Tesla, Inc.

Good day, ladies and gentlemen, and welcome to the TESLA Q2 2018 Financial Results and Q&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. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Mr. Martin Vieca. Senior Director of Investor Relations. Mr. Vieca, you may begin.

Thank you very much, Cherie, and good afternoon, everyone. Welcome to Tesla's second quarter 2018 Q&A webcast. I'm joined today by Elon Musk, J.B. Straubel, Deepak Ahuja, Robin Ren, our Head of Sales, Jerome Guillen, our VP of Trucks, and we also have our Autopilot team with us here. Andrej 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 as 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. Please press star 1 now if you would like to join the question queue. Before we jump into Q&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 the last week of June. That was an amazing effort. It's an honor to work with Tesla. such a great team to produce that incredible result. It was mind-blowing. We continue to achieve 5,000 Model 3s per week, 7,000 combined S, X, and 3 multiple weeks in July, ensuring that we're able to do this on a sustained basis. We expect to, in the absence of a force majeure or some very unexpected event, be able to achieve an average of of 5,000 Model 3s or above for Q3 and 2,000 Model SXs or above per week for Q3 as well. So essentially 7,000 cars a week plus 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 a leap forward for a manufacturing company. So, yeah, 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 the Model 3 market share has surpassed all competitor premium midsize sedans combined. Model 3 market share is now a majority, or in July, was a majority of all pre-incidents. That trend is, we think, likely to continue. So it's not, we do not think it will stop there. I have Rob Morin here, who's 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, 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 the thing that we're really finding 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 our 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 brand new Model 3, obviously, so we need to get cars out there for test drives. As it is right now, not even all stores in North America have Model 3s for test drives. We prioritize getting cars to customers, but we're soon going to have Model 3s available for test drives in all stores, both the performance version and the rear-wheel drive version. So 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, we did testing out like direct delivery, which I think is definitely future, direct delivery from factory to customer's home or wherever they are. The guy who bought it had never actually even sat in a Model 3. I was like, wow, okay. And I said, well, how do you feel about the car now? You have it and you reminisce like you love it. It's amazing. So, yeah, it just seems to be really well received. Yeah, so at a production rate of 7,000 cars a week, we believe we can be sustainably profitable from Q3 onwards. We're going to try to raise that the rate of Model 3 production steadily in the coming quarters, and try to get to the 10,000 cars a week number as soon as we can. What we found, as we spent a lot of time debugging wide-range 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 things being done manual instead of automatic, and in other cases having it be done automatic instead of manual, we've been able to achieve dramatic improvements to the output of the existing lines, which means that our CapEx going from 5,000 cars a week to 10,000 cars a week is a tiny fraction. CapEx going from 5 to 10 is a tiny fraction of the CapEx needed to go from 0 to 5,000 Model 3s. This is, I think, very good news for capital efficiency of the company. And we're going to try this out. That's going to inform future mass market vehicles that we produce. And from an operating plan standpoint, From Q3 onwards, I really want to emphasize our goal is to be profitable and cash flow positive for every quarter going forward. Now, obviously, if 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 providing the economy's roughly where it is today, or reasonably good, and there's not a big portion of your event that we, I feel comfortable achieving a gap income positive and cash flow positive quarter every quarter from here on out. As you said, there may be occasional quarters where we pay back a big loan or something, where there may be you know, just because we paid back a big loan. But, you know, absent that, it would be a casual customer. So, once again, I'd like to 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, uh, set of products to bring out in the future. And, uh, yeah, um, it's like, yeah, I mean, I'm sorry to end the story, but I sound a little tired. I've been working like crazy in the body shop lately. Um, but, uh, it's really going great. I'm super excited. It's like, damn good. Some good people. Um, And a number of the executive team here in particular asked the three key leaders of the Tesla autopilot team to be here. So maybe I can go from here to see if autopilot leaders of Tesla could introduce themselves and say a bit about themselves. what you're working on, what you're excited about in the future. Sorry to put you guys on the spot and everything. But I think we're making pretty radical advances in the core software technology and the vision of neural net. And then, very importantly, with the Tesla self-driving chip technology, We've been working on it for three years. It's finally coming to fruition. 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 you think about it. And we think it's really the key to Tesla full vehicle autonomy. and Alexa resigned to be a really easier place to talk about that. So we're going to start with Stuart, Andre, and then Pete.

Okay. Hi, I'm Stuart.

You're going to talk loud, by the way.

Oh, yeah, they'll talk extra loud. So I'm Stuart. Yeah, 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 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 controlled.

Integrated navigation. So you navigate from one place. You say, like, oh, out. By the way, a little tip for if you're driving one S or X or three is if you just tap on that, hold tap the Navigate button and just drag down, it will automatically navigate you to your home or work, depending upon where you are. That's a pretty cool feature. Yeah.

So we have this level 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 foundations been built out over the last two years. I think Andre will talk a lot about some of the perception and 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 also starting to see a new set of safety features that really only make sense in this world. We have this 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 one, 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 through perception.

Cool. Yeah. Hello, everyone. My name is Andrew Karpathy, and I am 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 the vehicle into an understanding of what is around us and around the vehicle. I've 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's Stuart has mentioned.

Oh, hi, this is Pete Bannon.

My team is... Yeah, talk loudly, yes.

My team's 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 antidotal story was I gave a talk to his team on hardware three 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. I'm really excited about exploiting this hardware. And he said, I think people are going to want to come and work at Tesla just to have access to this hardware and to try it out because it's 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 two primary customers, Stuart and Andre, and making them happy is pretty fun.

Actually, Pete, maybe just to – some of you will 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 to just – yeah, talk about 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 I've 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 eight years. And then two years later, 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 in the car next year.

Yeah, maybe it was articulating some of the details, the 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.

Yeah.

So like two 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 at ARM that were building embedded solutions for running neural networks. And And pretty much everywhere we looked, you know, 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 had 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. Essentially, the key is to be able to run the neural net at a bare metal level so that it's in the circuits. It's essentially doing the 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 the results of those complications right next to of 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 an emulation mode. And then you also get choked on the bus. So the transfer between the GPU and the CPU ends up being one of the constraints of the system. So the net effect is we're able to, with the Tesla computer, and we've been like semi-stealth mode basically for the last two to three years on this, but I think it's probably time to let the cat out of the bag because that cat's coming out of the bag anyway. But it's an incredible job by Pete and his team to create this platform world's most advanced inference computer designed specifically for autonomous operation. And there's a rough sort of figure of merit, 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 going to be looking to it increase the size of our chip team and our investment in that as quickly as possible. I think we have some of the best aces in the world, but I think we want to build on that even more. And it costs the same as our current hardware, and we anticipated that they would actually just replace, which is why we 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 can run all the cameras at full frame rate, 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, basically I wanted to introduce three of the key people at Tesla that are doing this. A huge respect and admiration to you guys and And it's because of what you and your team is doing that TED will be successful in this arena. Thank you.

Thank you, Ilan. Cherie, let's go to the first question.

Thank you. Our first question comes from Tony Sakonage with Bernstein.

Yes, thank you. I have one question and one follow-up, please. First, just on gross margins, it looks like S and X 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 percent this quarter to 15 percent next quarter. You know, that's about a $6,000 cost out per car. And I'm wondering if you can maybe help us understand what, you know, sort of the forces that drive that kind of improvement in a relatively short time frame.

Yeah, absolutely. First of all, you know, I'd like to apologize for, you know, being impolite on the particle. Honestly, I think this is really nice. for bad manners and I was kind of violating my own rule in that regard. There are reasons for it in that I've gotten no sleep and I've been working sort of 110 or 120-hour weeks, but nonetheless, there's still no excuse. My apologies for not being polite on the fire 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 spooling up the production line, there are a 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 nothing to do. Uh, there, there are parts that we, we thought were right, but then it turns out we've got to, um, that they weren't right. We're going to send it back to the supplier. Um, it's, it's, uh, it's, it's just like the whole sort of giant machine kind of needs to kind of lurch into, uh, a high pace. And there's a lot of lurching, um, which is very inefficient. Um, so you end up having super high, uh, labor costs per car, um, and, uh, It just takes time to sort of spool up this giant machine. Basically, a production system is like a giant cybernetic collector. And then it moves as fast as the slowest part. So as we address those slow parts and as we improve efficiency, then go gross margin. And so the profitability of the car just dramatically. That's sort of at a high level. Do you want to add to that?

No, 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 of 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. So all of that.

Actually, a thing that can also happen is that if it turns out that, say, a production part was either designed wrong or built wrong or something wrong with it, then on an emergency basis, we have to go with low-volume tooling, which can be produced quickly. But a part produced off of low-volume tooling can easily be 10 times more than a part produced off of production tooling. And so sometimes it's really not. If you're going to machine something out of a block and see if that will make a car, then the cost of using low-volume cost-produce of low-welling tooling can be really nutty.

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 on cost, 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 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.

Yeah, it's been heartening to see the mix in terms of what customers want. Robin can probably add more to that.

Yeah, so starting from end of June when we opened the configurator and invited the 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 car.

Yeah, 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 requests 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 a 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, three weeks ago, we had only eight stores having test drive cars, to Elon's point earlier. Now we have over 90 stores having test ride cars.

OK.

Oh, 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 on doing a great job running Worldwide Sales. Thanks for taking on the show. And the awesome work down in China was really some next level stuff. Robin was born and raised in Shanghai, and has been, along with Tom and Grace, has been instrumental in establishing the Tesla China factory and making sure that gets done right, and have a great relationship with the government. So it's nice work in that regard. It's really, I think, one of the things I expect. What are the top five trading cars for Model 3?

Yeah, this is very interesting. So we looked at what people who are buying Model 3 cars in the United States, what cars they're trading in. What we found is through this year, from January to July, the top five 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.

Yeah, they are surprising because they are not the traditional premium sedans. Many of them are the mainstream Nissan 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 Spack with RBC Capital Markets.

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 billion investment. And you mentioned... some volume numbers associated with what you think can be in 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 also like to apologize for being implied on the last call with you. That was not right. I hope you accept my apologies. Thanks. So with respect to Gigafactory or 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 billion. And that would be sort of at the 250,000 vehicle per year rate. And so I think we could be a lot more efficient with CapEx. And that would include at least a battery module and pack production. body shop, paint shop, and general assembly. 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 factory. J.B., would you like to add to that? Yeah.

Yeah, I'd agree with all that. We've found a 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. Yeah.

Yeah, I think we could, like less than half. It would be 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 250K level. We just learned a tremendous amount about manufacturing. It's definitely burned out a lot of neurons. Mental scar tissue is next level, but on the plus side, we really know a lot about manufacturing at this point.

There are so many specific examples, but even in just recent weeks and 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%.

Just by... Including cell production.

Yeah, just by challenging some of the initial assumptions, the specifications, tweaking the controls and software.

What really matters, what actually doesn't matter. Things you think matter, some of it actually ends up not being, not mattering at all.

And that's with basically zero 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 CapEx. or beyond with a really, really small increment.

Yeah. Obviously, one of the keys to success on the Model 3 production was the GA4 thing, which was led by Jerome. Jerome also was key in doing the Zone 1 and 2 semi-order lines, which were critical because it's fundamental failure in especially in Zone 2 of battery module production. Thank you, Jerome, for pulling some pretty incredible routes out of the hat. That was amazing. Thank you. I feel like I'm fine about TAMP, but by the way, TAMP is amazing. And this is not like people who say TAMP feel like that. It's like some sort of, you know, it's like telling you to buy an REI or something like that, you know, to go camping. This is a temp 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 tell me how it all transpired. It's interesting to learn.

Yeah, thank you. It was a fun project, actually. Not only was it producing good results, but a lot of people contributed from different engineering groups and had a lot of fun in the process.

We set out... I even had some of the people at Eagle Team building cars. It's cool. It's great. There's actually something that's really satisfying about building a car.

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 from Model 3. Especially Model 3.

We had two weeks to solve this problem, which is like quasi-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. It was way too complex to actually do our parts.

And we simplified, repurposed them, made them sturdy for what was needed.

Well, I thought a really cool idea was putting them on the 1% grade. So technically, the conveyors for parts delivered to GA3 were not rated to be able to move something as heavy as a car. So we made it downhill on a 1% downward grade for the car at the top. So then you can actually overcome the transport. Gravity helps. Yeah, gravity. Basically, with Newton on your side, you can accomplish a lot.

Yeah, just pushing the car. Exactly. 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 on the other one. 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. 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 somewhat counterintuitive is that this actually has a fully considered fewer labor hours per car than the GA-3 system. And just to elaborate on what Jerome was saying, when we have parts delivery to GA-4, the truck literally just backs up to the side of the line where there's like a door in the tent. And then that is used to unload parts from suppliers directly to where they're needed on the line. So there's no intermediate system. Whereas for GA3, they're unloaded, they're put in a warehouse, then they're repackaged from the warehouse into these totes, which, so we actually have 220 people, something like that, across all shifts. Whose 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 literally all they do is move things from one box to another box, and we don't need that at all on GA4.

All gone.

All gone, yeah. And there's a tremendous amount of 24-7 robotics technicians that are constantly trying to make the machines have uptime. That's very expensive. And so when you think about not having to maintain all these robotic systems, that's a big cost savings as well. And now we're going to gradually be 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 Albertine with Consumer Edge.

Good afternoon, and thank you for taking my question. And I 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, do not plan to do so. For China, I think we, our default plan will be to use essentially a loan from local banks in China and fund the gig factory in Shanghai with local debt, essentially. We certainly could raise money, but I think we do need to. I think it's better to It is better discipline not to.

Yeah, we are 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.

Yeah. Our default plan is we start paying off our debts. And I don't mean refining them. I mean paying them off. For example, there's a convert that's coming due soon, a couple hundred million, and then there's a $900 million one in February or something like that. We expect to pay that off with internally generated cash flow.

And still have a healthy cash balance.

Yeah.

And to answer the other question, there is no such notice from a regulator.

Oh, yeah. I'm not sure what you're talking about, but there is no such notice from a regulator. Very good. Thank you very much.

Our next question comes from George Galliers with Evercore. Hi, George.

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 lifting my spirits. What can I say? I've got two 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 has 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 weapons-grade. It's just like the cars trying to, drive. If anything, the autonomous cars will be pretty easy to bully because they'll be optimizing so much for avoiding collision. That'll be more of a challenge than anything else. As soon as somebody sees that the car is autonomous, they know they can cut them off and the car is going to do everything it can to avoid a collision. That'll actually be probably a bigger challenge than anything else. We've not encountered any 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?

For Tesla?

For Tesla.

Man, I don't think either of them are likely to be, you know, as far as I know, I'm going to be pretty shocked if Amazon got into the car business. But, you know, I think BMW has great engineering. And it's good to see that 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 Piera Faragu with New Street Research.

Thank you for having me, for having me on. 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 the most important one, is the 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 million, while your receivables didn't move much, which makes sense because you get paid on the spot and you pay your suppliers only on a 60 day 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 break even and to stop burning cash.

There are many factors. Clearly, the working capital benefit of the difference in the payable term sources collecting cash is one of them, but also It's our gross margin improvement on the business with 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. Yeah, I'm stating the obvious, but just sort of summarizing the whole point. Yeah. Okay. Sorry, what was the question?

Can you repeat the follow-up? Yes.

Can you repeat the follow-up?

My thought was 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? It's rough order of magnitude, correct.

Yeah.

Excellent. Thank you. Okay. Let's go to the next question.

Thank you. Our next question comes from Romit Shah with Nomura Instant.

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's been focused on developing a full self-driving suite that would work basically on all 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?

Yeah, we can do a coast to coast drive, especially if we pick a specific route and then write code to really make that route work. We could do a coast-to-coast drive, but that would be kind of gaming the system. And I think it's really important for the Autopilot team to be focused on fundamental safety of the existing features. So the focus is really massively on safety of existing features. Then there's an advanced dev build that can do things like recognize traffic lights and stop signs. make hard write turns and that kind of thing. But it's not at the safety level that Concert's okay for release. We want many nines 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've really done everything the best we can for the core functionality. I mean, Stuart, do you want to add to that?

Yeah, I mean, I think the big thing I'd say is that when Elon, to reiterate Elon's point, like 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 million cars we have today and pushing more out after that. So I think when we look kind of forward to what the next six 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 a thing we can do already is to understand, like use this rich understanding in the environment to actually try to keep you safer to either beep or break And then also, of course, like one huge advantage that 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 two quarters.

Yeah, I mean, that said, we might be able to pull off a coast-to-coast demo for the end of the year. But I would really like to, right now, it's a super heads-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 in about four weeks and then broadly 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-to-Coast Drive.

I don't know if you guys have shared what attach rates are for autopilot. I'm just going to add 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 effect 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 a modern game in the future. But it's contingent on that functionality really making a difference. I think we'll really start to see some of the breakthrough stuff in about a month or so.

Okay, let's go to the next question.

Thank you.

Thank you. 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 a tent 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. Yeah. yeah unless we come 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 there's a lot of flexibility and then we can build and iterate over it yeah like it necessarily is 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.

Yeah, it taught us a lot of lessons on how to be capital efficient in the General Assembly area. So in that sense, those lessons will carry forward, John.

Yeah, but I think still by and large we'll be aiming for steel frame buildings, to be clear, because it's going to just become tents everywhere.

I mean, the tent itself might be a little bit of a distraction from actually the focus of what's happening inside.

Yeah, exactly.

And that's a similar methodology that we kind of you know, reverted back to and then moved forward from in the module where we, you know, simplified and then, you know, did a very, very linear, you know, intuitive process that was a bit more manual and then 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, you know, 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?

Yeah, Model Y is sort of a whole 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 were doing an improved version of GA4. And then we're also figuring 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 buddy shop. Making the buddy shop a lot simpler. Yeah, we can really simplify the buddy shop. Man, wow. And there's a lot that we can really... easier to improve 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. Although it's ridiculously safe already.

Maybe one other point, just to follow up quickly. I think some people have taken this as a walk back from automation, which is not really accurate either. This is basically... I mean, a more thoughtful and focused way to apply automation to the actual issues that matter most.

Yes.

Well said.

Actually, it's really worth emphasizing JV's point here. Yeah, I was saying again.

Yeah, it's not an overall reduction in automation. It is a focusing of our efforts on automating the processes and the value-add processes that matter the most. I think we got maybe a little bit distracted on this first round, automating a lot of things that added complexity that didn't necessarily speed up.

Way too fancy. We can save. Start simple and get fancy later. Don't start fancy. Fancy is going to bite you in the ass.

But it's not if we're, like, referring to, you know, the dark ages of all manual everything. That's not at all the case.

Yeah, I mean, Gigafactory is massively automated. It looks great. It's pretty crazy. The body production is also heavily automated, most entirely robots. 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. 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 saying 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'll be a bit higher earlier, but is that 25% gross ultimately still built around the low 40,000 ATP? Yes. Okay.

The simple answer is,

It will be lower ASPs than what we have today, clearly. And we are having a richer mix of all-wheel drive, as Ilan alluded to earlier, so that's going to help. But yeah, 25% is still the target that we have ahead of us.

I'm highly 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 Eichel with Barenburg.

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 two 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 base of advancements you're making? Because it looks like on the manufacturing side, the curve that you have meaningfully accelerated here. Thank you.

Well, I don't really know actually how others do it, to be totally frank. I just know that the way we I see the way we're doing it, and I'm told that this is how others do it, and we're able to find ways to make it much better. I guess I... 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 one 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, our technology teams, if you want to call them that, to solving those issues. So I think the learning curves in some ways are quite similar.

Yeah. It's amazing how much of production is actually software. Yeah. 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 skin in the game on how those production lines were designed and built.

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 their stuff would work, but it didn't.

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. I think that's a key learning point that we've taken, and I think a way that we can do this a lot more efficiently in the future is kind of doing that approach from the start.

Yeah, just having that very rapid iteration between design and production is incredibly helpful. And we now understand, 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. We'll probably reach a falling production net in Q1 or something that will make the call lighter, better, and cheaper and achieve a higher rate. And that deadline is under construction. It will be active in about six months.

Yeah, 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 Elon said, having the design engineers just working intimately with, you know, automation and line engineers, you know, simplifying the process as they're designing the product.

Yeah, and I mean, because we were sort of desperate to try to get the production working, we actually took the design engineering team and had to 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 easy to produce. Because you feel the pain directly. Once you feel the pain, you're like, okay, I didn't realize I was 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 Callow with Baird.

Hold on. Carol L. Sunglasses. Hello? Douglas Adams. Can we do more Douglas Adams? Sure. And less everything else.

More Douglas Adams? Sure. It's one of my favorite opals. And my two.

So, Deepak, so after July here, how close are you to cash flow positives?

Sir, your question is, after July, how close are we to cash flow?

Yeah, you have July under the books here, so how close are you to?

Yeah, well, we don't have, it's always one, 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 mean, it's like the logic question is like, do we have like a low balance in the bank? The answer is no. We're not in any kind of cash flow digital.

Correct. Yeah, I mean, if that's the answer, yeah. 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're selling your higher-priced cars for a better margin, how does the third quarter look for what you said, for being cash flow positive?

Oh, yeah, yeah. I'd say highly confident of being cash flow positive and being that profitable in Q3. Okay.

We're sitting here today saying that based on what our expectation is. So, yes, sitting here.

Based on everything we know, at the end of July, it's one month in, we're highly confident of being cash flow positive and get profitable in Q3 and Q4. Now, there could be a post-missure event like earthquake, touch wood, you know, but something like that or massive recession all of a sudden. But in the absence of that, of really unusual macro events. Thanks, guys.

Great. Thank you very much. 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. Question for you. Do you still plan to make a total of one million vehicles in the calendar year of 2020?

I think so. Yeah. If it's not a million, it's going to be pretty close. I'd say if not a million, it's probably at least 750 or something like that in 2020. We'll aim for a million in 2020, but somewhere between half a million and a million seems pretty likely. Where do you get the capacity to do that? There's this place called Shanghai.

Okay. Is Shanghai will be important for that? Yeah.

Okay.

Where does the model lie?

Yeah. Yeah. I think, you know, um, I think so. Uh, and, uh, not that, uh, I think we can do over half a million vehicles. Oh, actually probably like 600,000 vehicles, uh, with current Giga and Fremont. Um, And so if you throw, like, you know, 100, 200, you know, maybe more, a couple hundred K from Shanghai, and so we're probably going to do more than 600 K with Fremont and Giga Nevada. That's why I think, maybe it's not, I think we have a shot at a million, but someone that was 700 or 700, 800 K 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? 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.

I should say we are hoping to identify... a gigafactory 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. Gotcha.

Thank you. Our next question comes from Zachary Shahan with CleanTechnica.

Hello. First of all, thanks for the recent retweet, Elon. I was really, really impressed with the Model 3 after owning a 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 22% 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 five are in terms of, uh, trade sales and, um, and how broad you're pulling. Are you, I know you pull from pickup trucks from sports cars. Can you speak a little more about the diversity you're pulling from?

Um, actually we, we don't actually worry right now. It's just the, the top five. Um, I'm not sure what the, what the allocation is between top five or where it goes beyond top five. We're just sort of out of curiosity, ask for the top five breakdown. Um, and, uh, 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, particularly, the Model 3 today. So that's promising from a market access standpoint. But, of course, long-term, we're going to do the Model Y and the compact SUV. We're going to do the pickup truck, the semi, the next generation of those. I mean, we've got lots of awesome ideas. And probably the biggest limiter on our growth is how fast can we grow battery production, and especially cell production and the whole cell supply chain, I think, will be the fundamental determinant of Tesla's growth. We're super fired up to do this. They're all super cool. I know Jerome's paper is a semi, and that's pretty wicked, obviously. I love it. Yeah, it's great. 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, you know, probably my personal favorite for the next part is pickup truck. And we're just doing an amazing pickup truck. And the Model Y compact gets to be 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, Tesla Energy getting the, you know, we're kind of sales starved for Powerwall right now. So we actually have to artificially limit the number of power walls because we don't have enough cells. So we're solving for that very rapidly. And we expect to ramp up power wall and power pack 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 hundred... the 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 we also expect to ramp that up next year. at our Gigafactory 2 in Buffalo. That's going to be super exciting. If there's a company with a better product roadmap, I'd like to know what it is. We've got some super awesome stuff coming.

Regarding the Model Y, there's been a lot of questioning 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.

Last question then. Regarding the daily production, we've been seeing a rise in 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's what the bottlenecks are right now that you're working through and, you know, what, what we can sort of, uh, how we can picture ourselves in the factory there with you.

All right. And I, I think actually one thing I love about your, um, writing is that you're really care about the getting details, right. And, um, and you're really understand things well, which is awesome. Um, and, uh, but, you know, after what, be careful, I don't have a soundbite that there's, that is then, um, uh, For those that don't have a nuanced appreciation of the situation, that soundbite then becomes front-page news, and it's like, nope, that's not what I meant.

Yeah.

Yeah, exactly. I'm like, oh, man. Right now, the biggest constraint on production, again, please do not make – people don't make a federal case out of this because it's going to be solved in a matter of a week or two, is body production. So that's why, you can just generally tell what am I personally working on, if that's going to be the bottleneck of the company, so most likely producing Model 3 bodies. We've made huge progress in the last few weeks, and in fact, I was just told that we were able to achieve our first 24-hour period where we made over 800 Model 3 bodies, which is pretty great. And so we need to make sure we sustain that 800-plus per day rate. And then Payne's doing great. Oh, thanks. GA's doing great. Thanks a lot. Yeah, it's good. It's good.

Yeah. I've got like 47 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 it came. You again warned very honestly, I think very directly, that there's going to be an epic short squeeze. 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 use your judgment. But thanks a lot for what you're doing.

All right. Well, thank you for your in-depth 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 to 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 energies between the Semi and the Model 3.

Oh, wow. Interesting questions. You always come up with 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 where we're going to put production questions. 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...

Well, I mean, you can already see in the prototype that we've leveraged a lot of the model-free components, the screens, the door handles, I mean, as much as possible. Yeah, the motors, yeah, and 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. Yeah, there's a lot of improvements, yeah.

Okay, so hopefully you can talk more about this. With the battery project with PG&E that was recently announced, I'm wondering if you could elaborate how you're prioritizing battery packs between auto and energy storage, because it seems like you ramped auto battery packs to 20 gigawatt hours in the past 12 months, but are only guiding for about one 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, you know, 10 gigawatts? It seems like the guidance is a little low there.

Yeah, it's, as Elon suggested earlier, we are, you know, essentially it makes sense for us to prioritize Model 3, but we are adding a ton of capacity, cell capacity, and JB can talk more about it, that will enable us to dramatically ramp our energy storage business as well in the coming quarters.

Yeah, you kind of mentioned only one 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 300, three to four X growth for 2019.

Yeah, these are mad. At scale, these are insane growth levels.

Crazy growth rate.

It's not like serving software. This is like you actually need to build a lot of atoms.

No offense to the software.

No, I mean, once you build software, you can obviously have lots of copies. But when it's like a lot of really complicated atoms, man.

But maybe specifically also to the cell limitation question, I think this has been mentioned before, but we also do use some other vendors. Oh, yeah. Other than Panasonic.

Yeah, through Samsung and LG.

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. It's a partial-sum game. We did shut down a...

Powerwall cell line in favor of Model 3, to be totally honest, but we kind of have to do that. But 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 mad growth numbers. And it's one thing to produce, but it's also another thing to install and deploy. You need infrastructure and the people to do that. So it's massive scaling. Very few companies go at that rate.

Yeah, and one of the biggest challenges is there needs to be a lot more electricians. So we actually have an electrician training program. We're going to actually have to train electricians you know, people who've never been electricians before to be electricians because otherwise there's not enough, like, electrician capacity in the United States and most places in the world to install power walls. So it's like we have to actually literally train electricians. And, like, it takes, like, two years basically before somebody is certified to be an electrician. So it's sort of like, okay, you know, we obviously can't grow faster than the number of electricians who can physically install a power wall. That's, like, one of the limitations.

And that PG&E project you mentioned is an incredibly exciting one. It kind of is indicative of the growth rate. Can you elaborate on that? I can't say too much.

I hope I haven't said anything that's like, wait, no.

But, I mean, it is over a gigawatt hour. Yeah, gigawatt hour.

That's public, right?

Fully considered.

Okay.

It is now.

Okay.

And, you know, just to give you a sense, it took us five years of growing that business, you know, to get to a gigawatt hour, cumulative deployed.

Even though, like, so many people have said a gigawatt hour is an impossible number for lithium ion.

Like, that's a... Anyway, the car business is still much bigger, as we said here today, but the growth rate on energy is faster.

Yeah, if you extrapolate energy growth rate, well, obviously, if you extrapolate anything, where that triples per year, it 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, we're trying to anticipate the questions that are on people's minds. We have the autopilot, the key leaders of the 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.

The new fiscal engineering strategy of profits and cash flow and you saying that will 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, you know, change in Tesla's financial engineering strategy since the IPO.

Yeah.

I mean, being cash flow positive and capping it positive doesn't mean, like, that doesn't mean we're rolling in money. You know, like, there's definitely going to be cases where we're just barely cash flow positive or fairly, you know, fairly profitable in some quarters in the future. It's been a long time, 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, we're big enough where we actually can't spend money efficiently to make things go faster. So we've kind of hit scale with volume production of cars. And I think this is probably the right thing to do, is to be essentially self-funding on a go-forward basis. And apart from selective situations, whether it's, say, some temporary debt construction of a gigafactory in China or Europe or something like that. But apart from that, I think we, like, essentially, 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 in this case. Yeah.

Okay. 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 speaking 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.