Tesla, Inc.

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Ladies and gentlemen, thank you for standing by. and welcome to TESLA's Q4 2020 Financial Results and Q&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. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker, Mr. Martin Vieca. Senior Director of Investor Relations. Please go ahead, sir.

Thank you, Sherry, and good afternoon, everyone. Welcome to Tesla's fourth quarter 2020 Q&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 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'd like to join the question queue. But before we jump into Q&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 half a million cars. I'd just like to once again thank the people at Tesla for an incredible effort. We delivered almost as many cars last year as we've produced in our entire history. So really an incredible growth rate and despite a very challenging by 2020. So my hat is off. It's such an honor to work with such great people at Tesla. So for the year, we achieved free cash flow of nearly $2.8 billion after spending more than $3 billion 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 build a lot of new capacity. We started producing the Model Y out of Fremont and have almost reached full production speed. We rammed 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 of our vehicles. We started and were able to ramp 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 a car is being cast as a single piece in the largest and most advanced casting machine ever made. We built the Model Y factory in China from start to finish in one year. We're also building Giga Berlin and Giga Texas, which we expect to start production later this year. And lastly, we built a battery cell factory in the Bay Area. Even though it is a pilot plant, its capacity is large enough that it would be in probably the top 10 battery cell factories on Earth, despite being a pilot plant. Regarding the new Model S and X, we are 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 Plaid Model S and Model S will be delivered in February and Model X a little later. The 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, but it's really a tremendous improvement over the prior version. And the Model S will be the first, this Model S Plaid will be the first production car ever that is able to go zero to 60 miles an hour in under two seconds. So no production car ever has been able to get below two seconds, zero to 60. This is a luxury sedan that is able to go zero to 60 in less than two seconds and will have the ability to seat up to seven people with the third row seats. 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 two-door sports car that was able to do better fast than this. This is the fastest accelerating car ever made that is allowed to go on roads in history. And like I said, we'll start delivering it in a matter of weeks. And like I said, I'll do something that gets into the details of all the modelized changes. maybe later this week or next. But it's really better in many ways. We'll be actually raising the price of Model S for this new model. So if you let the old model, the new model will be $10,000 more. So hopefully people aren't too upset if they bought the old model last month, but this one's $10,000 more. So, yeah, we think it's probably the best car of any kind at any price available in the world today. Then with regard 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 FSD software, it's really improving rapidly. It's not very common for, you know, I drive the latest builds. It's very common for me to have no interventions on drives that I do, including drives to places I've never been to. So these are not pre-planned routes. The car has never been there before. And it's more common than not for the car to have no interventions, even on a complex drive. Um, and, and this is basically, I'm highly confident to call the old drive itself with the reliability excess of humans this year. Uh, this is a very big deal. Um, and, and, and thinking about like, you know, how does one justify the value of the company being where it is? Um, and I think there is a way just with back of the envelope map to potentially justify it, uh, where, you know, if Tesla ships, let's say hypothetically, $50 or $60 billion worth of vehicles, and those vehicles become full self-driving and can be used in robo taxis, used as robo taxis. 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 robo taxi. So that's like roughly a 5x increase in utility. Um, but, but, but let's, even if you say like, okay, well, let's just assume that the car becomes twice as useful as, uh, not, not five times as useful, but merely twice as useful. That would be a, a doubling, a gain of the revenue of the company. Um, which is, you know, almost entirely, um, gross margin. So it would mean it would be like, okay, if you made 15 million, $50 billion worth of cars, it'd be like having $50 billion of incremental profit, basically. from that because it's a soft, it's just software. So, um, and if there was a case, then you have to get 20 PE on that second trillion dollars. Um, and the company's still in high growth mode. So I think there was a way to sort of like, you know, justify the valuation of the company where it is, uh, using just the cars and nothing else, uh, cars with FSP. Um, and I, I, I, I suspect at least some number of investors are taking that approach. Um, So in conclusion, while 2020 was a turning point for Tesla in terms of profitability, we believe this is just the beginning. We think 2021 is going to be even more exciting. You don't know what to expect in a given year, obviously. Last year, there were many things we did not expect. But assuming that 2021 is a relatively normal year from an external standpoint, I think it's going to be a great year for Tesla. We've got a ton of, you know, many great new products coming out. We've got factories that are, advanced factories that have been set up, production. It'll also make it easier having a factory in Berlin. One in Texas that can, just from a logistics standpoint, Texas can help supply the eastern half of the U.S., Berlin can help supply Europe. And there's just pure cars on boats, much less capital tied up with the cars that are on 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 and having two factories in the US. So I'm super excited about the future. Yeah, really look forward to making it happen. Thank you.