Below are my short hand notes from the Tesla earnings call which just finished.
Q2 was a record quarter. > $1B GAAP income.
Supply chain global chip shortage remains quite serious. Wide range of chips affected.
Seems like it’s getting better but its hard to predict.
We were able to sub alternative chips and write firmware in a couple of weeks, it was an incredibly intense effort in order to maintain production.
Thanks to our suppliers, many calls at midnight, 1 am, etc.
FSD subscription was launched. Expect it to build slowly and gain momentum over time.
Need to have FSD build ready in order for it to take off at a high rate. FSD sub will be a sig factor next year.
Doing earnings call from Giga TX. There’s basically nothing a year ago, and mostly complete large factory a year later. Thanks to the Giga TX team.
Expect to be producing new design of Model Y in both factories later this year. It’s hard to explain to people who haven’t been through the agony why you can’t just turn it on and generate a few thousand per week. It’s extremely hard. There are ten thousands things, a bunch aren’t in our control. It’s insanely difficult.
The remarkable thing that Tesla’s done is not create Evs, it’s that Tesla didn’t go bankrupt in maintaining production. They thought the hard part was prototype and it’s not, it’s production.
There are only 2 American companies that have not gone bankrupt, Ford and Tesla.
The model Y’s made in TX and Berlin will look like current. Improvements in diff of manufacturing, for ex. It will have a cast front and rear body. Also aiming to do structure pack with 4680 cells which is a cost reduction. Also have a backup plan with a non-structural pack and 2170s essentially. Architecture standpoint is that 4680 is the way to go. It’s diff to reach precision as to when you can get full production.
Great progress on 4680 cells. It’s not a minor improvement, there are half a dozen major improvements.
We have had some battery shutdowns due to part shortages.
We are making great progress on FSD. It’s a 2 step forward, 1 step back situation. I’m highly confident the cars will be capable FSD. They will be able to drive themselves greater than the avg person.
Q2 was a great quarter, strong improvements.
Some benefit from pricing action, but small in context to other factors.
Model S and X were at a small loss in the quarter.
Over last 2 years vehicle volumes more than doubles. Increase FSD > 10%. Over same period of time auto growth margin has increased 10% points. Avg cost per vehicle has reduced….
Additionally opex has declined. Becoming more efficient.
We are recognizing benefits of scale.
We are putting cash to use.
CAPEX continues to pick up.
Each quarter retiring legacy debt.
2021 volumes will skew to second half of year.
Want to do our best to …customer wait time.
Retail Investor Questions:
- Robert M: Tesla still says cyber late 2021. Status?
A: Cybertruck finished arch of vehicle. We are redefining how a veh is made. Shares how Y is to be built in Berlin and TX. We will be looking to ramp in production in Giga TX after Y is up and going.
Elon: Diff of ramping large manufactured items. Anything produced at high volume will move as fast as the slowest of 10k parts and processes. If 1 is missing, for example the module that controls the airbags and seatbelts, and obviously you can’t ship a car without those. That limited our production worldwide. It wouldn’t have mattered if we had 17 diff car models, they all need the airbag module. Building a chip would take us 12-18 months, you can’t just whip up a chip fab. It may be the case that Tesla is scaling, the fastest in history to scale a large manufactured object. Maybe the Model T would be comparable back in the day. We may be scaling at the largest rate in history, or if someone did if faster I would like to know so we can learn from them. Cyber is heavy users of cell capacity. We need to have the cell capacity for both of those vehicles. We are looking at a massive increase of cell availability next year. It’s not Jan 1, it ramps up through the course of next year. Even without Tesla cell production, we believe our suppliers can deliver 2x cell output next year as this year.
Target is to growth 50%. If you have a target, if there is a something in the world (calamity) it will be less. Suppliers are aiming to double. We have to juggle these exponential graphs over one another. Small changes can substantially change curve. What we are thinking of doing is overshooting on cell supply for vehicles, then as we have excess cell supply then routing cell output to megapack and powerwall. Prioritizing vehicle production. Even doubling in a year is diff.
Raw materials we have long term contract to supply for growth. (lithium, Nickel, etc).
Apple uses 100% cobolt, Tesla uses no cobalt in iron ph packs and almost none in nickel based chemistries. We might use 2% compared to Apples 100%. We have zero problem in the future. Probably there is along term shift in iron based lith ion cells over nickel. As energy density in iron based lithium ion cells, prob see a shift to 2/3 iron and 1/3 nickel or something like that. This is good because there is an insane amt of iron in the world. There is less nickel and way less cobalt. Long term, possibly there’s a good chance all stationary storage powerwall and megapack move to iron. There is no need to transport and …stationary. Nickel for long range transport (ships/airplanes).
2. Tesla opening supercharging to other companies later this year?
Elon: we are primarily thinking you download Tesla app and going to charger and indicate stall you are in. Plugin your car and you access the app and turn on the stall I’m in. This should work with any manf cars. There will be a time constraint. If the car is slow (takes more time) it will cost more money. We will be smarter how we charge electricity. Rush hr will be more expensive. It makes sense to have some time based discrimination. It helps with utilization. I think in EUR and CHINA it’s the same for everyone, it’s fairly easy to do is developer our own connector which in my opinion is the best, it’s small and light and looks good. People can buy the adapter and it will be available at the super chargers as long as people don’t steal them hahaha. Our goal is to support the advent of sustainable energy, it’s not to create a walled garden and bludgeon our competitors.
D: Increasing the network reduces our cost, allows us to be more profitable and grow network faster. Increase tools, increase network, reduce wait time.
E: In order for this to be useful, we need to grow the network faster than vehicle output. This is a lot of work for the supercharger team. It’s only useful to public if we are able to grow faster than veh output.
4680 aren’t reliable enough for vehicles, please update progress of what still needs to be done…
E: We will def make it reliable for vehicles. In limited vol it is reliable for veh. There are a number of challenges in transitioning small scale to large production. Washing cathode material to a particular height. IT’s like pizza dough. It’s denting the rolls, it wasn’t happening when the rolls were smaller, it’s happening now that they’re bigger. It’s not a science problem it’s an engineering problem.
D: we are approaching 1 mil miles in our testing activities on our vehicles. Focused on unlikely steps in the facility. Engineers are focusing on those few things.
E: we have massive amt of equipment for high volume cell production for Austin and Berlin. The pilot plant in Fremont we will have to mod a bunch of that equipment. We won’t be able to start immediately. Most likely hit annualized rate of 100GWH per year by next year.
D: We will have all equipment installed. It
E: more likely than not, prob reach in next year at an annualized rate.
D: With each iteration the ramp of equipment will be faster.
Can Elon do an interview with our channels Dave Lee or youtube 2x year.
E: I guess so. I’ll do an interview. If I’m doing interviews I can’t do other work. Only so much time in a day. Yeah I’ll do one, won’t do it annually. I will no longer default being the earnings calls. Going forward I will most likely not be doing earnings calls unless there is something I feel is important to say.
- Model Y, Cyber, Semi?
- E: Cyber diff since it’s such new arch. It is going to be our best product ever, There’s a lot of fund new design ideas. There will be challenges because there is so much unexplored territory.
- In 5 yrs how much better at
factory expansion using cut and paste?
- E: we might be fastest growing in history. So those who have not been involved, no ideas how painful and diff it is. You go tot eat a lot of glass, ramp is hard.
- D: If you look at expansion in Shanghai full volume in less than 6 months. We have new factories and designs in TX and Berlin. Having teams in all continents will increase our capability.
- E: Shanghai built in 11 months. It took about a year to reach vol prod. When you put a factory in a new geography you have to look at supply chain. There’s no such thing as cut and paste because of supply chain. You’re moving as fast as least lucky player. It takes a while to hire and train people. I encourage more people to get involved in manufacturing, it’s an areas that US doesn’t have enough people going into.
- Does Tesla going to offer
more options in Subscription options like FSD going forward?
- E: We don’t have a lot of ideas in those areas to be frank. FSD is the main thing. Headed towards a fully autonomous future. Tesla is the leader objectively in electrification and autonomy. FSD will be one of the most valuable things in the history of civilization.
- Openheimer: Can you speak to
the attach rates of FSD and targeting?
- E: It’s not worth commenting on right now. We need beta to be widely available so anyone can get it.
- Are you seeing meaningful response from regulatory?
- E: In US we don’t see regulation as a fundamental limier. We have to make it work and demonstrate reliability is better than the avg human driver. We have a massive fleet. To make the argument on statistical grounds based on the number of interventions that would result in a crash at scale, we will be able to show it’s the safety of the car is 100 or 200% better than the avg human driver. It would be unconscionable to NOT allow autopilot. Autonomy will be so safe, it will be unsafe to operate the car manually relatively speaking. (relates to how elevators used to be operated).
- Cost is down $5k year over
year. If successful on structural pack and front and rear castings, what
is a sense of a win a year from now?
- E: To make predictions is diff. To feel confident in 50% yr over yr growth, you need a lot of crystal balls. At least 50% maybe 100 something like that.
- Clarify status of advances in battery manufacturing?
- D: in the facility in Kato, over 90% of processes are proven. One was running full scale cathode….need improvements of equipment. It’s not a question of if it’s a question of when. On mixing no challenges. Fundamentally we are happy with dry process.
- E: Dry cathode is 10% cost improvement vs wet. That 10% is nothing to sneeze at, especially if you are making many GWH per year.
- Pierre F.: How you are
looking at sourcing strategy on 4680. Talking about work on in house
production. What about other manuf cells with other tech and less
innovation. Wondering if 4680 cell on the road will come from Tesla own
lines or from outside suppliers as well?
- D: we are working with our existing suppliers with 4680 cells. It’s a guess right now, consolidating around 4680 nickel based structural pack for long range. Maybe some other format for iron cells. It’s going to be important to consolidate to 2 form factors, maybe 3. One nickel, one iron chemistry so we don’t have to
- D: we are engaging on other suppliers. So far so good, they are working on their core competencies, we aren’t mandating.
- E: We do expect to see some new things from other cell suppliers. Megapack is sold out until next year. There is a lot of demand. We use same chips in powerwall as car, so cars are priority. As production storage is remediated we can increase. Annualized rate of 1 mil powerwall next year MAYBE. Dependent on cell supply and semi-conductors. As far as demand over 1 mill powerwalls per year. As the world transitions to sustainable we need battery packs to maintain steady flow of electricity, mass amount of batteries needed. Tesla and suppliers need to supply maybe 2,000 GWH per year.
- Any stance to when you offer pricing on FSD. People to try next version of AP. Take rate, sense of how big it was? From the time you offered $199 how much did take rate increase?
- Z: We are early in understanding how FSD will unfold. Customers in our backlog, did they cancel? It’s possible that there is some cannibalization.
- E: Any given price is going to be wrong. We will adjust as we go along as it makes sense to people. We aren’t thinking about this right now. We need to make this work otherwise people are betting on future. Does it make sense for someone to do FSD? It’s debatable. Once we have FSD deployed, it will be clear and basically everyone will use it and a rare individual who doesn’t.