Tesla, Inc.

Today's conference is scheduled to begin shortly. Please continue to standby. Thank you for your patience. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Good day and thank you for standing by. Welcome to the Tesla second quarter 2021 financial results and Q&A webcast. At this time, all participants are in a listen-only mode. After the speaker's 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 zero. I would now like to hand the conference over to your speaker today, Martin Wiecka, Senior Director of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to Tesla's second quarter 2021 Q&A webcast. I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q2 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 and 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. But before we jump into Q&A, Elon has some opening remarks. Elon?

Sure. So to recap, Q2 2021 was a record quarter on many levels. We achieved record production deliveries and surpassed over a billion dollars in gap net income for the first time in Tesla history. I'd really like to congratulate everyone at Tesla for an amazing job. This is really an incredible milestone. It also seems that public sentiment towards EVs is at an inflection point. And at this point, I think almost everyone agrees that electric vehicles are the only way forward. Regarding supply chain, while we're making cars at full speed, the global chip shortage situation remains quite serious. For the rest of this year, our growth rates will be determined by the slowest part in our supply chain, which is a wide range of chips that are at various times the slowest part in the supply chain. I mean, it's worth noting that if we had everything else, if we had vast numbers of vehicles and cells, we would not be able to make them. Everything except the chips, we wouldn't be able to make them. The chip supply is fundamentally the governing factor on our output. It is difficult for us to say how long this will last because we don't have... This is out of our control, essentially. It does seem like it's getting better, but it's hard to predict. So, in fact, even achieving the output that we did achieve was only due to an immense effort from people within Tesla. We were able to substitute alternative chips and then write the firmware in a matter of weeks. It's not just a matter of swapping out a chip, you also have to rewrite the software. So it was an incredibly intense effort of finding new chips, writing new firmware, integrating with the vehicle, and testing in order to maintain production. And I'd also like to thank our suppliers who worked with us. And there have been many calls, you know, midnight, 1 a.m., just with suppliers in resolving a lot of the problems shortages. So thanks very much to our suppliers. In terms of FSD subscription, we were able to launch full self-driving subscription last month. And we expect it to build slowly but then gather a lot of momentum over time. Obviously, we need to have the full self-driving build widely available for it really to take off at a high rate. making a lot of progress there. So yeah, I think FSD subscription will be a significant factor probably next year. We got to Giga Texas and Giga Berlin. We're actually doing this earnings call from Giga Texas. So we're in the factory right now doing this earnings call. And the team has made incredible progress here. You can see the pictures online. and see that there's basically nothing a year ago and there's a largely complete large factory a year later. So it's really great work by the Giga Texas team. And then also great work in Berlin, Brandenburg, with the team there. So we expect to be producing the sort of new design of the Model Y in both factories in limited production later this year. It's always like, it's hard to sort of explain to people who have not been through the agony of a manufacturing ramp, like why can't you just turn it on and make, you know, 5,000 a week. It is so hard to do manufacturing. It is so hard to do production. To gross approximation, there are 10,000 unique parts and processes that have to work. And the greater growth of production goes as fast as the least lucky and dumbest of those 10,000 things. And a bunch of them are not even in our control. It's insanely difficult. I'm fond of saying that prototypes are easy and production is hard. And arguably, the really remarkable thing that Tesla has done is not to make an electric car or to be a car startup, because there have been hundreds of car startups in the United States and outside the United States. The thing that's remarkable is that Tesla didn't go bankrupt in reaching volume production. That's the amazing part, because everyone else did. Because they all thought the prototype or the idea was the hard part, and it is not. It is trivial by comparison with actual production. So it's always worth noting that of all the American car companies, there are only two that have not gone bankrupt, and that is Ford and Tesla. So, you know, the seeds of defeat are sown on the day of victory, and we must be careful that we do not do that. So often, if you look at history, so often the seeds of defeat are sown on the day of victory. We will endeavor not to make that the case at Tesla. So let's see, the Model Ys in Texas and made in Texas and Berlin will look very much like the Model Ys we currently make, but there are substantial improvements in the difficulty of manufacturing. So for example, the Model Y made here and in Berlin will have a cast front body and a cast rear body, whereas the one in California has a cast rear body but not a cast front body. We're also aiming to do a structural pack with 4680s cells, which is a mass reduction and a cost reduction. But we're not counting on that as the only way to make things work. We have a backup plan with a non-structural pack and 2170s, essentially. But at scale production, we obviously want to be using 4680s and structural back. From a physics standpoint, this is the best architecture. And from an economic standpoint, it is the lowest cost way to go. So the lightest, lowest cost. But there's a lot of new technology there. So it is difficult to predict with precision when does it work and when do you reach scale production. And Drew's going to talk a bit more about the 4680 production. Yeah, so we are making great progress on 4680 cells. But there is a tremendous amount of innovation that we're packing into that 4680 cell. And so it's not simply a sort of minor improvement on state of the art. There are, and we went through this on the factory cell day, really dozens of, you know, half a dozen major improvements and dozens of small improvements. So I think it will be great, but it's difficult to say when the last of the technical challenges will be solved. So in conclusion, our team continues to make huge efforts to make our factories run at full speed, which is very difficult. We have had some factory shutdowns due to power shortages, and we hope those will be relieved in the coming weeks and months. And we're making great progress on full self-driving. Some of the progress is not easy to see because it's at a foundational software level. And so it ends up being sort of a two steps forward, one step back situation. But over time, if you do two steps forward and one step back and keep going, you do move forward. So I'm highly confident that the cars will be capable of full self-driving. If they have a full self-driving computer and the cameras, I'm confident that they will be able to drive themselves with a safety level substantially greater than that of the average person. Once again, thanks to all of our employees who are making this a breakthrough year for Tesla and an incredible quarter. Thanks, guys.