing in terms of cars that people are trading in, the sales and demand trends. It's looking really positive. We're also getting great feedback on Model 3 from our customers, and we're now delivering the performance dual motor and all wheel drive versions. And the Model 3 reviews are outstanding. Really couldn't ask for better reviews from some of the toughest critics in the world. And it's yes, and it's just the thing that we really find is that the more Model 3s we deliver to the field, it's actually causing viral growth of our sales. So we deliver a Model 3 to somebody. They love it. They tell all their friends. They're actually really odd customers or our primary sales force. They love their car and take their friends for a drive, and that's the thing that fundamentally drives our sales. But not everyone has a friend who has a mom and 3, obviously. So we need to get the cars out there for test drives. As is right now, not even both stores in North America have Model 3 for test drives. Prioritize getting costs to customers, but we're soon going to have Model 3s available for test drives in all stores. And both the performance version and the rear wheel drive version. So because a lot of people, they will not buy a car until they test drive it, which is not unreasonable. Although on Sunday, when I delivered it, it, testing out like direct delivery, which I think is definitely future, direct delivery from factory gate to customers' home or work or wherever they are. The guy who bought it had never actually even sat in a Model 3. I was like, wow, okay. I said, well, how do you fill up the car now? You have it and you're driving it. It's like, I love it. It's amazing. So yes, it seems to be really well received. Yes. So at approximate of 7,000 cars a week, we believe we can be sustainably profitable from Q3 onwards. We're going to try to raise that rate of Model 3 production steadily in the coming quarters and try to get to the 10,000 cars a week numbers as soon as we can. What we found as we've spent a lot of time debugging wide range of manufacturing issues that the potential for our existing lines to be able to produce far more cars is much greater than expected. That by simplifying production lines, by speeding them up, by in some cases, having been done manual instead of automatic and in other cases, having been done automatic instead of manual, we've been able to achieve dramatic improvements to the output of existing lines, which means that our CapEx going from 5,000 cars a week to 10,000 cars a week is a tiny fraction, but CapEx going from 5,000 to 10,000 is a tiny fraction of the CapEx needed to go from 0 to 5000 Model 3s. This is, I think, very good news for capital efficiency of the company. And we're going to transform out that it's going to inform future mass market vehicles that we produce. So and from an operating standpoint, from Q3 onwards, we really would emphasize, our goal is to be profitable and cash flow positive for every quarter going forward. Now obviously, there's a big recession or there's a severe force majeure event that interests our supply chain, that's not always possible. But we're confident that in provided the economy is roughly where it is today, reasonably good and there's not a big portion of your event that we I feel comfortable achieving a GAAP income positive and cash flow positive quarter every quarter from here on out. I should say, there may be occasional quarters where we pay back a big loan or something where there may be just because you paid back a big loan. But absent that, there would be cash. So once again, I thank the Tesla team for the incredible work and our customers for their support. Without the great people we have at Tesla and the customers who put their faith in us by buying our product, we would not be here today. And, yeah, I've really never been more excited about the future of Tesla. We've got a super exciting set of products to bring out in the future. And yes, I mean, I'm sorry to end it. Sorry, I sound a little tired. I've been working like crazy in the buddy shop lately, but it's really going great. I'm super excited. Some good people. And a number of the executive team here, in particular, asked the 3 key leaders of the Tesla water power team to be here. So maybe I can go from here to see if the autopilot leaders of Tesla could introduce themselves and say a bit about what you're working on, what you're excited about in the future. Sorry to put you guys on the spot. I think we're making pretty radical advances in the core software technology and the vision of neural net. And then very importantly, the Tesla self driving technology that we've been working on for 3 years is finally coming to fruition. Pete Bennett is going to talk a lot about that, but it's a plug in replacement for the existing computer and enables an order of magnitude improvement in operations per second or frames per second is the way to think about it. And we think this is really the key to Tesla full vehicle autonomy. And like I said, we're trying to be really easy to replace. I'll let Pete talk about that. So if I start with Stuart, Andre, NLP. Okay. Hi, I'm Stuart. You're ready to talk loud, by the way. Yes, you'll talk extra loud. So I'm Stuart. Yes, joined the team relatively recently, incredibly excited to kind of see the foundation the team has built up until this point. I'm going to be building on top of that right now. So right now a lot of the focus is on Autopilot V9, which is our sort of on ramp to off ramp solution that's going to automatically attempt to change lanes, understand what lane the car is in, understand the route the user wants to travel and take that route for the user and ultimately hand back control to that user, which is kind of safe and control. Integrated navigation. So you like to navigate for one place, you say like, oh, you just by the way, a little tip for if you're driving 1 SRS or 3 is if you just tap the Navigate button and just drag down, it will automatically navigate you to a home or work depending upon where you are. That's pretty cool feature. Sure. Yes. So we have a lot of focus right now. We're also kind of digging in on some new safety features. I think probably the thing that's just most exciting for me coming into the team is just seeing the foundation that's been built out over the last 2 years. I think Andrey will talk a lot about some of the perception vision work we've done there, including data engine. That has sort of allowed us to build on top of that very, very quickly. And I think we're all starting to see a new set of safety features that really only makes sense in this world. We have extremely high understanding of what's happening around the vehicle. So I think when I sort of think about what gets me excited when I come into work, it's like 1, starting to introduce real aspects of kind of not just making the commute kind of reducing the drudgery or kind of the risk of commuting, but also really making it a little bit fun. And the second is like dramatically improving safety in a way that you really can only do once you have this very nuanced understanding of the world around you, the perception. Hello, everyone. My name is Andre Kapathy, and I'm the Director of AI here at Tesla. In particular, I lead the Vision team, which is responsible for turning the video stream that we receive from all the cameras in a vehicle into an understanding of what is around us and around the vehicle. I worked with Neural Networks for about 10 years, mostly as a PhD student at Stanford and as a research scientist at OpenAI. And what I'm really excited about is really building out this infrastructure for computer vision that underlies all the neural network training, trying to get those networks to work extremely well and make that a really good foundation on top of which we build out all the features of the autopilot like the features associated with the V9 release that's going to come up and that Stuart has mentioned. Hi, this is Pete Bannon. My team is leading currently the hardware 3 development. The chips are up and working, and we have drop in replacements for S, X and 3, all have been driven in the field. They support the current networks running today in the car at full frame rates with a lot of idle cycles to spare. So I think we're all really excited about what Andre and his team will be able to do with this hardware in the future. I think like one little anecdotal story was I gave a talk to his team on Hardware 3 last month, explaining how it worked and what it was capable of. And then afterwards, one of the researchers came up to me and he was really excited and he said, this is so exciting. So as a hardware designer, having excited software developers is the best. And it's a really fun place to work because I do get to work with my 2 primary customers, Stuart and Andre, and making them happy is pretty fun. Actually, Pete, maybe just sorry, we'll know about your background, but not everyone does. So if you can just like, Pete's a super humble guy, but it would be great just to yes, talk about the stuff you've done before. Let's see. I started working designing computers at Digital Equipment Corporation in 1984, back when they were refrigerator sized, and have been working on smaller and smaller designs ever since. I was an Intel fellow working on Itanium for a little while. Then I was VP of Architecture and Verification at PA Semi, which was acquired at Apple. I led the design of the first ARM 32 bit processor that went into the iPhone 5. I built the team that designed the first ARM 64 bit processor in the world, which went into the iPhone 5s. And then I worked on performance modeling and performance improvements at Apple for 8 years. And then 2 years ago, I came to Tesla and designed the Neural Network Accelerator that's part of Hardware 3 and helped architect the rest of the Hardware 3 solution that will be on the car next year. Yes. Maybe we're articulating some of the details, both design principles that explain why the Tesla AI chip or AI computer essentially for the car is able to achieve an order of magnitude better processing than anything else that exists. Sure. So like 2 years ago, when I joined Tesla, we did a survey of all of the solutions that were out there for running neural networks, including GPUs. We went and talked to other people like at ARM that were building embedded solutions for running neural networks. Pretty much everywhere we looked, if somebody had a hammer, whether it was a CPU or a GPU or whatever, they were adding something to accelerate neural networks, but nobody was doing a bottoms up design from scratch, which is what we elected to do. We have the benefit of having the insight into seeing what Tesla's neural networks looked like back then and having projections of what they would look like into the future and we were able to leverage all of that knowledge and our willingness to totally commit to that style of computing to produce a design that's dramatically more efficient and has dramatically more performance than what you can buy today. Cool, thanks. Yes, I mean, essentially, the key is to be able to run the neural net at a fundamental at a bare metal level so that you actually in the circuits, it's especially doing calculations in the circuits itself and not in some sort of emulation mode, which is how GPU or CPU would operate. So you want to do basically a massive amount of localized matrix multiplication with the memory right there. So it's a huge number of very simple complications with the memory needed to store those complications right next to the circuits that are doing the matrix calculations. And the net effect is an order of magnitude improvement in the frames per second. Our current hardware, which I'm a big fan of NVIDIA, they do great stuff, but using a GPU, fundamentally, it's in emulation mode. So and then you also get choked on the bus. So the transfer between the GPU and CPU ends up being one of the constraints in the system. So the net effect is we're able to put with the Tesla computer, and we've been like been like steady stealth mode basically for the last 2 to 3 years on this, but I think it's probably time to let the cat out of the bag because that cats kind of come out of the bag anyway. So it's an incredible job by Pete and his team to create this world's most advanced inference computer for designed specifically for autonomous operation. And there's a rough sort of figure of matter, whereas the current NVIDIA based hardware can do 200 frames a second, this is able to do over 2,000 frames a second, and with full redundancy and failover. So it's an amazing design, and we're looking to increase size of our Chip team and our investment in that as quickly as possible. I think we're at some of the best days in the world, but I think we want to build on that even more. And it's it costs the same as our current hardware, and we anticipate that this they would actually be this replacement, which is why it made it easy to switch out the computer. And that's all that needs to be done. If we take out one computer and plug in the next, that's it. All the connectors are compatible. You get an order of magnitude, more processing. And you run all the cameras at full at primary, full resolution with a complex neural net. So it's super kick ass. Thank you for doing that. You're welcome. Thanks for making the nets and thanks for making the software. Anyway, like basically, I wanted to introduce 3 of the key people at Tesla that are doing this, of huge respect, admiration for you guys. And it's because of what you and your team is doing that will be successful in Sarena. Thank you. Thank you, Elon. Sherry, let's go to the first question. Thank you. Our first question comes from Toni Sacconaghi with Bernstein. Yes, thank you. I have one question gross margins were up maybe 500 basis points sequentially. And I'm wondering maybe you can articulate what drove that. And then more importantly, it looks like you're calling for Model 3 gross margins to go from about maybe 3% this quarter to 15 percent next quarter. That's about a $6,000 cost out per car. And I'm wondering if you can maybe help us understand what sort of the forces that drive that kind of improvement in a relatively short timeframe? Yes, absolutely. First of all, I'd like to apologize for being implied on the prior call. Honestly, I think there's really no excuse for bad manners. I was kind of violating my own role in that regard. So we have some excuse at the reasons for it and that I've gotten no sleep and working sort of 10 hour or 20 hour weeks, but nonetheless, there's still no excuse. My apologies for not being flat on the prior call. I appreciate that. Thank you. And let's see, with respect to gross margin, I'll touch on that and then hand the rest to Deepak. But certainly, when it's pulling up to the production line, there are tremendous amount of inefficiencies. There's a lot of hurry up and wait where some parts of the production line move well then one part doesn't And you have associates waiting around with night to do. There are parts that we thought were right, but then it turns out we've got to they weren't right, we're going to send them back to Spire. It's just like the whole sort of giant machine kind of needs to kind of lurch into a high pace, and there's a lot of lurching, which is very inefficient. So end up having super high labor cost per car and it just needs to take time to sort of pull up this giant machine. It's like basically a production system is like a giant cybernetic collector. And it's and then it moves as fast as the slowest part. So as we address the slow parts and as we improve efficiency, then GAAP gross margin and sort of profitability per car just improved dramatically. That's sort of at a high level. Do you want to add to that? Elon, you described it extremely well. So just to sort of summarize, this was a major milestone for us in Q2 that the gross margin in Model 3 turned slightly positive. And we feel really good about the path ahead. And as Elon said, it's driven predominantly by manufacturing cost efficiencies. It's the labor hours that we use to produce each car becomes less, the initial ramp up costs that we have that are one time, those inefficiencies disappear, our fixed costs that are there, that gets leveraged to a higher volume, all of that. Actually, I think that can also happen is that if it turns out that, say, a production part was either designed wrong or both wrong or there's something wrong with it, then it can run emergency basis, we have to go with low volume tooling, which can be produced quickly, but a part producer for low volume tooling can easily be 10 times more than a part produced production tooling And so just one you can have sometimes it's what even it's really not if you've got a machine something out of a block and as either that will make a car, then the cost of using low volume to be really nutty. Yes. And that journey just continues. As we stabilize and grow production from these levels, we achieve even more efficiencies. And Q3 also benefits with somewhat improved mix as we're going to sell more all wheel drive and performance cars. And in the long run, as we continue to achieve those efficiencies and costs, our gross margins will continue to increase. Yeah, I mean, I don't know if this trend will continue. We're trying to give you essentially all the information that at least we know of, but we're seeing roughly half of all customers choose the dual motor or all wheel drive option, which is actually quite a good positive surprise. Yes. It's been heartening to see the in terms of what customers want. Robin can probably add more to that. Yes. So starting from end of June, when we opened the configurator and invited existing reservation holders, We saw tremendous excitement and response from our customers. As Deepak just mentioned, we actually see more orders for the all wheel drive dual motor car and performance cars combined than the rear wheel drive cars. Yes. We don't want to say this should be assumed to be a continued thing. It's just the thing we are seeing now. Correct. And another thing I want to point out is that we are actually since we opened the configurator to the general public in early July, we are seeing an increased demand coming from people who do not currently hold a reservation. I think that's something that we found super exciting because these are the people who actually had no idea about Model 3 and they heard about Model 3 as available to order. Many of them requested test drives. And since early July, we have over 60,000 test drive request in the U. S. Alone. And these people come into our stores, do the test drive and they become super excited and they decide to order the car. So we believe that the strong demand coming from especially the non reservation holders is going to dramatically increase as we increase our test drive population. To give you an example, 3 weeks ago, we had only 8 stores having test drive cars to Eeyore's point earlier. Now we have over 90 stores having test drive cars. Okay. It's worth mentioning just some interesting little bits of information that Robin was telling me. I'd rather just like to also commend Robin and doing a great job running worldwide sales. They take you on the show. And there was some work done in China with really some next level stuff. Ron was born and raised in Shanghai, and it's been along with Tom and Grace and other than it was a tiny team in China, has been sort of instrumental in establishing the Tesla China factory and making sure that gets done right and have a great relationship with the government. And so it's nice work in that regard. But it's really, I think, one of the things we're expecting, like what are the top 5 trade in cars for Model 3? Yes, this is very interesting. So we looked at what people who are buying Model 3 cars in the United States, what cars they are trading in. What we found is through this year from January to July, the top 5 non Tesla cars people are trading in to get into a Model 3. They are Toyota Prius, BMW 3 Series, Honda Accord, Honda Civic and Nissan Leaf. They're really surprising. Yes. They are surprising because they are not the traditional premium sedans. They are absolutely many of them are the mainstream mid sized sedans. Right. And we're obviously at this point not yet selling a $35,000 car. So this is promising for the future. All right, cool. Next question? Thank you. Our next question comes from Joseph Spak with RBC Capital Markets. Hi, good afternoon. Thanks. Maybe we could tackle some of the commentary about the Gigafactory coming in China. When you first announced the Gigafactory 1, I think you said that was going to be about a $5,000,000,000 investment. And you mentioned some volume numbers associated with what you think given China, so we do some extrapolation. It looks like maybe 15 gigawatts of gigawatt hours of initial capacity. I'm wondering if you could also do a linear extrapolation on the cost you think you need for that factory? Sure. And I would always like to apologize for being a client on the last call with you. That was not right. I hope you accept my apologies. Thanks. So with respect to Gigafactory CapEx, I think we've won a tremendous amount with Gigafactory 1 and we're confident that we can do the Gigafactory in China for a lot less. I think it's probably closer to this is just a guess, but probably closer to 2,000,000,000 dollars and this will be at a higher and that would be sort of at the 250,000 vehicle per year rate. And so I think we can be a lot more efficient with CapEx and that would include at least battery module and pack production. Body shop, paint shop and general assembly. It might even be less than that, but that's about the right number for that. And then cell production is something we need to still figure out with respect to the Shanghai pack rate. JV, would you like to add to that? Yes, I'd agree with all that. We found surprising number of ways to improve efficiency and speed and density as well at Gigafactory 1 and all those lessons will absolutely be shared with Gigafactory 3. The teams are already, of course, beginning to collaborate and start to figure out ways to do this more efficiently and with less CapEx than last time. Yes. Yes. I think we could like less than half is like a good estimate and maybe a lot less than half, but not more than half would be a fair estimate for CapEx to get to that 250 ks level. So it's just, there's a tremendous amount about manufacturing. It's like it's definitely burned out a lot of neurons. Middle scar tissue, it's like next level. But plus that we really know a lot about line manufacturing at this point. I mean, there are so many specific examples, but even in just recent weeks months, we've found some certain areas of production that have been very capital intensive that we've been able to speed up with almost no additional CapEx by maybe 20%, even 25% or 30%. Yes, very crazy. Just by Including on the cell production. Yes, just by challenging some of the initial assumptions, the specifications, tweaking the controls and software. Yes, look what really matters, what actually doesn't matter. Things you think matter and and so it actually ends up nothing, not matter at all. And that's with basically 0 CapEx. So as you start to add very tactical strategic CapEx to the existing lines, that's how we can get to something close to double or beyond with a really, really small increment. Yes. Obviously, one of the key to success on the Model 3 production was the GA4 thing, which is led by Jerome. Jerome also was key and in the sort of zone 12 SNE order lines, which were critical because we had just fundamental failure and especially in zone 1, zone 2 of battery module production. That was it turns out 2.5 points, I'm pretty incredible right out of the half, that was amazing. Thank you. And I feel like about 10 foot by the way, our 10 foot is amazing. And this is not like, people like to say tent feels like it's like some sort of, it's like something you buy REI or something like that, they go camping. This is a tent that is actually commonly used as a permanent structure. That is a giant thing that is very commonly used as a permanent structure. And we just had to come up with a creative solution because GA3 was not going to be able to make the rate. And so we had to come up with some ideas and perhaps you could provide me to help you how that all transpired. It's interesting to learn. Yes, we thank you. It was a fun project actually. Not only it was it's producing good results, but it was a lot of people contributed from different engineering groups and had a lot of fun in the process. We set out I think that some people are the ultimate important ones. It's like it really there's actually sort of something like this really satisfying about Boeing. We just wanted to create an assembly line that would be very easy and very straightforward. So it's a straight line, very simple car enters at one point and it's finished at the other end. Very simple access on all sides, very simple tooling that we reused for most of actually, nearly all of it is systems and tools that we discarded from previous SNX or for Model 3. Especially Model 3. I want to like the price we've got 2 weeks to solve this problem, which is like quite the impossible. So we actually didn't have time to order new equipment because it would have taken too long to arrive. So we took the conveyors that we discarded from the GA3 line, which didn't work, or it was way too complex to actually do our parts. We'll rectify and repurpose them, make them sturdy for what was needed and Well, I think the really cool idea was the we're putting them on the 1% grade. So it's like technically the conveyors for parts delivery to GA3 were not rated to be able to move something as heavy as a car. So we've made it downhill and on a 1% downward grade with the current at the top. So then if you can actually overcome the transfer Gravity helps. Yes, gravity. So basically, if you're on your side, you can accomplish a lot. Yes, just pushing the car. Exactly. No. And something that I'm particularly happy about is that we installed the quality team at the end of the line, and we wanted to have at least as high standards on this new line as than the other one. And because it is so simple and straightforward, they can run very quickly to any point in the line if there is any potential concern and address very quickly. There is no maze to move around or identify where something happened. And the quality of the cars that come out of this structure is at least as good as in the and we make all the performance cars on this particular line and they seem to be doing quite well. So this is a very pleasant surprise and the associate seems to be very happy and engaged in that particular area. So this may be a model of how we may want to start general assembly for future vehicles, at least start. And we can always add further automation and complexity. And something that's like somewhat counterintuitive is that this actually has a fully considered fewer labor hours per car than the GA3 system. And just to elaborate on what Dror was saying, when we have parts delivery to GA4, the truck literally just backs up to the side of the line with this like a door in the and then that is used to unload parts from suppliers directly to where they are needed on the line. So there is no intermediate system, whereas for GA3, they're unloaded, they put in a warehouse, then they're repackaged from the warehouse into these totes, which, so we actually have met 2 20 people, something like that across all shifts. The only job it was, was to repackage parts from the boxes of carrying suppliers to the boxes that to these totes that go into the lifters that go up into GA3. That's what we all do is move things from one box to another box, and we don't need that at all on GA4. All gone. All gone, yes. And there's a tremendous amount of 20 fourseven robotics technicians that are constantly trying to make the machines have uptime, that's very expensive. And so we think about like not having to maintain all these robotic systems, that's a big cost savings as well. And now we're going to gradually adding simple automation into GA4 to make it easier to build a car and better sort of labor saving devices. But it's just fundamental. It's already at an efficiency level greater than GA3, which is pretty impressive. Joe, do you have a follow-up question? Our next question comes from James Alberty with Consumer Edge. Good afternoon and thank you for taking my question. And appreciate all the color you've been providing. Wanted to dig a little bit deeper though in terms of capital spending plans. Considering the growth you've identified in China with the Model Y, we believe also in the EU, it's been discussed about a factory there. How do you plan to fund all of this growth without going back to the capital markets to raise funds? And can you verify for us whether or not there is a notice from a regulator that would prevent you from raising outside capital? Thanks. We do not we will not be raising any equity at any point, at least that's I have no expectation of doing so, we're not planning to do so. For China, I think our default plan will be to use essentially a loan from the local banks in China and fund the Gigafactory in Shanghai with local debt essentially. And we certainly could raise money, but I think we do not need to. And yes, I think it's better to it is better to spend not to. Yes, we're executing on an operating plan that keeps us sufficiently self funded despite our CapEx needs and our debt that's maturing and still keep a very healthy balance on our balance sheet? Yes. Our default plan is we pay we start paying off our debts. I don't mean refiing them, I mean paying them more. For example, there's a convert that's coming due soon, a couple of 100,000,000, but now it's $900,000,000 when in February or something like that. We expect to pay that off with internally generated cash flow. And still be still have a healthy cash balance. Yes. And to answer the other question, there is no such notice from a regulator. Yes. I'm not sure what you're talking about, but there is no such notice from a regulator. Very good. Thank you very much. Let's go with my question, please. Our next question comes from George Galliars with Evercore. Okay. Let's go to the next one. Thank you. Our next question comes from Adam Jonas with Morgan Stanley. Hey, everybody. First, there's so much love and respect for colleagues and Wall Street analysts on this call. It's almost it is lifting my spirits. What can I say? I got 2 questions. The first is for the Autopilot team. There's an argument that a fully autonomous car is essentially a terminator that is programmed to save lives in highly complex terrestrial environments and that this same technology with a few tweaks have some pretty obvious military capability. Do you see any risk that U. S. Companies will ultimately not be allowed to operate weapons grade AI based technology in a market like China and vice versa? Well, this has never come up. I wouldn't call it Ravens grade. It's just like the car is trying to drive. And if anything, the autonomous cars will be pretty easy to believe because they'll be optimizing so much for avoiding collision. So that will be more of a challenge than anything else is, as soon as somebody sees that car is autonomous, they know they can like cut them off and car is going to be driven can to avoid a collision. So it's like that will actually be probably bigger challenge than anything else, but we've not encountered anything of the nature of what you're saying. So you don't see autonomous cars as a potential germination or training grounds for things that would have a national security or military interest. Okay. Maybe a follow-up, Elon, and my last question, who do you think would be a more formidable competitor over time, BMW or Amazon? Tesla? For Tesla. No, I don't think either of them are likely to be as far as I know, I'm going to be pretty shocked if I'm going to car business. But I think BMW has great engineering. And it's good to see if they're making some investments in electrification. Hopefully, they do more of that. And I'm not sure where they stand on autonomy. It's not on our radar from an autonomy standpoint. Thanks a lot. Okay. Let's go to the next question. Thank you. Our next question comes from Pierre Ferragu with New Street Research. So I wanted to make sure we understand well how you stop burning cash going forward in coming quarters. And my understanding is that an important moving part here probably is probably the most important one is a positive impact of the ramp of the Model 3 on your working capital. And so I did some quick math on the quarter and I see your payables increased by €430,000,000 while your receivable didn't move much, which makes sense because you get paid on the spot and you pay your suppliers only on a notice or more. And so if I divide that by the number of incremental cars you've been producing in the quarter, I get you about $23,000 per car. And of course, my question is whether this is a good way to think about it, which means that going forward, when you move into Q3 and Q4, every additional car, every additional Model 3 you're going to produce, you're going to bump up payables by something in the region of $20,000 and that's going to be the main driver getting you to breakeven and to stop earning cash? Yes, Deepak here. I mean, there are many factors. Clearly, the working capital benefit of the difference in the payable terms versus collecting cash is one of them. But also, it's our gross margin improvement on the business with the it's the higher volumes and the higher gross margin resulting in higher gross profit. I'm stating the obvious here on Model 3. Our S and X volumes are increasing too in the second half. That's going to help us significantly. And all of our other businesses are improving their profitability. While our OpEx is staying essentially flat. So massive leverage in the business. So when you combine all of that, that's what is giving us the cash flow from operations to fund the rest of our business and grow cash. I'm stating the obvious, but just sort of summarizing the whole point. Okay. And in terms of order of Imee Coo sorry, go ahead. Sorry, what was your question? Can you repeat the follow-up? My follow-up was on in terms of order of magnitude, does like $20,000 per car of payables boost over a 60 day period? Does that sound like something that makes sense or am I missing other moving parts? Yes. It's rough order of magnitude, correct. Yes. Excellent. Thank you. Okay. Let's go to the next question. Thank you. Our next question comes from Ramesh Shah with Nomura Instinet. Yes. Thanks very much. I guess my question is for the autopilot team. We've been looking forward to this fully autonomous coast to coast drive. And Elon, I think you've sort of said on previous calls, if I can paraphrase that the team has been focused on developing a full self driving suite that would work basically on all different kinds of road conditions. And I'm just curious what's holding back that capability today to go coast to coast and are we closer now that you've strengthened the compute technology? Yes. We can do a coast to coast drive, especially if we like if we pick a specific route, and then write code to really make that route work, we could do a coast to coast route drive, but that would be kind of gaming the system. And I think it's really important for the water bottle team to be focused on fundamental safety of the existing features. So that's the focus is really massively on safety of existing features. Then there's a dev an advanced dev build that can do things like recognize traffic lights and stop signs and make hard right turns and that kind of thing. But it's not at the safety level that considers okay for release. So but because it really we want many lines of reliability for anything that's released to end customers. So I don't want to take the team off that until we feel like we're really generally the best we can for the core functionality. Stuart, do you want to add to that? Yes, I mean, I think the big thing I'd say is that Elon, to reiterate Elon's point, there's no question you can kind of build a demo around this stuff. The challenge right now for the team is just increasing the safety and utility of autopilot to over a quarter 1000000 cars we have today and pushing more out after that. So I think when we look kind of forward to what the next probably 6 to 12 months look like, it's taking those same kind of features we've been working on, probably deploying them in the form of active safety features. Like that's like the thing we can do already is to understand like use this rich understanding of the environment to actually try to keep you safer to either beep or break. And then also of course like one huge advantage we have is we can understand what humans actually did in these vehicles and test our software to make sure that we would have made decisions that were similar if not safer. So that's going to be a huge part of what we do over the next probably 2 quarters. Yes. I mean, that said, we might be able to pull off a cost demo for the end of the year. But we really like right now, it's a super hands down focus on the Version 9 software release, which has got a number of really cool things in it, and we're hoping to get that out to early access program at the in about 4 weeks and then quarterly in September. That's the hardcore focus right now. And that will certainly include some significant advancements in autonomy. And then once that's out and stable, I think that could be a good time to work on the Coast Coast drive. I don't know if you guys have shared what attach rates are for autopilot. I'm just as my follow-up, I guess I'm curious what you can do to increase the number of cars that have that functionality? It would seem like the effects of auto margins and cash flows could be pretty positive. Yeah, I think it's extremely powerful once people are comfortable using the technology and see just how much utility it brings. I think that is a very significant potential for margin gain in the future, but it's contingent on that functionality really making a difference. I think we will really start to see some of the breakthrough stuff in about a month or so. Our next question comes from John Murphy with Bank of America. Good afternoon. Just a first question, is it fair to assume the GA4 in the 10th is now essentially permanent? And if so, is this potentially a new model for capacity and capacity additions that might be much more capital efficient over time? It's permanent for now. Yes. Yes. And until we come up with something different or better. But personally, I think it's a good model to start the assembly of any product. It's a lot of flexibility, and then we can build and iterate over it, yes. Like an assessment of mother invention and when you have to do something quickly, then it just you just don't have time to spend a lot of capital. So it forces you to be capital efficient. Yes. It taught us a lot of lessons on how to be capital efficient in the General Assembly area. And so in that sense, those lessons will carry forward, John. Yes. But I think still by and large, we'll be aiming for steel frame buildings. To be clear, it's not like it's it's going to just become tents everywhere. I mean, the tent itself might be a little bit of distraction from actually the focus of what's happening inside. Yes, that is exactly. And that's a similar methodology that we kind of reverted back to and then moved forward from in the module where we simplified and then did a very, very linear intuitive process that was a bit more manual and they have automated and scaled that up as we understand it and get good control of it. And I think that's a lesson that we're taking to heart broadly across other things that we're going to do in the future and it's an efficient way to scale up. I mean is that replication of that simplicity why you think Shanghai could be that much less costly and that the Model Y capacity might be that much less costly to add? Yes, Model Y is sort of all separate thing, but it's definitely one of the elements that convinced us that we can scale up quickly and at low CapEx in Shanghai. We will do an improved version of GA4 and then we've also figured out how to make the paint shop a lot simpler and general assembly a lot simpler. And after this call, I'm headed back out to the body shop, yes, making a body shop what We can really simplify the body shop NAND, wow. And there's a lot that we can they're really easy to improve like design for manufacturing and changing some of the joining approaches that we use and actually making the car lighter, cheaper and better and actually safer. It's really although it's ridiculously safe already, but yes. Maybe one other point, just to follow-up quickly. I think some people have taken this as like a walk back from automation, which is not really accurate either. Yes, exactly. This is basically, I mean, a more thoughtful and focused way to apply automation to the actual issues that matter most. Yes. And that's what we're saying. Actually, it's really worth emphasizing JV's point here. Yes, we're saying again. Yes, it's not an overall reduction in automation. It is a focusing of our efforts on automating the processes and the value Yes and Way too fancy. And we can save It's not simple, it gets fancy later. That's not fancy. Fancy is going to bite in the ass. But it's not simply like referring to the dark ages of all manual everything. That's not at all the case. Yes. I mean, Gigafactory is massively automated. It's pretty it looks it's pretty crazy. And the body production is also heavily automated, most Italian robots. So it's a mixture of people and automation. There's so much that goes into producing a car going from raw metal and plastic and glass to an actual finished car. And yes, as JV was saying, the vast majority of that is highly automated. Okay. If I can sneak in one quick follow-up. I mean, when we look at the grosses on the Model 3, you're seeing 15% in 3Q, 20% in 4Q, and I think the ultimate target is 25%. I mean, what are the average transaction prices you guys are assuming? I mean, it sounds like it will be a bit higher earlier, but is that 25% gross ultimately still built around the low 40,000 APP? Yes. Okay. So the simple answer is, it is yes. It will be lower ASPs than what we have today, clearly. And we are having a richer mix of all wheel drive, as Elon alluded to earlier. So that's going to help. But yes, 25% is still the target that we have ahead of us. I had a confident that it may not be Q1, but I'd be shocked if it's not Q2 that we get to 25%. Great. Thank you very much. Thank you. Let's go to the next question. Thank you. Our next question comes from Alex Igel with Berenberg. Good evening, everyone, and thanks for taking my question. I would like to come back to the point made on the manufacturing efficiencies. I mean, overall, the 2 main challenges for Tesla, but also for the rest of the industry is the manufacturing part, which has been overcome by a lot of companies already, with the second one being the technology part. My question is, how would you describe the learning curve of the manufacturing process versus technology? And what is really the phase of advancements you're making? Because it looks like on the manufacturing side, the curve that you have meaningfully accelerated here. Well, I don't really know actually how others do it, to be totally frank. I just know that the way we I see that the way we are doing it and I'm told that this is how others do it and we are able to find ways to make it much better. I guess I don't know what the delta would be though. We also don't really I think differentiate it quite the way maybe you're implying. I mean, technology and manufacturing are sort of 1 and the same in many cases. And we're treating a lot of the manufacturing problems as a technology problem and applying our design teams. So I So I think the learning curves in some ways are quite similar. Yes. In fact, it's amazing how much of production is actually software. We're really quite good at software relative to other car companies and manufacturing at volume is mostly a software problem. I think that is not well appreciated. I think maybe one other lesson learned is that it's obviously not the best approach or best efficiency to outsource some of that development. Some of the areas that we struggled the most through the Model 3 ramp were those where we had perhaps less visibility and less control and less direct kind of skin in the game on how those production lines were designed and built. And these are cases where we took we engaged with companies that were supposed to be world class experts in automotive production, and we just assumed that they would do that this stuff would work, but it didn't. Yes. So that learning curve often involves Tesla coming directly in, understanding the process intimately, simplifying it and then essentially doing our own design or changes to the lines that were built. And I think that's a key learning point that we've taken and I think the way that we can do this a lot more efficiently in the future is kind of doing that approach from the start. Yes, just having that very rapid iteration between design and production is incredibly helpful. And we are now we have to say, for example, what are the rate limiters and what makes it hard to produce battery modules. And we came up with a new design that achieves the same outcome. It's actually lighter, better, cheaper and we'll be introducing that around the end of this year, but probably reach volume production in that in Q1 or something that will, yes, like make the call lighter, better and cheaper and achieve a higher rate. And that line is under construction and we'll be active in about 6 months. Yes, there's I mean, we did this somewhat the first time around, but now there's I think even more exciting understanding of the value of having those as Dylan said, having the design engineers just working intimately with automation and line engineers simplifying the process as they're designing the product. Yes. And I mean, because we're sort of desperate to try to get the production working, we actually took the design engineering team and had it work in the factory and improve the work on production. And it's given them tremendous insight into how they need to change the designs in the future to make it easier to produce because you feel the pain directly. Yes, once you feel the pain, like, okay, I didn't realize I was like torturing people with my terrible design. Now I know. Great. Let's go to the next question. Thank you. Our next question comes from Ben Kallo with Baird. Hello. Carol L. Sunglasses. Hello. Douglas Adams. Can Douglas Adams. Sure. Unless everything else on Douglas Adams? Sure. I just want to have your real, please. And my 2. So Deepak, so after July here, how close are you to cash flow positive? Sorry, your question is after July, how close are we to cash flow cost? Yes, you have July under the books here. So how close are you to? Yes. Well, we don't have, it's always fun. 1, we don't have July results done, but it doesn't matter exactly where we are in the month of July. What really matters is over the quarter because it depends on deliveries, depends on production, many factors. So we will be significantly cash flow positive for the quarter. I think that's what really matters. I think it's like the larger question is like, do we have like a low balance in the bank? The answer is no. We've got we weren't in no we're not in any kind of cash shortage at all. Yes. I mean, if that's the yes, that's a simple answer. Are we running low on money? The answer is no. Well, no, no, no. That's not the question. It's just as you're here and you have you're selling higher priced cars for a better margin. How does the Q3 look for what you said for being cash flow positive? Yes, yes. I'd say I'd say highly confident of being cash flow positive and being GAAP profitable in Q3. We're sitting here today saying that based on what our expectation is. So yes, sitting here on our It's everything we know at the end of July, it's 1 month in. We're highly confident of being cash flow positive and GAAP profitable in Q3 and Q4. Now there could be a force majeure event like earthquake, if that's the word, but something like that or massive recession all of a sudden. But in the absence of that, of really unusual macro events. Let's go to a journalist question. Thank you. Our next question comes from Tim Higgins with Wall Street Journal. Hi. Thanks for the call. A question for you. Do you still plan to make a total of 1,000,000 vehicles in the calendar year of 2020? I think so. Yes, if it's not $1,000,000 it's going to be pretty close. I'd say if it's not $1,000,000 it's probably $750,000,000 or something like that in 2020. So we're $8,400,000 in 2020, but somewhere between $500,000 $1,000,000 seems pretty likely. Where do you get the capacity to do that? This is a place called Shanghai. Okay. Shanghai will be important for that goal. Yes. Where does the model lie? Yes, yes. I think so. And I think we can do over 500,000 vehicles, actually probably more like 600,000 vehicles with current Giga and Fremont. And so they throw like 100, 200 maybe more, couple of 100 ks from Shanghai. And so we're probably going to be more than 600 ks for 3 and Giga Nevada. That's why I think maybe I think we have a shot at 1,000,000, but some of that was 700,000, 800 ks seems pretty likely given the current what we know today. Have you made any decisions on where you're going to make the Model Y? Maybe would you like to tell me? Not yet. Do you expect to announce it this year though? Maybe. Maybe. Cool. Let's go to the next question please. Thank you. Thank you. Our next I should say we are hoping to identify a Giga factory location in Europe before the end of this year. It's not for sure, but we are hoping to do that before the end of the year. Our next question comes from Zachary Shihan with CleanTechnica. Hello. First of all, thanks for the recent retweet, Elon. I was really impressed with the Model 3 after owning Model S. So I'm really impressed how much you've developed since the early days. My first question was about conquest sales actually. Right before the call, we published an article that Camry sales were down 20 2% year over year, Prius sales were down 23% year over year. And we're very curious how much you're pulling from these other cars, other segments. It sounds like you sort of answered that question at the beginning, but can you give anything in terms of what percentage those top 5 are in terms of trade sales? And how broad you're pulling? I know you pull from pickup trucks from sports cars. Can you speak a little more about the diversity you're pulling from? Actually, we don't actually, all we have right now is just the top five. I'm not sure what the allocation is between top five or where it goes beyond top five. We just sort of out of curiosity asked for the top five breakdown. And it's just interesting that people are trading up into a Tesla. So they're choosing to spend more money on a Tesla than their current car just based on the trade in values. I mean, a Civic is a very inexpensive car compared to a particularly big Model 3 today. So that's so promising from a market access standpoint. But of course, launching, we're going to do the Model Y and the compact SUV, we're going to do pickup truck, the semi, the next generation. I mean, we had lots of awesome ideas. And probably the biggest limiter on our growth is like how fast can we grow battery production, and especially cell production in the wholesale supply chain, I think will be the fundamental determinant of Tesla's growth. And regarding And we're super fired up to this. Like, I think they're all super cool. I know Jerome's favorite is semi, and that's pretty wicked, obviously, and excellent. Yes, it's great. And what we unveiled, we've actually made significant improvements to the design since the unveiling that we had and it's really even better than what we talked about. The probably my personal favorite for the next part is pickup truck and we've reached an amazing pickup truck. And the Model Y Compact DSV, probably the most popular car category in the world. So that's like obviously going to sell pretty well. So a lot of cool things. And of course, total energy, getting the we're kind of self starved for Powerwall right now. So we actually had to artificially limit the number of Powerwalls because we don't have enough cells. So we're solving for that very rapidly, and we expect to ramp up Powell and PowerPack production substantially later this year and early next. And as well as getting And regarding As well as ramping up retrofit solar and adding the solar roof. We now have several 100 homes with the solar roof on them, and that's going well. It takes a while to just confirm that the solar roof is going to last for 30 years and all the details work out and we're working with first responders to make sure it's safe in the event of a fire and that kind of thing. So it's quite a long validation program for a roof, which is going to last for 30, 40, 50 years. But that we also expect to ramp that up next year at our Gigafactory 2 in Buffalo. That's going to be super exciting. So the product Regarding the model, like, I think we have a if there's a company with a better product roadmap, I'd like to know what it is because like this is we've got some super awesome stuff coming. And regarding the Model Y, there's been a lot of question if you're going to have the same process as with Model 3 with reservations, if you're going to shorten the reservation timeline or if you're going to have a different process this time around? We haven't made a final decision on that. So a last question then. Regarding the daily production, we've been seeing a rise and fall with the daily production of the Model 3 as you incorporate new performance or white seats. Can you speak at all we always like to get the technical side of what you're doing there. Can you speak at all about what the bottlenecks are right now that you're working through and what we can sort of how we can picture ourselves in the factory there with you. All right. And the thing actually one thing I love about your writing is that you really care about the getting details right and you really understand things well, which is awesome. And I have to be careful, I don't have a sound bite that is then for those that don't have a nuanced appreciation of the situation that Soundbite then gets becomes front page news, I was like, nope, that's not what I meant. Yes. So yes, exactly. I'm like, oh, man. This is like, so that my shooting was not put there. But the right now, the biggest constraint on production, again, please do not make a federal case out of this because it's sold like in a matter of like a week or 2. It's like it's body production. So that's why we can certainly tell like what am I personally working on, if that's going to be a bottleneck of the company, so most likely. So, producing Model 3 bodies. We've made good progress in the last few weeks. And in fact, I was just told that we were able to achieve our post 24 hour period where we made over 800 Model 3 bodies, which is pretty great. And so that's so we need to make sure how do we sustain that 800 plus per day rate. And then, paint is doing great. Thanks. GA is doing great. Thanks a lot. Yes, it's good. It's good. Yes. I've got like 40, 7 questions, but I'll just end with a quick request. Years ago, you warned about a coming short tsunami and it seemed obvious it was coming, but the shorts didn't really seem to recognize it and then sort of attacked you, trolled you for months. And then finally, if you came, you again warned very honestly, I think very directly that there's going to be a short an epic short squeeze. We have I think the whole community has a little request, don't let the trolls get you down, don't feed the trolls too much, but we do like it when you tease the trolls a bit. So your judgment, but thanks a lot for what you're doing. All right. Well, thank you for your end of coverage of clean energy technology. Thank you very much. And the very last question comes from Galileo Russell, who represents the Retail shareholders. Congrats on an awesome quarter. Really proud to be a Tesla shareholder with the Model 3 ramping at 5,000 a week. And I think you may have touched on this, but I'm curious, will Tesla ever produce vehicles at Gigafactory 1, maybe the semi? And then I'm curious on any manufacturing energy between the semi and the Model 3? Interesting questions. You always tell us really interesting questions. Really interesting questions that I cannot actually the first one I cannot it gets so much attention where we put production. So I can't answer any like where we're going to put production in questions. The will the semi use a bunch of Model 3 technology? The answer is yes. Jerome, I don't know if you want to elaborate on that or up to you. Well, I mean, you can already see in the prototype that we've had Richard out of the Model 3 components, discrete door handles, I mean, as much as possible. Motors. Yes. The motors, yeah, in the prototype, a lot of the cell technologies. But there are some changes and I'd rather not say in public, yeah. Obviously, it's going to be better than what we showed last year. Yes, there's a lot of improvements. Okay. So hopefully, you can talk more about this. With the battery project with PG and E that was recently announced, I'm wondering if you could elaborate how you're prioritizing battery pack between auto and energy storage, because it seems like you ramped auto battery pack to 20 gigawatt hours in the past 12 months, but are only guiding for about 1 gigawatt hour of Tesla Energy installation in the next year. So I'm wondering why is Tesla Energy given its supply constraint like why not ramp that supply to 10 gigawatts? It seems like the guidance is still low there. Yes. It's as Elon suggested earlier, we are essentially, it makes sense for us to prioritize Model 3, but we are adding a ton of capacity, self capacity and JV can talk more about it, that will enable us to dramatically ramp our energy storage business as well in the coming quarters. Yes, you kind of mentioned only 1 gigawatt hour, but that's a big number in that business. And it's maybe on the order of 300% what we did the prior year. And we're still aiming at maybe another 3x to 4x growth for 2019. Yes. These are mad at scale, these are insane growth levels. Crazy growth rate. It's not like shipping software. So it's like you actually need to build a little bit like a A lot of atoms. No offense to the software. Yes. No, no, I mean, like once you build software, you can obviously have lots of copies. But like when it's like a lot of really complicated atoms, man. But maybe specifically also to your cell limitation question, I think this has been mentioned before, but we also do use some other vendors. Yes, through Samsung and LG and Exactly, and our energy products. So I've heard people feel like this is kind of a zero sum game or something with Model 3, but that is not the case. We do a partial sum game. We did shut down a Powerwall cell line for in favor of Model 3, to be totally honest, but we kind of have to do that. But that's going to we're adding new cell lines and we'll be able to address that issue very soon. I think to put it in perspective, we are still tripling our storage. These are really good growth numbers. And it's one thing to produce, but it's also another thing to install and install. Yes, exactly. We need infrastructure and people to do that. So it's massive scaling. There's very few companies who are at that rate. Yes. And one of the biggest challenges like we're quite at there needs to be a lot more electricians, like so we actually have an electrician training program. We're going to actually have to train new people who have never been electricians before to be electricians because otherwise there's not enough electrician capacity in the United States and most states of the world to install Powerwalls. It's just like we have to actually literally train electricians and like it takes like 2 years basically before somebody is certified to be an electrician. So it's sort of like, okay, we obviously can't grow faster than the rates number of electricians who can physically install a power wall. That's like one limitation. And that PG and E project you mentioned is incredibly exciting one. It kind of is indicative of the growth rate. It has a Can you elaborate on that? Well, actually, I hope I haven't said anything that's like But I mean, it is over a gigawatt hour. Yes, that's public, right. Fully considered. Okay. It is now. Okay. And just to give you a sense, it took us 5 years of growing that business to get to a gigawatt hour cumulative deployed. Like so many people have said, a gigawatt hour is an impossible number for lithium ion. Like that's yes. The car business is still much bigger as we sit here today, but the growth rate on energy is faster. Yes. If you extrapolate energy growth rate, well, obviously, if you extrapolate anything, where that triples for a year, pretty soon becomes the size of the universe. But long term, we would expect the energy business to cash up to the auto business in size. Nice. And then lastly, I'm really curious, Elon, do you have any part of the business that shareholders should be asking or thinking more about? Or what do you wish would have been asked on the call? Good question. We're trying to anticipate actually, try to anticipate the questions that are on people's minds, should I have the Autopilot, the key leaders Autopilot team here and much of the executive team of Tesla here. So try to be proactive in that regard. I think we really covered a lot. So there's any, yes? Just very last thing. Your very last thing, go ahead. Yes, yes, sorry, one last thing. The new fiscal engineering strategy of profits and cash flow, and you saying that would last in perpetuity sort of caught me by surprise personally. And so I'm curious if there's any trade off to growth with that new strategy or sort of what's the rationale behind the scenes because this seems like the biggest change in Tesla's financial engineering strategy since the IPO? Yes. I mean, being cash flow positive and GAAP income positive doesn't mean that doesn't mean we're rolling in money. Like there's definitely going to be cases where we're just barely cash flow positive or fairly profitable in some quarters in the future. But I think we've and it's been a long time since almost 15 years now. I think we're at a scale where the amount of time that it takes to actually scale up and do things, it is there's a certain minimum like we're big enough where we actually can't spend money efficiently to make things grow faster. So we've kind of hit scale with volume production of cars and I think we can I think this is probably the right thing to do is to be sort of essentially self funding on a go forward basis and apart from selective situations where there's say some debt, temporary debt for construction of a Gigafactory in China or Europe or something like that? But apart from that, I think we were like essentially, look, I don't think we're constraining growth in any significant way by adopting the strategy at this point. It would have been true in times past, but I think it is not the case, yes. Okay. I think that's all. Thank you so much. Thank you very much. Unfortunately, that's I think all the time we have today. I appreciate all your questions and looking forward to speak to you next quarter. Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect and have a wonderful day.