Earnings Call: Q4 2020

Jan 27, 2021

Ladies and gentlemen, thank you for standing by, and welcome to Tesla's Q4 2020 Financial Results and Q and A Webcast. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Phone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Martin Viecha, Senior Director of Investor Relations. Please go ahead, sir. Thank you, Sherry, and good afternoon, everyone. Welcome to Tesla's Q4 2020 Q and A Webcast. I'm joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q4 results were announced at about 1 p. M. Pacific Time in the update deck we published at the same link of 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. Thank you. But before we jump into Q and A, Elon has some opening remarks. Elon? Thank you. So just to recap the year. 2020 was a defining year for us on many levels. Despite a challenging environment, we reached an important milestone of producing and delivering 500,000 cars. I'd just like to once again thank the people of Tesla for an incredible effort. We delivered almost as many cars Last year as we produced in our entire history. So really an incredible growth rate and despite a very challenging 2020. So my hat is off. It's such an honor to work with such great people at Tesla. And for the full year, we achieved free cash flow of nearly $2,800,000,000 after spending more than $3,000,000,000 on building new factories and other expenditures. We reached industry leading GAAP operating margin in addition to positive net income and record cash flow. Regarding capacity expansion, While we focus on execution, we continue to focus a lot of new capacity. We started producing the Model Y out of 3 months And almost reached full production speed. We ramped the Model 3 in Shanghai. It's more than 5,000 cars a week sustainably, And Shanghai continues to grow rapidly. We introduced the heat pump to all our vehicles. We ramped the single piece we started and we also ramped to volume production The single piece castings for Model Y. This is where for the first time in history, the entire rear third Skeleton of the car is being cast with a single piece in the largest and most advanced casting machine ever made. We've built the Model Y factory in China for Star Transmission 1 year. We're also building Giga Berlin and Giga Texas, which we expect to start production later this year. And lastly, we booked a battery cell factory in the Bay Area. And even though it is a pilot plant, It's largely enough that it would be in the probably the top 10 battery cell batteries on earth despite being a pilot plant. Regarding the new Model X, S and X, we are launching the we're Super excited to announce the new Model S and Model X Plaid are in production now and will be delivered in February. So we've been able to bring forward the 5 Model S and X And Model S will be delivered in February and Model X a little later. Model S Plaid, we're actually in production now and we'll be delivering Next month. So this is a Tri Motor Model S with a completely new interior. There are actually a lot of great things about this. I'll do another call about the Model S later. It's really a tremendous improvement over the prior version. And the Model S will be the 1st this Model S pad will be the 1st production car ever that is able to Go 0 to 60 miles an hour in under 2 seconds. So no production car ever has been able to get below 2 seconds 0 to 60. This is a luxury sedan that is able to go 0.60 in less than 2 seconds And we'll have the ability to seat up to 7 people with the 3rd row seats. So This is pretty nuts. This is faster, to be clear, than any car. It's not like there was a different type of car, like a 2 door sports car that was able This is the fastest accelerating car ever made or that is allowed to go on roads in history. And like I said, we'll start delivering it in a matter of weeks. Obviously, I guess, into details, we'll model those changes maybe later this week or next. It's really better in many ways. We will be actually raising the price of Model S For this new model, so you've got the old model, the new model will be $10,000 more. So hopefully people aren't too upset if they broke the old model last month, but this one came on. So, yes, we think it's probably the best car of any kind at any price Then with regards to full self driving, we've made Massive progress on full self driving. I recommend watching the videos of our Public beta. So we've got, I think, almost 1,000 people in the beta at this point. And With each successful release of the beta uplift efficacy software, it's really improving rapidly. It's not very common for I drive latest builds. It's very common for me to I have no interventions on drives that I do, including drives to places I've never been to. So these are not preplanned routes. The car has never been there before. And it's not actually more It's more common than not for the car to have no interventions even on a complex drive. So And this is basically, I'm highly confident the call will drive itself with the liability in excess of humans this year. This is a very big deal. And thinking about like how does one justify The value of the company being where it is. I think there is a way, just back in the envelope map, to potentially justify it We're if Tesla ships, let's say hypothetically, dollars 50,000,000,000 or $60,000,000,000 worth of vehicles, And those vehicles become full self driving and can be used in a robotaxis, their utility Increases from an average of 12 hours a week to potentially an average of 60 hours a week if They're capable of serving as a robotaxi. So that's like roughly a 5x increase in utility. But even if you Let's just assume that the car becomes twice as useful as not 5 times useful, but merely twice as useful. That would be a doubling of gain of revenue of the company, which is almost entirely Gross margin. So it would mean it would be like if you made $50,000,000,000 worth of cost, it would be like $50,000,000,000 of incremental profit So, and if that were the case, then you have 20 PE on that, it's like $1,000,000,000,000 The company is showing high growth mode. So I think there is a way to sort of like justify the valuation of the company where it is Just the cars and nothing else. Cars with FSP. And I suspect at least a number of investors are So in conclusion, while 2020 was a turning point percent of it In terms of profitability, we believe this is just the beginning. We think 2021 is going to be Even more exciting and do you know what to expect in a given year? Obviously, last year, we did not have Many things we do not expect. But assuming that 'twenty one is a relatively normal year from an external standpoint, I think we're seeing a great year for Tesla. We've got many great new products coming out. We've got factories that are advanced factories out of segment setup production. It will also make it easier how you're having a factory in Berlin, one in Texas, I can just from a logistics standpoint, And Texas can help supply the eastern half of the U. S. And Berlin can help supply Europe. And there's just fewer cars on boats, Much less capital tied up with the cars that are boats or being transported to customers. And I think the fundamental efficiency of the company will be much better with the factories, at least having factories on each continent I'm having 2 factories in the U. S. So I'm super excited about the future. And Yes. We look forward to making it happen. Thank you. Thank you very much. And I think our CFO, Zach Kirkhorn, has some opening remarks as well. Yes. Thanks, Martin. As Elon mentioned, 2020 has been an extremely successful year while managing through many unforeseen and unexpected challenges. On cash, we continue to generate strong free cash flows, reaching a record $1,900,000,000 in Q4, alongside growth and investment for future programs. Additionally, we've been able to reduce our use of debt and various working capital lines, including settling $2,000,000,000 of convertible debt in Q4, which will continue into Q1. For net income, we achieved our 1st calendar year and 6 sequential quarters of profitability. In addition, auto gross margin excluding credits improved from 2019 to 2020 despite reductions in ASP And inefficiencies from new product launches and transitions. On Q4 specifically, this was a noisy quarter, so let's unpack a few things. Stock based comp increased, part of which is driven by the rise of the stock price over the course of our 2020 employee performance grant process, and a portion of which is unique to Q4 only. The impact of SBC increases is seen across both COGS as well as operating expenses. Automotive gross margin in Q4 was primarily impacted by 2 things. First, we invested in improving our products built in Fremont, including converting over to the new Model S and Model X, launching the single piece castings on Model Y and introducing heat pump on Model 3. 2nd, logistics and labor costs were impacted due to supply chain instability and pandemic inefficiencies. Adjusting for items such as these, As we do in our internal management views, we saw an improvement in auto gross margin. Our services and other P and L was impacted by many of the same factors just mentioned, including onboarding costs associated with new service capacity. However, what's most important here is that we've accelerated the growth And we'll continue to drive capacity expansion as fast as possible. On energy gross margin, we saw an impact from solar roof related ramp costs And typical seasonality in the lease PPA business. OpEx as a percentage of revenue continues to reduce despite impacts from items mentioned, as well as increased investment in development of future products. Finally, the early settlement of our convertible notes resulted in an additional $100,000,000 of All that being said, nothing has changed about our view that operating margin will continue to grow and remain industry leading. As we look forward, 2021 may be our most meaningful step forward yet as we see the benefits of long standing investments in capacity and technology. The range of possible outcomes this year is wide given the magnitude of launches. That's a few things we should keep in mind. We continue to expect a long term volume CAGR of of which we may materially exceed this in 2021. As we increase production rates, volumes will skew towards the second half of the year And ramp inefficiencies will be a part of this year's story and are necessary to achieve our long term goals. Specifically for Q1, Our volumes will have the benefit of early Model Y ramp in Shanghai. However, F and X production will be low due to the transition to the newly re architected products. Additionally, we're working extremely hard to manage through the global semiconductor shortage as well as port capacity, which may have a temporary impact. We will continue to invest heavily in supercharging and service capacity while driving reductions on cost, including OpEx as a percentage of revenue. Global demand continues to outpace production, and we are moving as quickly as we can with a focus on the long term. I look forward to providing updates on progress throughout the year. Thank you very much. And now we can jump straight into questions from SAIF Technologies. The first question from institutional investors is, What is currently holding Tesla back from being the market share leader in solar? Yes. So we're actually seeing tremendous growth in solar quarter over quarter last year. And We had I've had a quarter since, I think, 2018 in Q4. So we do actually expect to become the market leader in solar And then go far beyond that. It's yes, unfortunately, there were 2 years there where we had to devote the whole company to Model 3 production and building we have to Basically, it takes the whole company and pretty much people that work on solar and have more from cars. But now, value available for Fedwood, we're putting a lot of Tantron solar, and it is growing rapidly. So I think you will not be long before Tesla is by far the market leader in solar. Another really important part of the Solar strategy is achieving an industry leading cost structure, which then allows us to have industry leading pricing. And so that's something that we've accomplished over the last year in terms of getting the cost structure in the place that it needs to be. And as Yvonne mentioned, this is a really important part with industry leading pricing to become the leader in Yes. And actually, important part is achieving better integration between the Tesla Powerwall and The Tesla retrofit solar and Tesla roof. And we're confident we'll have excellent integration with the The Powerwall and Tesla Solar, whether it's Ricliff or the Tesla Solar Platinum Group Before the end of the year. So it's really I think we've got a good strategy. As Zach mentioned, we're focused on Reducing the amount of time and the complexity of the install and we're making great progress in that regard. And I think we'll have something that's really dialed in this year. The second question is, could current owners get ability to transfer This would be a huge for loyalty and overall increased sales of vehicles that are offering more FSD sales on used vehicles. Unfortunately, we're not considering that at this time. We do actually offer An increased a higher price for a car with FSD than the one without FSD. And I do think That's the market currently undervalued for the consumer market. And arguably the soft market does probably undervalue the just how good FLC is going to be. But We're not currently planning on offering allowing it to get transferred. Thank you. We will be offering subscription pretty soon in the next month or 2. So that should that's a lot of people's concerns, we're being able to get it. Thank you very much. And the third question is, can you give us progress update on dry coating of the battery electrode? At the Battery Day, Elon said, I would not say this is completely in the bag as yet as the yields were low. It's true the in house cell manufacturing We revealed that Battery Day contains new processes and equipment. So we did expect some unknown unknowns and technical challenges to arise The Cato team, however, has been able to solve each manufacturing problem presented to date and continues to improve Yield and rate week over week and month over month as we move up the production S curve. At the same time, the cell engineering team's refined designs Deepened understanding has reinforced our confidence in the DRiV process and 46 ks design meeting our performance and cost targets. And from a capacity perspective, we have 10 gigawatt hours worth of equipment landed at Cato. The production staff is nearly all hired. Our material supply chain is established and the team is on track for full production ramp this year. Meanwhile, we've developed enough engineering confidence With our 4,680 design and the production process and equipment to kick off manufacturing equipment and facility construction to support our 100 gigawatt hour 2022 goal. Okay. Thank you very much. The next question is, why are you confident Tesla will achieve Level 5 autonomy in 2021? And why is Dojo not necessary to get there? I guess I'm confident based on my understanding of the tech roadmap and the progress that we're making between each beta iteration. Yes. As I was saying, it's not remarkable at all for the car to completely drive you from one Our location to another through a series of complex intersections. It's not about just improving the quarter case reliability and getting it So 99.99 percent reliable With respect to Anastasia, thank you. We need to get to better than Human Buy Fact Group, At least 100% or 200%. And this is happening rapidly because we've got so much training data And the software is improving dramatically. We also write the software for labeling. And I'll say it is quite We're moving everything towards video labeling, so it's all video labeling, all video advance. And So there's still a few of the neural nets that need to be upgraded to video training and video embedded in front. And really, as we transition to each net to video, the performance has become exceptional. So this is like a hot thing. The video the labeling software that we wrote for video labeling, Making that better has a huge effect on the efficiency of labeling. And then, of course, the Holy Grail is order labeling. So we're doing a lot of work into having the labeling tool be more Efficient when used by a person as well as enabling order labeling where we can. Is there About training supercomputer, I would believe it will be we think it may be the best You're on that training computer in the world by possibly an order of magnitude. So it is a whole thing in and of itself. And this is something we could offer potentially as a service. So if somebody if others need that training, We're not trying to keep it to ourselves. So I think Doto could be A whole line of business in and out of itself. And then of course, for training vast amounts of video data and getting The liability from 100% to 200% better than average human 2,000 percent better than average human. So it will be very helpful in that regard. Thank you. The next question is, what is Tesla's current gigawatt hour run rate of the 4,680 cell production? How do you see this run rate evolving by mid-twenty 21 or end of 2021? I think we kind of talked about that, Drew. I mean, essentially, what we're saying is that The number to think about, to focus on is like we've got 100 gigawatt hours total Tesla sales produced in 2022. It's not that important to look at the run up to that because these things tend to improve exponentially. But we are installing capacity for in 2022 for 200 gigawatt hours a year. And we think probably Which we should be able to achieve 30% of targeted design capacity in 2022. Yes. Yes. Agreed, Elon. And as you said before, with the S curve of production, you can be off a little bit On the initial part of the S curve and that makes a difference in absolute capacity by quite a bit 1 month to the next. So, yes, I mean, we are progressing up that S curve as fast as we possibly can. Yes. And we don't see any show stoppers. Thank you very much. And one more question is from retail investors. What is Tesla doing to improve service experience? Tesla had a reputation for outstanding customer service. Now it's impossible to even call a service center and appointments are scheduled weeks out. Jerome? Yes. Well, Forrest, best service, no service. So we spent a lot of efforts trying to improve the quality and the reliability of our cars. In the last two years, the frequency of service visits are reduced by onethree. So People have to customers have to come less frequently in service, which is really the goal, no service. And if service Has to take place. We're trying to make it as painless as possible. One big effort there is to increase mobile service, Which is now more than 40% of all visits in North America. We're trying to push that to 50% this year. In 50% of service visits last less than 2 hours. So we're trying to service the cars very quickly so people can get their vehicles back on the road. And in terms of service appointment, It continues to improve. We have about we have actually 140 service centers right now in North America. For 100 out of those 140, you can get appointments in less than 10 days. And we're going to make sure it's all service centers are We're accelerating, as Zach mentioned earlier, the pace of opening. In North America, we opened 11 centers in December, and we have plans to open 46 in the first half of this year. So that's what we're doing to improve service. In terms of phones, our emphasis is on the app. Really, we want all communications to go through the app, the Tesla app, And we're trying to move away from the phone. The app is much better than the phone. It can spot directly alerts Directly from the car and schedule a service appointment. There is a written record of all communication between the customer and the service team. You can have pictures in there. You can take care of your payment without entering the credit card and doing all that stuff. You get updates on the service. And there's even more features that are going to come in the coming months on the app. And I think everybody will be happy, including the ability to spot Well, your service technician is and how far it is to come in from your car and what's going on there. So we are investing everything on the app. I think just like most other companies as well, Seeing everything on the app, I think just like most other companies as well, and that's the way of the future. Thank you very much. And now let's go to institutional investor questions. The question number 1, what are the key milestones we need To achieve in order to evolve current FSD to a commercial level 4, level 5 ride sharing solution. Yes. So it really goes back to what I was saying a moment ago, which is we need to transition all the neural nets in the car to Video. And in order to do that, the whole stack has to be total stack has to be Change to video, that means gathering video clips, then using and this is actually surround video. So You've got 8 cameras operating simultaneously with synchronized frame rates. So you've got Basically 8 frames surround video, 8 camera surround video. And then You've got to label basically everything in that video snippet and then train against that And have those neural nets operate the car. So and this is coming from The past where we would label the neural nets would be a single camera, single frame. So no video And not combining the cameras. And then we work from single frame, One frame at a time, 1 camera at a time, neural nets to surround camera neural nets where it would look at All eight cameras, but only one frame at a time. And now to where we include the time dimension And that's video. So really just see this as a question We're getting work done. We're getting it done and consider results in the rapidly improving FSD betas that are released. And we're We'll also be expanding the FSP beta itself to include more and more people. So from my standpoint, it looks Like a very clear and obvious path towards a vehicle that will drive 100% safer than a person. Yes. I really don't see any obstacles here. Thank you. And the second question from institutionals is, does Tesla plan Or expect to license any of its software applications, FSD and auto bidder in particular to 3rd party OEMs? I think we're very open to licensing our software to third parties. And we've had some Preliminary discussions about licensing auto pilots to other OEMs. So this is something we're more than happy to do. And but I think, obviously, we need to probably do a little bit more work to prove that Tesla AutoPilot is capable of full self driving, which I think will become obvious later this year. And then we're more than happy to I'll license that to other car companies. We're definitely not trying to keep it to be a totally exclusive situation. And I think the same goes for order bidder. We haven't thought as much about order bidder, but the Tesla philosophy is definitely not to create walled gardens. We're going to allow other companies to use our supercharger networks And yes, using our Protonomy software and Autobetter and PaaS, all the things, we'll be fine too. Thank you. The next question is key differences in product customer preferences, FFP strategy between China and the rest of the world. Do we need to do things differently to win the Chinese EV market? Well, we currently are winning we are currently the leader in the So, I think we're we must be doing something right if we're the best selling electric car in China. That said, very few of our customers in China, I think it may be as low as 1% or 2%, Actually, it has selected the FSP option. This is much lower than rest of world. So we Definitely, it's make it work well in China. I think so that works well in China, then we will have a great for FSD. I find The customers in China, TILOs in China are among the most concerning in the world. So attention to detail is incredible. So, I'm confident that they will And hopefully that is later this year. Thank you. And the next question is, is it fair to argue that the best way to think about company's long term earnings power It's tied to profit per unit of battery capacity. 3 terawatt hours target from battery day implies Half of long term battery capacity goes to storage depending on what you assume for pack size on Elon's 20,000,000 vehicle unit coal. Yes. It is. So the fundamental limit on electric vehicles right now in general is availability of What's the output of factory sales in gigawatt hours? And you can't grow faster than that. But it has improved the efficiency of our cards dramatically such that you can actually get Pretty good range even with the standard range CapEx. It's in the high it's approaching Model 3 is approaching the sort of client 200s and with some slightly continued improvements, we'll start to get 300 mile range, standard pack and on the order of 500 kilometers. So There's efficiency improvements in the car, but fundamentally, their growth is dependent on cell production. And There's actually a lot of other companies that want to that have a need for sales. So the reason Tesla is doing its own cell production In order to accelerate the growth, it is not to make less use of our sales suppliers. In I want to be really clear, Tesla wants to increase purchases from sales suppliers. And we've been very clear With our cell suppliers, whether it be CATL or Panasonic or LG, that we will take as many So and we urge them to increase their production, And we will buy as much as they can send to us. Obviously, there's some price limits on that because the car still needs to be affordable. But I'm just trying to be as clear as possible that our goal with making our own sales is not to Our business to mediate our suppliers is to supplement our suppliers. And we want our suppliers of cells to increase their production And in addition, have our production that is simply taking up the amounts beyond which they are either unable or unwilling to increase their production. So is the acceleration open about what the most that our suppliers say they can produce for us? And so, since the sale output, Ryder's vehicle output. And then Probably the broad brush stroke value of Tesla is just what's the sale output, that's the size vehicle output and then at least double that for Autonomy revenue probably won't double. And that's how you figure out the value of the company as we go through. Thank you very much. The The next question is about 4,680 sales, which we already covered in the retail section of this call. So let's go straight to the last question from institutional investors, which is, where are you in Cybertruck Development? What are your expectations for Cybertruck deliveries in 2021? Right. So we finished over some of the Cybertruck engineering. So we're no longer iterating at the design center level Order line level, we've got the guidance fixed. We're getting So in order to be appropriate necessary to make the Cybertruck work, we're actually going to be using even bigger staffing machines for The rear body of Cybercar because you've got obviously it's a bigger vehicle and you've got a long truckload that goes for a lot of load. So we'll be using an 8,000 ton casting press for the rear body casting as opposed to 6,000 ton for Model Y. So 6,000 ton was the biggest passenger price in the world, 8,000 ton Okay. Quite a bit bigger than that. And I think it's going to be an incredible vehicle. If we get lucky, we'll be able to do a few deliveries towards the end of this year, but I expect volume production to be in 2022. Thank you very much. And now we can start with questions in the queue. Thank you. Our first question will come from Colin Rusch with Oppenheimer. Please go ahead. Thanks so much guys. Could you talk a little bit about the regulatory environment for FSD and how you're seeing Obviously, it's a bit of a moving target right now and you guys are leading the way here. But we'd love to understand how those conversations are going and how you see that Impacting the rollout of FSD throughout the balance of this year and into next year. Okay. Zach, do you want That's all. 2nd, Drorin. What we're seeing right now in the U. S. For example is Pretty dynamic space, but it's overall not particularly limiting on a rule basis, but what we're going to expect is to have to work with regulators Demonstrate really, really high reliability as Elon said before. The rest of the world is fairly dynamic. In Europe, we see a general slowdown Generally not reaching past level 3 right now with some impetus to start working on new working groups to reach past that and China showed And interest in working on level 4 or even level 5 later this year. So we expect a pretty dynamic 2021 in the regulatory space. With leadership in the U. S. Looking for manufacturers to demonstrate really good launches and really high reliability before Releasing to wider and wider groups. Thanks, guys. And then just a quick follow-up around Inflation on some of the materials markets, obviously, there's a lot going on as low interest rates flow through the basic materials space. Can you talk a little bit about The supply chain and how you're mitigating some of your exposure around some of your raw material costs. This is Jerome. Yes, for Supply Chain, the first priority now is to deal with the disruptions from COVID and shipping, in particular, both between Asia and North America. But we're also looking forward to Pricing, and we're watching this very closely for all the components. We are entering a series of long term agreements with preferred suppliers to ensure that not only you're going to have enough quantity to support the growth, 50% CAGR, as Zach mentioned earlier, but also good pricing with appropriate sharing of the risks. Thank you. Our next question will come from Dan Levy with Credit Suisse. Please go ahead. Hi, good evening. Thank you. Two questions, one on 'twenty one and just 1 on capital. First on 21, any expectations for what we should see on regulatory credit sales? And then the second question is on capital. Obviously, you've raised a lot of capital in 2020. What should we think about for use of those funds beyond just covering some maturities? And can you just give us a sense of what the elevated liquidity does and doesn't buy? Meaning, to what extent does elevated capital enable you to accelerate plans on building capacity or Sure. On the regulatory credit sales side, this isn't always an area that's extremely difficult for us to forecast. 2020 regulatory credit sales ended up being higher than our expectations, and It's difficult to give guidance on that. I mean, what I've said before is that in the long term, regulatory credit sales It will not be a material part of the business, and we don't plan the business around that. It's possible that for a handful of additional quarters, it remains strong. It's also possible that it's not. Most of our regulatory credit revenue from Q4 was not lined up prior to the beginning of the quarter, And these were discrete deals that were struck over the course of the quarter. So I wish I could give you more on this, Dan, but it's a space that's extraordinarily difficult for us to forecast. On the second side with respect to capital, a couple of things that we're thinking through there. So as I mentioned in my opening remarks, debt reduction is an important thing that we're focused on now. Early conversions, these are things we don't have a choice on. We did around $2,000,000,000 of that in Q4. We currently have $1,400,000,000 that we expect to go out in Q1 as a result of early conversions or conversions on convertible debt. That number may increase. And so debt reduction is important. That's helpful on interest expense as well. We are also using the money with respect to our investments in future capacity. And so what we're able to do now that we haven't had the opportunity to do in the past As we're building capacity, particularly in Austin and Berlin, we can build that capacity with the expectation of what the end state of capacity will be And so this is an important part in terms of Capital efficiency that we haven't had the luxury to do in the past. And it's great to be able to have the liquidity to focus on that. And then more broadly, as Jerome was touching on, service expansion is really important to the future strategy of the company. So as you saw in our Q4 numbers, the expansion of service centers and mobile service from Q3 to Q4 increased quite a bit And was also quite a bit higher than the 1st part of the year. And so we're able now to make investments there and also in the supercharging network to get ahead of future demand, which Will cost us more in the near term, but is what the right long term thing is for our customers and the company. Thank you. Our next question will come from Alex Potter with Piper Sandler. Please go ahead. Great. Thanks. I was wondering, you mentioned how you'd like to increase your purchases of sales from suppliers. Does this require them to also have the capability to build structural 4,680 cells of the To build structural 4,680 cells of the sort that you're putting in these newer iterations of vehicles? No, it does not. Although we are talking with them about making the 46a form factor, But it is not required. For example, the new S currently Uses the 18,650 form factor. So, they're just a more advanced sell. And I think we'll continue to use that form factor for at least A few years. But we will over time be retiring the form factors and trying to move to a consistent form factor. So, But it is not a requirement that we place upon our suppliers because it would just result in fewer sales. So it's better for us to deal with the complexity of different cell phone factors than insist on a single phone factor for our suppliers today. Like I said, over time, it will make sense to have a consistent flow factor. Okay. It makes sense. And then, one additional maybe Qualitative question on capacity expansion. You've mentioned in the past, I mean, access to dollars Is one thing, but access to human beings that are sufficiently qualified is another. Have you run up against any issues on that That is one of the things that limits growth is, It limits the growth rate. It doesn't limit the ultimate size, it limits the growth rate, which is what the rate at which we can onboard, Great people and get them trained in the right areas. But you certainly can't like instantaneously, if you've got a factory that Has 20,000 employees. You can't just hire 20,000 people instantly. They're usually doing something else. So they've got a transition point, and they were doing more move from some other part of the country. And so there's an amount of time required for that. That said, we do think that We can maintain a growth rate in excess of 50% for a year or for many years to come. And at least I'd like to yes, at least look like you've been here for many years to come. I think this year, we may track to a fair bit about 50%, but we don't want to commit to that. But I believe that's what it would appear and the same again next year. It appears to be meaningfully above 30%. Thank you. Our next question will come from Joseph Spak with RBC Capital Markets. Please go ahead. Elon, back in 2018, you tweeted about electric vans and how it could be interesting to work with Daimler and Sprinter. We haven't really heard of anything since. But in the meantime, we've seen a lot of activity in that electric van in last mile space from a number of established players at startups. So I know you said that you have a lot of projects on the table, but can you provide us an update of your thoughts on this market? And is it something you're interested in? I think Taylor is definitely going to make the electric ban at some point. So things to bear in mind is If one is not involved in manufacturing, it's really hard to appreciate just how hard it is to scale production. It's the hardest thing in the world. Prototypes are easy. Scaling production is very hard. So The main reason we have accelerated new products is, like for example, the Terzi Semi Is that we simply don't have enough sales growth. If we were to make the semi like right now, Which we could eat with regards to professional for semi, but we would not have enough sales for it right now. We will have sales for semi where we are producing Let's say, the 4680 in volume. But for example, semi would use typically 5 times the number of sales that a car would use, But it would not sell for 5 times what a car would sell for. So it kind of doesn't make would not make sense for us to do this semi right now, but We'll absolutely make sense for us to do it as soon as we can address these cell reduction constraints. Let's say we'll go for that. Okay. Thank you. And then maybe if I could dig into your past on one more item. About 2 years ago at the Autonomy Day, you stated that You're working on the next gen Tesla chip, which was about 2 years away. So is there any update on that front? Yes. To be clear, we are still not the software still does not fully use the capabilities of The FSC, we're in 1 computer. It is really just an incredibly powerful computer. And I'm personally certain that you can accrete full belt driving with a safe zone environment accessible person Just using the full subscribers version 1 computer. The version 2, we expect to be about 3 times as powerful. And those would need to be paired with high resolution cameras. And so it's quite a it requires a bunch of things to change simultaneously. We have not been rushing the version 2, but Chip, it's coming along well and it's in good shape. But Since we can achieve FSD full self driving with the current system, it would actually be a distraction right now if we were to introduce People are driving. This has a FSD chip too, because it would set us back quite a bit on software. And software is the critical path to full self driving. So I wouldn't worry too much about that. That's not a That's an improvement but not a game changer, the FSRD too. Getting the software to work and getting Thank you. Our next question will come from Emmanuel Rosner with Deutsche Bank. Please go ahead. Thank you very much. My first question is about your in house cell manufacturing efforts. So, in addition to building up capacity, some of the goals you highlighted was to Cut the pricing or the cost by about 50%, boost the range by about 50% over a number of years. So wanted to know if your initial efforts are Trending in that direction, what is sort of like the timeline for each of these goals? And maybe related to this, how How are you thinking about the timeline for the cheaper Tesla, the entry model, potentially? I think we feel very confident about achieving those targets, let's say, over a 3 year timeframe. I don't know, Drew, it's not like year 1. So 3, maybe 4 years, give ourselves a little room, but for 3 or 4 years, I'd say. We put together the trajectory in the Battery Day, and we're on that trajectory still. I think that's probably the best reference For the cost trajectory that we are on. Yes. We're aspiring to do better than what was We're confident publicly doing what we've presented at Factory Day. Thank you. Our next question will come from Ben Kallall with Baird. Please go ahead. Hey, guys. Thank you, Elon. Congrats to the whole team. So we're trying to put together all the bread crumbs. If I remember correctly, going back 10 years, you talked about when you had a mass market car on the road that you would step down as CEO And be a Chief Architect. And then we have you go into Hawaii, so it's Seableri Thex.com. And I'm trying to put it all together. There's a lot of questions there. Thank you. Sure. Well, I expect to be CEO of Tesla for Yes, several years. So I think there's still a lot that I'm super excited about doing. And I think it will be hard to believe a lot of these great projects halfway or probably like halfway down. So, yes, I do expect to be running the company for several years into the future. Obviously, nobody is or should be CEO forever. So I don't expect to be like the sheer amount of work required to be CEO of Tesla is Same. And I think I do probably More that definitely would be more technical work than is typical for a CFO. So it would be nice to have a bit more free time on land As opposed to just working day and night from when I wake up to go to when I go to sleep, 7 days a week, it's pretty intense. So but I think the mission isn't over yet, and we still got a long way to go before we Can really make a dent in the world on accelerating the advent of sustainable energy. I mean, the goal of Tesla from the beginning has been to accelerate Accelerate Sustainable Energy and but if you say like what percentage of cars on the road are electric today, it's still Very, very tiny, like order of 1%, I think less than 1% of the total fleet worldwide. So that's still a hell of a long way to go for quarter on the order of 1% of the fleet is electric. There's also tremendous way to go on solar power, although it's exciting to see the advent of Very cost competitive wind and solar and geothermal. And of course, we need a large volume of stationary factory packs. I mean, basically, I mean, the 3 legs of a sustainable energy future are sustainable energy generation via solar, wind, Jeff, I'm on hydro and a few others. And I'm actually not against nuclear fission. I actually think nuclear fission is With a well designed reactor in a situation that is not subject to Bad weather or seriously bad weather is actually it is a good thing to do. So and then but then the second thing we need is in the stationary storage, you need batteries, Because most renewable energy is intermittent. It doesn't the wind doesn't blow all the time, the sun doesn't shine all the time. So you need a lot of batteries. And it needs to be very long lasting and high cycle life. I mean, you need electric transport. If you have those three things, We've got a very bright future with respect to energy and the environment. So, still a long way to go on that and so I'm still Fantastic. And let's take the last question, please. Thank you. Our last question will come from Gene Munster with Loop Ventures. Please go ahead. I was happy to see the update on the Timing of semi, I had a couple of related questions. And first, since semi trucks typically travel predictable highway miles, Will Tesla Semi be the 1st to achieve full autonomy? I think that's quite likely, yes. Yes. I can't imagine I'm not sure who would be number 2, but yes. It would be highly likely, yes. Okay. Is it my It's the exact same part numbers on the semi embedded from the Tesla card. There's no difference. Yes. It's true. Yes. As it is, we need to modify The software parameters change for auto product or full self driving. We need to know if it's in a Model 3, Model Y, Model X and Model S. And so this is we just informed the vehicle or informed the Full self driving brain that it is now in a semi truck. Okay. Will it need to be retrained then as part of that? No. I think there will be you'll have a different control functions because there are turns that you could do in a regular car that you cannot do in a semi. Like you don't want to try to parallel talk this thing on the street in Citi. It needs to know its limitations being a giant truck. Makes sense. My follow-up question was related to, if you could just help explain why battery electric Will wind versus hydrogen sell field tech? Yes. I mean, honestly, I've had this question a million times for Just for regular vehicles, even back in the early Roadster days, even before we had the Roadster out, people were saying that somehow hydrogen is going to be A better means of energy storage in a car than batteries. And it's like this is just really not the case. Hydrogen is a very it's number 1 on the periodic table. It's got very low density. It's got low density as a liquid, like Styrofoam level density as liquid. And then, it's only a liquid very close to absolute 0. So you have to have a it's really not realistic to keep it as liquid. You want to have it as a high pressure gas. That has even So you need a gigantic fuel tank, volumetrically, and it's got to be very high pressure. It's a big pain in the ass basically. If somebody was going to say use an ultimate chemical energy storage mechanism to Hydrogen, I'd say, this used propane or something like that or methane or those will be way better than hydrogen. And then having it be if you also just add further complications of the situation, it's just crazy basically. And we're extremely confident that we could do a long range trucking with batteries. The math It works out. If you could just like take, say, what hours per kilogram of currently available cells and say, okay, How many what way would you need to go, let's say, 500 miles? And to what degree does that affect your payload? And it's Okay. If you do it right, you basically have no effect on your payload or almost nothing. And you can have a long range of track. I mean, Jerome, do you want to add that? No. I agree very quickly. And We see also an increase on the regionalization of trucks. And I think it will be perfect. The Tesla Sema will be perfect for it, yes. And yes, I'm very I'm looking forward to Having some additional ones on the road very soon. Basically, we do not see any issues with creating a compelling long range truck with Patrice? All right. Thank you very much. And unfortunately, that's all the time we have today. So thanks for all of your great questions. And we will speak to you again in about 3 months. Thanks, guys. Thanks a lot. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.