Tesla, Inc.

Good afternoon, everyone, and welcome to Tesla's first quarter 2022 Q&A webcast. My name is Martin Vieka, VP of Industrial Relations, and I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q&A results were announced at about 3 p.m. Central Time in the update that 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 use the raise hand button to join the question queue. Before we jump into Q&A, Zach will have some opening remarks.

Zach? Yeah, thanks, Martin. Just to start off here, Q1 was a challenging but extremely successful quarter for the company. Despite numerous supply interruptions, including shutdowns at our Shanghai factory and nearby suppliers due to COVID, we've continued making progress and achieved our best ever vehicle deliveries. Last quarter, we demonstrated a series of new financial records, including revenue, gross margins, operating margin, and bottom line profitability. Gap automotive gross margin reached 32.9%, and for the first time exceeded 30% when excluding regulatory credits. Higher pricing continues to positively impact our financials as we make progress delivering cars in our growing backlog. Note that for most vehicles, our delivery wait times are quite long, thus cars delivered in Q1 generally carried pricing set in prior quarters and at levels lower than cars being ordered today. Our per-unit vehicle costs increased as well. Inflation, raw material prices, expedites, and logistics costs continues to impact our cost structure. Factory shutdowns also occurred with little to no notice, hence we were unable to take action to plan those interruptions in a cost-efficient manner. Additionally, we saw a slight mixed shift towards more profitable vehicles, including the Model Y. We also recognized a one-time benefit of $288 million from credit revenue relating to a regulatory change in the U.S. CAFE penalty, without of which credit revenue would have declined compared to the same period last year. The energy business has continued to be impacted by macro conditions more severely than the vehicle business. Our storage products are in need of chip supply, and new import processes have impacted supply of certain components for our solar systems, which is reflected in our solar volume for the quarter. OPEX as a percentage of revenue continues to reduce, driven by higher revenue, lower stock-based comp expense, and other items. As a result of our ongoing improvements in operating leverage, we achieved a record operating margin of over 19%. Note that commissioning costs for our factories are in R&D, as Berlin started production in late March and Austin in early April. These costs will be in automotive cogs going forward, given these factories are now producing customer sellable cars. Our free cash flows have remained quite strong, yet we're impacted by working capital related to lower than planned production. Additionally, we have reduced our debt excluding product financing to nearly zero. Looking ahead in the immediate term, a few things to keep in mind for Q2. First, we've lost about a month of build volume out of our factory in Shanghai due to COVID related shutdowns. Production is resuming at limited levels and we're working to get back to full production as quickly as possible. This will impact total build and delivery volume in Q2. Second, as I've mentioned before, Austin and Berlin are just starting their ramps, and thus those inefficiencies will start to flow through our gross margins in Q2. Third, we do have higher ASPs in our backlog, which will help to offset some of these headwinds. We continue to drive towards further strengthening of our financials in the second half of the year and believe our 50% or above growth rate remains achievable for the year. I want to conclude by thanking the Tesla team, our suppliers, and our new customers for a great first quarter.

Thank you very much. And Elon, I saw opening remarks as well.

Sure. Some of my remarks will be redundant with Zach's, but it's maybe worth repeating. Q1 was once again a record quarter on many levels, reaching the highest deliveries, profit, and an operating margin of 19%. This was despite a lot of chip shortages, many logistics challenges, and an overall difficult quarter. So I'd really like to congratulate the Tesla team on achieving record profitability and output despite many, many difficult headwinds. And especially the Tesla China team and our Shanghai factory, they've they really had significant challenges due to the COVID shutdowns and nonetheless have been able to output a tremendous number of high-quality vehicles. And we are already back up and running with the Shanghai factory. So as Zach said, we remain confident of a 50% growth in vehicle production in 2022 versus 21. I think we actually have a reasonable shot at a 60% increase over last year. So let's see. Obviously, Gantt Production, as people know, with Giga Berlin and Giga Texas in the past few months. So we have two fantastic factories with great teams, and they are ramping rapidly. Now, with new factories, the initial ramp always looks small, but it grows exponentially. So I have very high confidence in the teams of both factories. And we expect to ramp those initially slowly, but like I said, growing exponentially with them achieving high volume by the end of this year. So, let's see. We're also working on a new vehicle that I alluded to at the Giga Texas opening. which is a dedicated robotaxi that's highly optimized for autonomy, meaning it would not have steering wheel or pedals. And there are a number of other innovations around it that I think are quite exciting, but it's fundamentally optimized for trying to achieve the lowest fully considered cost per mile or cost per kilometer potential. accounting everything. And so it's, I think, going to be a very powerful product where we aspire to reach volume production of that in 2024. So I think that really will be a massive driver of Tesla's growth. And we remain on track to reach volume production of the Cybertruck next year. Let's see. So basically, once again, I'd like to thank the Tesla employees for their hard work, but also I'd like to thank our suppliers who have really gone the extra mile. We have an amazing supplier group, and I just want to say a heartfelt thanks to the suppliers that have really worked day and night to ensure that Tesla is able to keep the factories running. And we're really at the early stage of our journey. We only crossed 1 million units in the past 12 months recently. And we aspire to head to 20 million units a year. So we're basically 5% along the way towards our goal. And we're growing very rapidly year over year. and remain confident of exceeding 50% annual growth for the foreseeable future for basically several of the next years. And then there's, of course, Optimus, which I was surprised that people did not realize the the magnitude of the Optimus robot program. The importance of Optimus will become apparent in the coming years. Those who are insightful or listen carefully will understand that Optimus ultimately will be worth more than the car business, worth more than FSD. That's my firm belief. And then, of course, insurance is growing well. We expect to address the power shortages that limited our progress with batteries and solar. So we expect batteries and solar to also grow well this year. And basically, the future is very exciting. I've never been more optimistic or excited about Tesla's future than I am right now. Thank you.

Thank you very much. Let's go to the first investor question. The first investor question is Elon has historically provided FSD timelines with not optimal accuracy. We love its optimism for 2022 release, but is there any data Tesla can share with investors to help them make their own conclusions on progress being made, interventions per mile driven, or any other data? Sure.

Well, with respect to full self-driving, of any technology development I've ever been involved in, I've never really seen more kind of false dawns or where it seems like we're going to break through, but we don't, as I've seen in full self-driving. And ultimately what it comes down to is that to solve full self-driving, you actually have to solve real-world artificial intelligence, which nobody has solved. the whole road system is made for biological neural nets and eyes. And so, actually, when you think about it, in order to solve full self-driving, we have to solve neural nets and cameras to a degree of capability that is on par with and really exceeds humans. And I think we will achieve that this year. The best way to reach your own assessment is to join the Tesla Full Self-Driving Beta Program. We have over 100,000 people right now enrolled in that program, and we expect to broaden that significantly this year. So that's my recommendation, is join the Full Self-Driving Beta Program and experience it for yourself. and take note of the rate of improvement with every release. And we put out a new release roughly every two weeks. So you'll see a little bit of two steps forward, one step back, but overall the rate of improvement is incredibly quick. So that's my recommendation for reaching your own assessment is literally try it.

Thank you. The second question is, how much of an impact will the production shutdown in Shanghai have in Q2? What is the timeline for localizing the Model 3 in Europe, or will newer models be prioritized in Berlin?

Well, we did lose a lot of important days of production, and there are sort of upstream supplier challenges where a lot of suppliers also lost many days of production but uh tesla shanghai giga shanghai is coming back with a vengeance uh so i'm i think uh notwithstanding you know new issues that arise i think we will see record output per week um from giga shanghai uh this quarter um albeit we are missing a couple weeks so um You know, that means that most likely vehicle production in Q2 will be similar to Q1, maybe slightly lower. But it's also possible we may pull a rapid out of the hat and be slightly higher. But it's a vehicle roughly on par. But then Q3 and Q4 will be substantially higher. So. it seems likely that we'll be able to produce over 1.5 million cars this year. That's my best guess. And then Model 3, it's important for new factories to be focused on and have the least amount of complexity and variation, which is why GigaBull and GigaTexas are focused on the Model Y From the point at which you have a factory complete and you're making a small number of units to the point where it's producing high-quality vehicles in volume is 9 to 12 months from start of production. Now, hopefully we're getting better at that ramp, so maybe it's a little less. But to get to sort of the 5,000 a week level is typically taking us around 12 months from start of production.

Thank you. The next question is, how much raw material exposure do you have measured roughly in percentage of cost of goods sold, for example, in a given quarter versus one to two years out, both direct and indirect? Separately, how do you think about price increases versus prioritizing higher mixed vehicles going forward?

Actually, on the price increase front, I should mention that it may seem like maybe we're being unreasonable about increasing the prices of our vehicles, given that we had record profitability this quarter. But the wait list for our vehicles is quite long. And some of the vehicles that people will order, the wait list extends into next year. So our prices of vehicles ordered now are really anticipating growth. supplier and logistics cost growth that we're aware of and believe will happen over the next six to 12 months. So that's why we have the price increases today, because a car order today will arrive in some cases a year from now. So we have a very long wait list. And we're obviously not – demand limited, we are production limited by very much production limited.

Raw material exposure? Yeah, just to add to what Ilan is saying, you know, there's different ways to calculate raw material exposure. I think a simple way, we estimate we're around 10 to 15% of our cost structure exposed to raw materials. And just to clarify a couple of things on that. So we've been experiencing increases in costs in general, but also raw materials for a number of quarters now. That pace picked up in Q1, so last quarter. And what we're seeing for Q2 is slightly higher than that as well. And as indices move, it doesn't impact us immediately or directly. In some cases, we have contracts with suppliers, but then as those contracts expire, we have to renegotiate them so that there can be a lag. In some cases, our contracts do directly reflect movement in commodity prices or raw material prices, but the timing in which that Tesla pays for that has a lag associated with it as well, based on the contract. And so to Elon's point, what we're trying to do here, because it's quite an unprecedented situation of raw material movement, And all of these various lags and uncertainty around renegotiating contracts is we're trying to anticipate where things will go and make sure the pricing that we have put in place at the time that those raw material cost increases hit us, that they align, and that the company can remain financially healthy in various scenarios as we look out over the next four quarters.

Okay. Thank you very much. The next question is, why does Tesla continue to fight dealership laws on a state-by-state basis versus taking it federal? Separately, why isn't Tesla using 800-volt architecture in its vehicles? What are the advantages or disadvantages?

Sure. From a Tesla standpoint, obviously, we'd love to have federal legislation that allows direct sales in all states, but we have not seen willingness on the part of the Congress to to enact such laws that would override state laws. So, unfortunately, we have to fight it on a state-by-state basis. And, Drew, do you want to answer that 800-volt question?

Yeah, sure, on the 800-volt thing. Yeah, so it's really a case-by-case thing. For the smaller platform vehicles like 3NY, There's some wins and losses with 800 volts. Not everything is better. And so we look at that platform and we're not like ignoring the reality that you can go to a higher voltage, but there's nothing really encouraging us to do so on that platform. It's really about mass and power. And you look at bigger vehicles, there are some.

advantages on those bigger vehicles to quantify that basically our estimate is that like going for 400 to 800 volts might save 100 bucks yep it's not really moving needle and you're changing many things yes but it's the charging infrastructure all the way through the entire vehicle system yes to get maybe a hundred dollars yes exactly so um I mean, in the U.S., you've got 110 volts household power or voltage, and then in our most possible, you have 220. But really, it doesn't make that much of a difference in appliances work pretty much as well in, say, Europe as they do in the U.S. So the advantages are small, and the cost is high. If you say long-term, like years from now, is it does it make sense to probably reach an 800 volt architecture? I said, probably, but it really needs a very big vehicle volume to pay for all the costs of, uh, changing from 400 to 800 volts. Um, And then do you want to continue with this?

I was just going to say, that 100 volts is also kind of like a spreadsheet exercise, right? Sorry, $100 is roughly like a spreadsheet exercise. You have to get through the full program to the end to see that maybe it's been whittled away to 50 or less. On bigger vehicles where you're talking about higher power on the charging side or higher power from the battery to the power electronics or you need more torque so the current requirements go up, There's a little bit more semiconductor and actual conductor savings of going to the higher voltage. And so we do consider that for semi and Cybertruck. But for the 3Y platform where we've got everything running and the benefit is questionably small. Yeah, it's basically zero for RoboTaxi. Yeah, for RoboTaxi, it doesn't make sense.

So. No, induction. No, no, sorry, sorry. No, this, that, so that's... Sounds good.

Okay, let's go to the next question. Next question is, how are the current 4680s performing versus expectations set during the battery day in terms of expected range increase and dollars per kilowatt hour?

Yeah. Yeah, we're working in all the areas we shared. uh on battery day and we have sort of consistent progress across all of those areas towards achieving the five-year cost trajectory uh goals for the cost within our control but we do not control uh all the commodity costs so you know that that's that's an exception i need to call out um similar to model three it will take us several years to get rate and yields to the point where everything that we've discussed is achieved um our priority was on simplicity and scale during our initial 4680 and structural battery ramps. And as we attain our manufacturing goals, we will layer in new material technologies we are developing and higher range structural pack revisions.

I think maybe in a nutshell, I think it's probably fair to say that 4680 and structural pack will be competitive with the best alternatives later this year. And we think we'll exceed the best alternatives next year.

Yeah. I mean, we have some good existing proofs, right? Like, we've built the facility here in Texas. Like, we know how much we spent on capital equipment in the facility. And it's, you know, more than 5X less than prior technology installations. So we're saving huge on CapEx. On utilities and personnel, we know what those loads are and how many people are needed to run them. what is basically a highly-automized factory. And we have massive reductions in both of those. So, like, the cost model is well understood. It's really about rate and yield, which will come in time, as Elon said, over the course of this year and next.

Yeah. Thank you. And the next question is, how does Tesla plan to secure raw materials required to scale to extreme size?

Yeah, so this is something we think about quite a lot. It depends what extreme size means, but So it's like looking at, like, say, five, ten, $20 million, five, ten, 20 million vehicle levels, you really have to analyze the sort of macroeconomic, you know, just like what is the tonnage of lithium that you need, of nickel, of iron phosphate, of graphite? separators, electrolytes. You really need to think of just macro tonnage. And we need to think about this for the world as a whole because we want to figure out what are the limiting factors for accelerating the advent of a sustainable energy future. And whatever those limiting factors are, Tesla will take action on those limiting factors. So right now we think mining and refining lithium appears to be a limiting factor. And it certainly is responsible for quite a bit of cost growth in the cells. It's the single biggest cost growth item right now, absolutely on a standard basis. Although just for those who don't totally know this, the actual content of lithium in a lithium ion cell is maybe around 2 or 3% of the cell. 5 kg is a car. Yeah, it's not 5 kg. It's called a lithium ion cell, but by far the most expensive and heaviest item in the cell is the cathode. So that's the nickel or the iron phosphate. So we're looking carefully at all of the raw materials and trying to figure out how we can accelerate the total amount of raw materials needed to transition the world to sustainability. And I think we don't have enough time on this call to really go through all those details, but we are thinking about these things, and we think we'll have some exciting announcements in the months to come.

Yeah. One thing I want to call out is, like, we're also, you know, committed to recycling at all of our cell factories. We're recycling 50 tons a week right now in Reno and ramping to 150 with all of that reclaimed material going directly back into our cathode supply chain. So we're looking at the beginning and end of life needs here.

Yeah. And that's true. Like, since Reno, we built Gigafactory, we started doing that with batteries. But as we built newer factories or vehicles – For example, Giga Texas here, where we are today, recircles all of its non-yielded or scrap aluminum from the stamping shop directly into the casting shop. We regrind any plastic that goes out. And so we're really concerned about raw materials, not just like mining them and consuming them, but when we get them in the door, using all 100% of them.

Yeah, Lars, that's a great point. So we're installing sort of mouth furnaces for aluminum, like so forth. You know, for the Model Y that we've built here at Giga Texas has both a front and a rear body casting. So we're casting almost two-thirds of the body, and then that's high-pressure die-cast aluminum. And so we can take both aluminum, both scrap from the casting machine and the gating that comes out and put that back just – really toss that back into the aluminum melting pot, and then as Lars was saying, also take any stampings and any other aluminum scrap and also throw that in the melting pot. In fact, we've also figured out that we can use wheels, wheels from practically any car. Yeah, so we're going to be recycling the cast aluminum wheels from legacy gasoline cars as well and throwing that in the melting pot for our aluminum cast body of Model Y. And, you know, and also we'll be moving to the sort of cast front and rear body, you know, in all vehicles over time. Well, actually, maybe not SX, but 3Y.

Thank you. At what rate do you expect Berlin and Austin to ramp relative to Shanghai? Are you able to leverage learnings from Shanghai, or are the processes substantially different in the new factories?

Ramp production faster than Shanghai because we have learned a lot, and we've now been through the – we have basically veteran teams that have seen the 3Y ramp, the Y ramp especially, in multiple locations. And we're obviously sharing what we've learned. And so we don't want to get complacent or entitled, but this should be a faster ramp because we have learned more and we've done a lot to simplify the production process of Model Y. That should lead us to a faster ramp in Texas and Berlin.

We also have, because it's structural and casting, about 30% less robots, we expect to almost double the capacity for body, for example, reducing the number of robots, but doubling our capacity in a lot of areas.

Yeah, right. The body line for the structural pack is, if you've got a structural pack and front and rear castings, the body shop is... body shop size drops by over 60% relative to the standard way of making a car.

Not taxing to General Assembly and everything else, because we have the structural battery, the floor is the battery, we put the seats on the battery, and then we put that in the car, so there's actually between 10% and 15% less station to GA because of the General Assembly side. So really, I think about this in the way that we think about cars. If you're waiting for the best Tesla,

going to be waiting forever if you're waiting for our best factory you're also going to be waiting forever because every new factory is better than the last one because we take all that learning so yeah thank you um next question is at cyber rodeo elon mentioned that a futuristic driverless robot taxi vehicle is on the road map when can we expect more details on the product offering to be unveiled is this something that people can own or will this be only offered by tesla as a service

So I think we want to hold off on – we don't want to jump the gun on an exciting product announcement too much. So I think we'll aim to maybe do a product event for Robotaxi next year and get into more detail. But we are aiming for volume production in 2024. All right.

And maybe the last question from investors is, what is the current run rate of 4680 cell production at Fremont and at Giga Texas? What do you expect run rates of 4680 to be in Fremont at Giga Texas or Berlin at the end of the year?

Well, Berlin is using the 2170 non-structural pack, so they're not constrained by 4680. They will transition to 4680 hopefully later this year. But current bullet production does not require that. We also have, just as a risk mitigation, 2170 non-structural pack capability here at Giga Texas as well. But if things go according to plan, we will be in volume production with 4680 sometime perhaps towards the end of the third quarter and certainly in the fourth quarter.

Yeah, and the other thing I would add is, like, with the China COVID shutdown and the semiconductor bottlenecks we had through Q4 and a little bit in Q1, we have sizable cell inventory at the moment and excess cells to support the 2022 volume targets you described earlier. So that gives us the ability to be pretty deliberate in the 4680 ramp where we can maximize the learning step-by-step, take engineering downtime to upgrade key pieces of equipment and modify the structural pack design to improve reliability, all while achieving what you just said.

Yeah, a 4680 output is not a risk to achieving one and a half million vehicles produced this year. But it would become a risk next year if we do not solve volume production problems. by early 2023, but we're highly confident of doing so.

Thank you very much. Let's go to analyst questions now. The first question comes from Dan Levi from CSFB. Please go ahead and unmute yourself.

Hi, good evening. Thank you for taking the questions. First, maybe you can just talk through or address what some of the drivers of cost improvement were in the quarter. Was it just further improvements within Shanghai or in Fremont? You know, anything around sort of ongoing Kaizen that you've talked about in the past? Maybe you could just talk through what you benefited from in the first quarter.

Sure. I mean, at a high level, cars produced in Shanghai do carry a lower cost structure than cars produced in Fremont. And so as our mix of cars shift towards Shanghai, the average cost is positively impacted by that. We're also seeing some progress in manufacturing efficiencies in Fremont, particularly on the S&X side, as volume increases, improves there. Expedites has been a huge story for the company. Q4, we had massive amounts of expedites. Q1 was still quite large, but we did make progress bringing that down some.

To your mention, like, kudos to the Fremont Main Action Team and our associates there because we're achieving record output at Fremont.

yeah the fremont team is doing a tremendous job really absolutely from the back quarters yeah yeah um uh it's hard to under underweight like you should the expedite situation with the crazy logistics that occurred with covid i mean yeah and you know to elon's point you know the The Fremont team and also the Shanghai team has been extremely dynamic with the unpredictable nature of our part arrivals and our supply chain team in particular production planning portion of supply chain. We often get very little notice when there's part shortages coming and it's kind of a scramble a couple of days before that part is supposed to arrive to figure out how to get it here. And so the amount of Herculean effort that goes into produce a quarter like Q1 And even the quarters before that is absolutely immense.

And I mean, it's like the saying in the military, you know, it's like amateurs talk about tactics. Professionals talk about logistics when it comes to war.

Yeah. You know, so there were some inherent cost improvements, as I mentioned, but, you know, there's also offsets that we've talked about previously on raw materials, commodities. Outbound logistics continues to remain a challenge despite a ton of efforts to increase capacity there and bring those costs down.

Yes, thank you. Second question, you know, one of the initial goals of Model 3 way back when was to have an EV that was affordable for a wide portion of the market. And, you know, we know prices are much higher now just given the supply constraints. Prices are higher for all of the ride makers. We know that there's inflation that you're battling through and some of that needs to be passed through to the price of the vehicles. And you're going to be supply constrained for the foreseeable future. So it's sort of a moot point. But given the goal long term of making EVs more widely available to the masses over time, how do you look at the progression of prices over time?

We absolutely want to make EVs as affordable as possible. It's been very difficult with the, you know, I mean, I think inflation is at like a 40 or 50 year high. And I think the official numbers actually understate the true magnitude of inflation. So, and that inflation appears to be likely to continue for at least the remainder of this year, when we're talking to suppliers, suppliers are under severe cost pressure. So, yeah, in some cases we're seeing suppliers request 20% to 30% cost increases for parts from last year to the end of this year. So there's a lot of cost pressure there. That's why we raised our prices, because when things with respect to inflation, if you know it's high, and we've got orders that go out a year or more in some cases, then we have to anticipate those cost increases. But I think especially with the robo-taxi and autonomy, I think we'll end up providing consumers with by far the lowest cost per mile of transport that they've ever experienced. Yeah, I mean, with a road tax like maybe five to ten times lower cost per mile, it's really quite substantial.

They're far accessible to everybody.

Yeah. I mean, looking at some of our projections, it would appear that a rubber taxi ride will cost less than a bus ticket, a subsidized bus ticket or subsidized subway ticket.

Thank you very much. Let's go to the next question from Rod Latch from Wolf Research.

Hi, everybody. I'm trying to just parse out your comments about the inflation and constrained supply and battery feedstocks and the initiatives that you are working on internally to secure these materials. It sounds like you're optimistic about Tesla's ability to solve this for Tesla. But do you see this as a constraint on EV adoption more broadly?

Yeah, absolutely. Yeah, what's keeping our costs down, at least in the short term, is that we have long-term contracts with suppliers, but those long-term contracts will obviously run out, and then we'll start to see potentially significant cost increases. But out of macros, sort of looking at the world as a whole and saying, okay, what does it take for Earth to transition to sustainable energy faster? The fundamental limiting factor is the output of the cell, the basic cell output. At what rate can lithium ion cells increase the gigawatt hours per year? That is the fundamental limiting factor. And that will move as fast as the slowest, least lucky element of the whole supply chain. Currently, we see that as being a challenge with lithium. And it's not that, to be clear, it's not that there's a shortage of lithium ore in the world. Lithium is present almost everywhere. It's a very common element. However, you still need to dig up the or dig up basically the sewage mean or whatever, the clay with the lithium, and then you need to go through a whole series of refinement steps. And that's a lot of industrial equipment that's needed to refine lithium or to lithium that can be used as lithium hydroxide or lithium carbonate in the battery cell. So we think we're going to need to help. the industry on this front. But the industry is growing fast. And I'd certainly encourage entrepreneurs out there who are looking for opportunities to get into the lithium business. The lithium margins right now are practically software margins. I mean, I think it's something, literally, I think there's a I mean, correct me if I'm wrong, but I think we're seeing cases where the spot lithium price is 10 times higher than the cost of extraction. So we're talking 19% margins here. Can more people please get into the lithium business? Do you like minting money? Well, the lithium business is for you.

So interesting. So I guess we'll stay tuned to see what happens from that. My second question is, it's impressive to see just a modest increase in costs per vehicle, costs that get sold per vehicle, given what we've seen in terms of commodities, actually. And from here, you have a lot of savings opportunities with 4680 cells and the cell manufacturing changes, the anode chemistry, structural packs, gigacastings. Are you suggesting that even those may not be sufficient to offset the inflation that you're seeing and that you're going to need additional pricing as well in addition to those specific initiatives that you've called out?

We hope we don't need to increase the pricing further. The current pricing is anticipating what we think is the probable growth in costs, and if that growth in cost does not materialize, we actually may slightly reduce prices. So we don't currently anticipate making significant price increases, but obviously we don't control the macroeconomic environment. If governments keep printing vast amounts of money and And if there's not significant increases in lithium extraction and refinement and other raw materials such that everyone's competing for a limited amount of raw materials, then obviously that will drive prices to high levels. So if you have a crystal ball that can tell us what the future is going to be like, we'll adjust accordingly, but The current prices are for a vehicle delivered in the future, like six to 12 months from now. So this is our best guess.

But I think if you zoom out, right, like as you said, our mission is to accelerate the transition to sustainable energy. So we are working with our existing suppliers and others to figure out how to grow all of these raw materials as quickly as possible to not slow down the transition.

Yeah.

And, you know, whether that means we have to get directly involved in some cases or not comes down to the counterparty and their willingness to expand at the rate we think they should be able to expand. And that's similar to what we've done with everything else. We built a gigafactory in Reno because it needed to be done. Yeah. And so, like, we will do what needs to be done to not slow down the transition. And affordability is a goal because, yeah, it's unaffordable. It's going to retard the growth of what is inherently a good thing. So we can't have that as an outcome.

Thank you. The next question comes from Pierre Ferragu from New Street Research.

Hi, can you hear me well? Yeah. Great. I'd like to ask you some questions about free cash flow. Do you... So first, maybe in the long run you learn, If you look at your performance and your growth model and your growth ambitions, I did the math very quick, and I see you guys sitting on four, maybe $500 billion of cash at the end of the decade. And I was wondering if it's something you have given some thoughts about.

Yeah, but that might be like, you know, if inflation keeps going crazy, $500 billion might be like, you know, $20 billion today. I don't know. So, you know, we'll see what $500 billion buys you, you know, in a decade. But it might be a lot less. So I don't know if we'll – that seems like a lot of cash. Yeah. I don't know what we'll try to do something useful with it. I mean, exactly. So every ice that's wrong, that's for sure.

And the way we've been, I think we have to take this one step at a time. And so, you know, we have investments that are happening right now to get Austin and Berlin up and running. And then, as Elon mentioned, installing capacity for a taxi production. And, you know, there's some decisions that, as Elon alluded to, just, you know, to share in the future about what the economic model looks like. What the economic model looks like for robo-taxing. And so, you know, the way Elon and I have discussed this is. Let's just. Yeah, everyone just mute if you're. Yeah, so our focus is, you know, to get to the point where robo-taxis are on the road. Optimus is in use, get the economic model for that dialed in, and then evaluate, you know, the size of cash flows at that point and make decisions then as to what's next.

Okay, Pierre, do you have a follow-up question? Yes. All right. Let's go to the next one. The next question comes from Trip Chaudhry from Global Equity Research.

Thank you. Two questions I have. First is regarding the Cybertruck. I was wondering, like, in terms of number of parts, how would Cybertruck compare with a traditional pickup truck in terms of number of parts? The second question I have is on Gigafactory Nevada's parts. Will we have any production of vehicles in that factory, or all the future production will happen in Giga Austin? Thank you.

I'm not sure if we've actually done a comparison of Cybertruck parts versus regular truck parts. I mean, Lars?

Yeah, I mean, if you want to go down, it depends on what you kind of park. We still have cells, and so the balance of cells is very important. That shouldn't count. If we don't count that, the simplicity of our structure is significant versus a traditional you know, pickup truck or any other vehicle. Like, you know, as we've talked about, they're gigacastings. We save hundreds of van parts there. I mean, the entire rear kind of half of the car is one casting. And even still with the Cybertruck and the doors, for example, we have an exoskeleton design where the door is ready to take all the, you know, the side load from impact. So we really have, like, we don't have the door reinforcements. We don't have the crashing curtain beams. So to your point, I haven't counted them because I don't often look back at old technologies to decide how well I'm doing. I check that once in a while. But in general, our architecture is always moving to reduce complexity, reduce parts, and reduce parts count. I would say ignoring the battery cells, we're probably 20% to 30% less. All right. Okay.

Thank you. Let's go to the next slide. Okay.

Do we expect to expand? Yeah, we do expect to expand Giga Nevada. There's a lot of room for expansion there, and we do expect to increase output from Nevada. But by far the biggest increase in output will be from Giga Texas.

Thank you very much. The next question comes from Alex Potter from Piper Sandler.

Alex, can you hear us? Yes. Hi, Martin. Can you hear me? Yeah. Okay, great. So first question I had was the extent to which other plants outside of China are insulated from any further upstream supply bottlenecks that we may have in China. Obviously, if this COVID lockdown thing gets out of hand, clearly that's going to continue impacting Shanghai. But is there a point at which it could actually also impact other facilities?

Yeah, if it were to continue, but there are some parts that are sourced in China that apply worldwide, and that would be, that would impact production elsewhere, but all indications are that, you know, we are, Shanghai is back in production at fairly high levels already, and so are our suppliers, so We don't think this is going to be a big deal.

Okay, thanks. Second question. Obviously, the higher profitability you guys have been able to experience over the last couple quarters, a lot of that is reflecting sort of quote-unquote real improvements. Another part of it is because we're no longer paying you, Elon, as much as we were. So I'm wondering, you know, the extent to which you and the board are in the process of contemplating another one of these long-term compensation packages, which in the past have seemed to work out quite well. Thanks.

There are no discussions currently underway for incremental compensation for me.

Thank you. The next question comes from Colleen Langham from Wells Fargo.

Oh, great. Do you guys hear me? Yeah. Just follow up, sorry to keep going on the raw material issue on the battery side, but obviously seems pretty important. How quickly can raw material supply be built? Because my understanding is it takes many years to build that out. So are we just sort of facing, when do you think we see a lithium shortage or a nickel shortage? And is there even enough time to build that sort of mining capacity in place? And then related, you know, how quickly can you switch to like LFP, you know, for the nickel issue?

Yeah, I mean, I'll take the LFP question. Like, you know, it says so in our letter, but like half of our products were LFP last quarter, which shows how quickly we were able to respond to, well, honestly, it wasn't because of a raw material shortage, but just because it seemed like the right thing to do, we could change our cathode chemistry. And there's more to be done on the cathode side, and we are actively pursuing it to give us substitution flexibility in response to market conditions between the other cathodes that are out there that can be competitive in our vehicles, of which there are many options. So, you know, we – I guess what I would say is specifically on the cathode side, like flexibility is the way we're going to achieve this. And not all of the materials that go into cathodes are actually, first of all, hard to secure like through mining or refining. And second of all, in many cases are like very plentiful already, like huge scale. And, you know, if all of the batteries in the world use those cathodes, it's less than a 1% increase in total capacity. annual output. So that's the cathode side. I think Elon already spent a lot of time talking about lithium. It really depends on the resource. Some resources, like just getting rocks out of the ground, expanding the amount of rocks that you're getting out of the ground is maybe a little bit of paperwork and some additional sort of blasting and trucking operations. The refining is maybe where it's a little bit more chunky to bring it online, but Also, the refining doesn't – it's not like an oil refinery. It's a much smaller operation to refine lithium out of spodumene or liquid, like a brine or a salt pond evaporation. So, you know, you're talking about a timescale of one to two years, and it's not like we haven't been talking to all of the lithium suppliers out there for many years. They have a lot of projects already in the pipeline to come online this year and next. some of what's going on in the lithium market this year doesn't actually have truth to bear to the, like, fundamentals of supply and demand, which is also a little frustrating. But, yeah, if we look past this year or next year into 2030 when we need 15 to 20 terawatt hours of this stuff to, you know, get on the growth trajectory, stay on the growth trajectory we're on, we need everybody to do more in the lithium space than they currently are. I don't know if that answers the question.

Yeah. Fantastic. Thank you very much. So let's go to the last question from Mark Delaney from Goldman Sachs.

Yes, good afternoon, and thank you very much for taking the question. I was hoping you could comment on your latest thoughts about potentially opening up the charging network in the U.S. to non-Tesla owners. It's certainly really important to have a good experience for Tesla owners in terms of wait times and charging stalls. But if Tesla is able to have enough capacity, it could be a really good way to bring other vehicle owners into the Tesla network, perhaps help Tesla to sustain its network benefits and maybe make more people likely to buy Tesla vehicles in the future.

Yeah, as Elon has said and as we've publicly committed, yeah, we do plan to provide third-party vehicle access all over the world, not just in Europe where our original pilot was. And we are working on solutions in North America, which is a little bit more problematic with our connector being different than others. But we are, you know, we are moving in that direction. I don't know if you want to add.

Yeah, I think there's more to be said on that. Yeah, we want to do the right thing with respect to the whole system.

And we're going faster on adding chargers. Absolutely. With the growth of the cars that we're producing and then anticipating what Drew is discussing, overall charger capacity is really important. And so the pace of our investments in supercharging has accelerated.

Absolutely. Absolutely. Okay, that's helpful. And for my second question, could you share any more details on Tesla insurance in particular as you're rolling it out in more states? Are there any metrics you can share on what take rates have been like and how do profitability margins on the insurance offering compare to the corporate average? Thank you.

So we just launched Tesla insurance for real-time insurance in Virginia, Colorado, and Oregon earlier this week. Maybe one step that I'll share is that Texas is our longest standing real-time insurance market. But based upon the information that we have, Tesla is the second largest insurer of Teslas in the state of Texas. And possibly by the end of this quarter, maybe early next quarter, we'll be the largest insurer of Teslas. And so, you know, the customer reception to this has been quite positive. And I was reading social media on Monday after we launched in the three new states. A lot of folks were reporting their stories of saving quite substantial amounts of money relative to their previous insurance. And so we're quite encouraged by that, and we're working as quickly as we can to get to 80% of customers having access to a Tesla insurance product by the end of this year in the United States, at which point we'll pivot our attention to expansion outside of the U.S., The other thing I'll say on insurance is with these three new states, the model is different because we are now the underwriter and we are also now holding the risk. And so with those states, we are a fully vertically integrated provider of insurance from systems and financials. With respect to the financials of the program, it's still very early. And so as the program gets more scale, happy to share more information on that.

And one side note is that we are seeing that the having real time feedback for driving habits is actually resulting in Tesla owners driving the cars in a safer way. So, you know, because they can see the they get real time feedback on, OK, this is this is affecting my insurance rate or it isn't. And and so when people can see it or see a real-time score and realize, oh, if I make the following changes in my driving habits, then I pay less in insurance, then they have a very, like a real-time feedback loop for driving, for safer driving and an incentive to do so. So it is actually, what we're seeing is it is causing people to, drive their cars in a safer manner, which is also not good.

It's safer, on average, what we see in the data to Elon's point, and premiums are lower. We see that in the take-break data. We have extremely high retention for customers who experience the product. And I think I've talked about this in the past, but this has become a real passion program for us, you know, for these benefits. It's bigger than just the economics. We're trying to do a good thing here for our customers, save people money, and make the roads a little bit safer.

I think it improves just overall macroeconomic efficiency. It's also a feedback loop for Tesla because we see if there is a crash, large or small, we sort of see exactly what that costs. And now we're thinking about how can we change the design of the car or the software in order to minimize the probability of that accident? Because most accidents are minor. But how do we have those accidents occur less frequently? And how do we make the repair associated with that accident super fast? Aspirationally, it would be like same-day repair for a collision, which is just night and day difference compared to sometimes having to wait for a month while insurance claims are settled and figured out. Because Tesla is also doing collision repair.

Yeah, the feedback loop is instant.

Yeah.

Right? So, I mean, we do claims management in-house. And so we receive the notification that there's an accident. We work to prepare the estimate. And we can, you know, with the support of our customers, use our collision centers to do the repair.

Yeah.

And so it's, you know, full end-to-end visibility and all of that, to Elon's point. We can then identify areas of cost and efficiency, feed those back to engineering teams or elsewhere, software teams, actually improve the product, which lowers the cost of insurance, improves reliability of the product. So it's a full circle.

Yeah. Basically, the customer experience is just vastly better because if there's an accident, there's no argument. We repair it immediately. This is as compared to arguing with an insurance company and then a claims adjuster and then a collision repair center. And this can be a nightmare, basically. So we want to try to turn a nightmare into a dream with Tesla Insurance.

Fantastic. Thank you very much. Unfortunately, that's all the time we have this quarter. So thank you very much for all your great questions, and we'll speak to you again in three months.