Tesla, Inc.

Good afternoon, everyone, and welcome to Tesla's third quarter 2022 Q&A webcast. My name is Martin Vieca, VP of Investor Relations, and I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q3 results were announced at about 3 p.m. Central Time in the update that we published at the same link as this webcast. During the 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 Q&A session 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. But before we jump into Q&A, Elon has some opening remarks. Elon? Thank you, Martin.

So just to do a Q3 recap, Q3 was another record quarter on many levels. We had our industry-leading operating margin reach 17%, and our free cash flow surpassed $3 billion in Q3 and approached $9 billion in the past 12 months. As our factories ramp, we're looking forward to a record-breaking Q4. So it really, you know, Knock on wood, it looks like we'll have an epic end of year. So Q4 is looking extremely good. On the production ramp, Giga Berlin achieved another milestone of 2,000 cars made in a week with very good quality and is ramping rapidly. Giga Austin or Giga Texas should reach this milestone very soon. And In fact, just yesterday, if you extrapolate yesterday's hold rate, it would be 2,000. Our production of 4680 cells has tripled in Q3 compared to the previous quarter. We are finally gaining rapid traction on the 4680 cell. Its output is growing rapidly and we expect it to start incorporating cars and having it be a significant portion of our production here in Texas in the coming months. We also have our second generation of manufacturing equipment for 4680 sales in Texas, which continues to show great progress along with our original pilot line in Fremont. The Fremont factory team once again reached record production in Q3. and we intend to keep raising production in Fremont. Regarding autopilot, at the end of September, we hosted our second AI Day and showed the first prototype of our Optimus robot, the latest updates on our Dojo training computer, and a wide range of improvements of full self-driving software. Our vehicles have now driven nearly 60 miles in full self-driving beta mode, and the sound of it continues to grow exponentially. Our goal with that AI day was recruiting, and we've seen a massive influx of world-class artificial intelligence engineer and scientist resumes. So it generated tremendous amount of interest from some of the best AI researchers in the world. I can't emphasize the importance of this enough. because I think it finally has become clear to the smartest AI technologists in the world that Tesla is among the very best. So at this quarter, we expect to go to a wide release of full self-driving beta in North America. So anyone who has ordered full self-driving will have access to the FSD beta program this year, probably about a month from now. And then obviously anyone who buys a car and purchases a full self-driving option will immediately have that available to them. So the safety that we're seeing when the car is in FSD mode is actually significantly greater than the safety we're seeing when it is not. which is a key threshold for going to a wide beta. Let's see, with respect to demand, we've got a lot of questions about demand in recent weeks. I can't emphasize enough. We have excellent demand for Q4, and we expect to sell every car that we make for as far into the future as we can see. So the factories are running at full speed. and we're delivering every car we make and keeping operating margins strong. So we're still a very small percentage of the total vehicles in the road, other 2 billion cars and trucks in the road, but we only have about 3.5 million. So we've got a long way to go to even reach 1% of the global fleet. Let's see. Based on my... based on many things, but certainly questions I get on Twitter about buybacks, and I think everyone of our board members has gotten questions about buybacks. We've debated the buyback idea extensively at board level. The board generally thinks that it makes sense to do a buyback, but we want to work through the the right process to do a buyback. But it is certainly possible for us to do a buyback on the order of $5 to $10 billion. Even in the downside scenario of next year, even if next year is a very difficult year, we still have the ability to do a $5 to $10 billion buyback. This is obviously pending board review and approval. So it's likely that we'll do some meaningful buyback. So in conclusion, while the market themes revolve around the short term, it's very important to focus on the long term. I can't emphasize this enough with investors, and I think long-time investors obviously recognize this with Tesla. You have your sort of local ups and downs. But long-term trend has been extremely good. And several years ago, I said, I think on an earnings call, that I thought it was possible for Tesla to be worth more than Apple, which was then the highest stock cap company, I think, on the market. And Apple at the time, I think, was around $700 billion. And I said it required incredible executions at least some luck and we didn't even indeed achieve that because they went back our past uh apple's market kept time and um and now i'm of the opinion that we can far exceed apple's current market cat in fact i see a potential path which has to be worth more than apple and saudi aramco combined so now that doesn't mean it will happen or that will be easy in fact it will be very difficult to require a lot of work some very creative new products um madness expansion um and always some luck But for the first time, I am seeing, I see a way for Tesla to be, let's say, roughly twice the value of Saudi Aramco. And I think that's, I haven't quite seen that yet. I mean, this is the first time I've seen that potential. I mean, we have an incredible product portfolio. I think we've got the most exciting product portfolio of any company on Earth, some of which you've heard about, some of which you haven't. We're in the final lap for Cybertruck. We're building the Cybertruck line here at Giga Texas, Austin. And making a lot of progress in the Robotaxi platform design. And then with respect to batteries, we're moving as fast as possible to have to achieve 1,000 megawatt hours a year production capacity in the United States. vertically integrated. So anode, cathode, lithium refining, we're moving at a top speed to do that. So I think it's an incredibly exciting future and really an unprecedented future. But none of this would be possible without the incredible team that we have here at Tesla. So I'd like to give a huge shout-out to all of our factory employees, engineers, executives, and the whole Tesla team. You guys rock. You're the ones making it happen. Thank you. Thank you, everyone. Thank you very much.

And Zach, as I'm offering remarks as well. Yeah, thanks, Martin. Just to continue on Elon's theme, I just want to thank and congratulate the Tesla team for achieving record vehicle deliveries, production, and storage deployments in the third quarter. On automotive profitability, our gap operating margin was 17.2% with automotive gross margin at 27.9%. Operating margin is one of our best yet with improvements in operating leverage. However, Austin and Berlin ramp costs weighed on our margins, particularly if you compare it to Q1. Removing regulatory credits and Austin and Berlin, our operating margins would have been our strongest yet, and auto gross margin would have been nearly 30%. Note that while small and growing, each car we build in Austin and Berlin is contributing positively to profitability. We also continue to experience margin headwinds associated with macroeconomic conditions, as we've discussed at length on prior calls. In particular, raw materials, logistics, and foreign exchange was a big part of this past quarter. On energy profitability, we achieved our strongest gross profit yet for this business, driven primarily by record volumes of our mega pack and firewall products. Our free cash flows were also a record, despite an increase in cars in transit at the end of the quarter, which has a negative impact on working capital. Specifically on cars in transit, as noted in our press release on October 2nd, we've started to experience limits on outbound logistics capacity, which we didn't anticipate. This issue is particularly present for ships from Shanghai to Europe and local trucking within certain parts of the U.S. and Europe. Our historical operating pattern of batch building by delivery region leads to extreme concentrations of outbound logistics needs in the final weeks of each quarter. Just to put this in perspective, roughly two-thirds of our Q3 deliveries occurred in September and one-third in the final two weeks. As a result, we've begun to smooth regional builds throughout the quarter to reduce our peak needs for outbound logistics. We expect this to simplify our operations, reduce costs, and improve the experience of our customers. As we look ahead, our plans show that we're on track for the 50% annual growth in production this year. although we are tracking supply chain risks which are beyond our control. On the delivery side, we do expect to be just under 50% growth due to an increase in the cars in transit at the end of the year, as noted just above. This means that, again, you should expect a gap between production and deliveries in Q4, and those cars in transit will be delivered shortly to their customers upon arrival to their destination in Q1. Austin and Berlin ramp costs will continue to weigh on margins, although we expect the impact to be less than what we saw in Q3. And as Elon mentioned, we are continuing to build as many cars as possible while also maintaining strong operating margins. Thank you. Thank you very much.

And let's go first through the shareholder questions. The first shareholder question is, given the stringent battery content and assembly requirements for consumer tax credit eligibility under the Inflation Reduction Act, Can you speak to Tesla's ability to meet those thresholds in each of 2023, 2024, and 2025 with your existing and planned supply chain?

Well, yeah. I mean, I think just at a high level, I'll say we do expect to fully meet the IRA's requirements. Do you want to?

Yeah, you know, we view the passing of the Inflation Reduction Act as a significant boost towards accelerating our mission while also scaling the battery supply chain at large in the United States. We expect Treasury to publish detailed guidance by the end of the year. Until such time, it's difficult to fully determine the eligibility criteria, but we believe Tesla is very well positioned to capture a significant share of that for solar storage and also electric vehicles.

Yeah, like I said earlier, we're going to go basically pedal to the metal as fast as humanly possible to get to 1,000 gigawatt hours a year of production in the U.S. vertically integrated.

Thank you. Let's go to the next question. The next question is, what updates can you offer on the backlog and recent order intake trends, especially outside of the U.S. and especially in China?

Well, it's... There's definitely, you know, China is experiencing a recession of sorts, which is property market, property market mostly. And Europe has a recession of sorts driven by energy. The U.S. actually is in pretty good health, although the Fed is raising interest rates more than they should, but I think they'll eventually realize that and bring it back down again. So, you know, demand is a little harder than it would otherwise be, but as I said earlier, we are extremely confident of a great Q4, and we anticipate continuing to grow our vehicle production sales deliveries by, on average, 50% a year, as far into the future as we can see. Thank you. Actually, one caveat, I should say, growing production by 50% every year, because deliveries, we're trying to speed up the deliveries and not have this crazy delivery wave at the end of every quarter. So, in fact, we were just fundamentally running out of There weren't enough boats, there weren't enough trains, there weren't enough car carriers to actually support the wave. Tesla got too big. So whether we like it or not, we actually have to smooth out the delivery of cars into a quarter because there just aren't enough transportation objects to move them around.

Thank you. The next question is, do you still expect 50% annualized growth for the foreseeable future? Is this also true specifically for the Chinese domestic market? Do you expect to need to cut vehicle prices or offer incentives in any markets of sustained demand? Or has demand remained stable? Or is it even rising? Quite a few questions there.

Well, like I said, we want to sort of focus at a high level on what we think is possible here. To the best of our knowledge, we believe that Tesla will continue to grow deliveries and revenue production at a 50% or greater compound annual growth rate. It might occasionally be a year that is a little less, and then some years will be maybe a little more or a lot more. And some of our out-year planning, we see potential annual growth rates that are in excess of 50%.

Thank you. The next question is, can you tell us more about the product feature roadmap beyond new models and FSV, and especially for interior and powertrain of existing vehicle models?

Yeah. We could, but who wants to? Sorry, guys. We can't, like, jump the gun on future product analysis. Committed to continuous improvement. Yeah. We obviously are committed. Yeah. Tesla's... Not yet. We'll also be committed to continuous improvement. Yeah. At Tesla, we've always been committed to continuous improvement. So... This friend of mine asked me, like, when should I buy a car? I'm like, now, because we just keep improving the cars. It's always the latest Tesla. Yeah, this is the latest Tesla. I don't really... Every now and again, we do have some big technology upgrade, like Plaid. By the way, I think the Plaid Model S and X are the best cars on Earth. There's nothing even close, in my opinion. Just try one.

Thank you. The next question is, we keep hearing of dire energy crisis in Germany this winter. What are Tesla's plans to combat power cuts? And will there be any delays in ramp up in production for bigger Berlin because of this?

Yeah, I can take that. I think two points on this question. The first is that, Based upon everything that we know, we don't see this as a large risk to the company. Even if production did go down for a period of time, this is all near term. It doesn't have any impact on the long term of the company.

But we have no indication whatsoever that we will have to cut our production adjournment.

And we put in place backup plans, and we're working through the supply chain as well. Nearly all of our suppliers are prepared as well. So we'll see how this plays out, but it's not something that we're terribly worried about. Thank you.

And the next question is, how is production planning going for the Cybertruck? What is the initial phase one production target? When can we expect an update on pricing and final design?

Yeah, I mean, as Elon said earlier, we'd be on facilities preparations here in Giga, Texas for Cybertruck. We're still on track to enter early production in the middle of next year. We've started our data builds of All of the battery battery in existence. When can I drive my beta? In a few weeks. Thank you. Thank you. And that's going well. And, you know, we continue ramping up through the end of next year and into 2023. Good. Yeah, that car's going to be sick. Sick. Let's get a Hall of Famer next level. Sorry, I took it longer than expected. But, you know, there were a few things that got in the way, like Insane global supply chain shortages and headaches. Which are worse than yours if there ever was one. All right. Thank you. Of course, Tesla Semi, of course. So we'll be handing over our first production Tesla Semis to Pepsi on December 1st. I'll be there in person. And we'll begin ramping up production of the Tesla Semi, which is a Max load, heavy truck. Class A truck. Class A truck.

No sacrifice to cargo capacity.

Yeah, exactly. Very important. No sacrifice to cargo capacity. 500-mile range. Just to be clear. 500 miles with the cargo. Yeah, 500 miles with the cargo. On level ground. Yeah, fair. Not up, you know. But the point is, it's a long-range truck. and even with heavy cargo. And the number of times people told me, oh, you can't, it's impossible to make a long-range heavy-duty class A truck. And then I asked, well, what are your assumptions about what hour kilogram and what hours per mile? And they would look at me with a blank stare and then say hydrogen. I'm like, no, that's not the answer. I was looking for numbers. That's not a number. Anyway, you obviously don't need hydrogen for heavy trucking. That's what we're trying to make here. And we'll be ramping up semi-production through next year. As everyone knows at this point, it takes about a year to ramp up production. So we expect to see significant We're tentatively aiming for 50,000 units in 2024 for Tesla Semi in North America. And obviously we'll expand beyond North America. And these would sell, I don't want to say the exact prices, but they're much more than a passenger vehicle. So 50,000 heavy trucks of this nature would be worth several model bikes.

Thank you. The next question is, what is the progress of the 4680 cell ramp, and what factors determine whether vehicles get 2170s versus 4680 cells, and how will that change in the next year?

Yeah, ramp is going well. As Elon said, total output is up 3x quarter over quarter, and production is tracking to exceed 1,000 car sets per week this quarter, as we said last quarter. Our focus is now shifting from 100% ramp to cost and further expanding production capacity in North America, as Ilan also mentioned. On the 2170 versus 4680 in our factories, we really attempt to minimize factory complexity and product changeover while still making sure we get enough new product into the field to learn how it is performing. And that sort of mix is going to shift as 4680 scales here and the overall factory ran it

That proceeds in Texas. Right. But basically, the national 4680 graph is growing exponentially. And it's going well. We're looking at this. This is going to be a very major factor in the future. Yes. Like I said, we're our goal is to strive towards a thousand gigawatt hours a year of annualized production. United States law by Tesla, not including suppliers. Suppliers would be on top of that.

We need to get 300 to 400 terawatt hours built to accomplish our goal.

Yeah, this is roughly to transition to sustainable energy. Our calculation for both stationary and vehicles is 300 to 400,000 kWh, or 3 to 400 kWh.

So when you're like, one terawatt sounds like a lot, well, there's a lot of terawatt hours to go.

Yeah, that's what I'm saying. On the cathode side, the main cathode we think would probably be iron, and mostly iron, because iron can scale to very, very high tonnage, and And then some nickel, exact percentages are hard to figure out, but it's probably at least twice as much iron cathode as nickel, maybe more. And then just the manganese wildcard as well. All right, Peter.

And on that note, we're pursuing aggressively North American iron cathode supplies. Yeah, we can talk more about that on a future date.

Thank you. The next question was on the semi-track, which we already addressed, so I'm going to skip to the next one. Can you talk about how Tesla could adjust if we were to enter a prolonged recession, including new product prioritization, investment flexibility, new factory versus factory expansion, service support infrastructure, productivity cost measures, and demand stimulation alternatives?

Well, to be frank, We're going pedal to the metal, come rain or shine. So we are not reducing our production in any meaningful way, recession or not recession. It's the 1% point you made. Yeah, exactly. I think the public at large realizes that the world is moving towards electric vehicles and that it's foolish to ask people buy a new gasoline car at this point because the residual value of that gasoline car is going to be very low. So. So I think we're going to be in a very good spot that I would say is recession proof, but it's certainly recession resilient because basically the Earth has. The people both have. Much part made the decision to move away from gasoline cars to electric cars. And then in transitioning the generation to sustainable, you need solar and wind with the stationary battery pack to buffer the power. So you have 24-7 power because the wind doesn't blow all the time and the sun doesn't shine all the time. So that also is, we actually see the energy storage business, stationary storage, growing more like 150 to 200% a year. So much faster than cars by a lot.

Sorry, just to add, before you jump in, Martin, just to echo Elon's point, I think where our cash balance is, what our forecasted cash generation is, where our margins are as a company, we can withstand quite a lot of downsides. before we would have to dig into our capital plans, supercharger expansion, product lineup. So, you know, the business has done quite well over the last handful of quarters. And this is a real opportunity, I think, for the company to press forward in the most aggressive way, as Elon has mentioned.

Yeah, we try to model out, like, let's say 2023 is a brutal recession year. Even then, we generate meaningful cash. Once you get out of that, I'm sure it will pass its time.

Thank you very much. And let's go to the last investor question, which is the progression from Tesla's first platform with SMX to the second platform with 3NY led to 50% reduction in cost of goods sold. What do you see Tesla's third platform being released and what level of cost of goods sold reduction could you achieve?

Well, we don't want to talk exact dates, but this is a, I mean, the primary focus of our new vehicle development team, obviously. At this point, we've done the engineering for Cybertruck and for Semi, and so it's obviously, I guess, what we're working on, which is the next generation vehicle, which will be probably about half the cost of the 3Y platform. It'll be smaller, to be fair. But it will, I think, swiftly become, swiftly exceed the production of all our other vehicles combined. Yeah, I mean, obviously, we're going to take everything we learned from SX, 3Y, Cybertruck, and Semi and pour it into that platform. But we, as you've said to us many times, we're on a two-for-one target, so... Yeah, you know, that we buy as a, trying to get to that 50% number again. It's like, what would it take to, if that's exactly what we're trying to do, how do we make two cars for the amount of effort that it takes us to make one Model 3?

Yeah, effort, cost, efficiency, all those things. That's the loss. That's the cost. That's the factory floor space.

That's the choice they output. And we do believe this can be done. By the way, I should mention that when I said that probably that I see a path being extreme, a very difficult path, incredible execution required, massive amount of hard work and some luck to get to where Tesla is worth as much as Apple and I wasn't including Optimus.

Thank you. Let's go to analyst questions next. The first question comes from Adam Jonas from Morgan Stanley. Adam, go ahead and unmute.

Great. Can you hear me? Yep. Yep. So, Elon, would you consider vertically integrating into mining? That's my first question.

We'll do whatever we have to. Whatever the limiting factor is, we'll do. We do not artificially constrain ourselves. We don't vertically integrate just for the hell of vertically integrating. If there's a great supplier who's better than us or we think is very good, or even where the economics of comparative advantage suggests that we should use that supplier, even if we could beat them, but we could use our resources to do something else that would be more productive than we would in-source in that case. But if we have to go mine, we will mine.

Okay. Thanks, Elon. My follow-up is, you know, one terawatt hour of manufacturing in the United States, vertically integrated. I guess my question is, what would need to change with U.S. permitting laws to allow that? Kind of what would be your message to this administration or next? And do you think you could do a terawatt hour? What's the going price of that? Can you do that for under 100 billion bucks in the States? Thanks.

Well, I think that the message to the government would be that there should be I should say we've actually had conversations with a number of senior government leaders, White House, Congress, and whatnot. And the suggestion that we have is that there should be an expedited permitting process for anything which is critical to a sustainable energy future. So it doesn't make sense to put, like, a coal mine and a, you know, sustainable energy project actually like lithium mine in the same category. You know, coal does not have a future, lithium does. And by the way, you can extract lithium with almost no disturbance to the local environment. So it's not like some ugly, nasty mine situation. So So I would recommend expedited permitting would really be helpful. Basically, yeah, fast-track environmentally. I think fast-track things that are important for the environment and humanity's future. That seems logical. And the reception has been positive, so we'll see if something happens with that. I think probably on this earnings call, we're not ready to go into financial details of what it would take to get there. But what we are seeing is radical improvements as we redesign the whole supply chain and all of the elements that go into battery cell. We're figuring out dramatic efficiencies. And I think the net result of which would be that the capital required to achieve that level of output will be much less than what people think.

Thank you very much. Let's go to the next question from Colin Langan from Wells Fargo. Colin, go ahead and unmute. Can you click unmute? Oh, you hear me now? Yeah, we can hear you.

Okay, sorry about that. Any update on full self-driving? I think you had said a couple quarters ago it would be available by the end of the year. Is that still possible? Would it still be like a level four or level five that you're talking about? And are there any sort of regulatory hurdles you'd have to think about?

As I said earlier, we're expecting to release the full self-driving software to anyone who orders the package. for the end of this year. It's a separate matter as to will it have regulatory approval. It won't have regulatory approval at that time. But the car will be able to take you from your home to your work, your friend's house, to the grocery store, without you touching a wheel. It's looking very good.

And it would mean like level four, level five kind of traditional definition you're talking about.

Well, this debate is like, what's the, what are the interventions per mile and all those, maybe the safety interventions per mile. Like, we're not saying that that's quite ready to have no one behind the wheel. It's just that there will, you will almost never have to touch the vehicle controls. So like when I came to Giga Texas today from a friend's house, I never touched any of the controls over here. And then there is a longer process of like what's called the March of Nines, of like how many nines of reliability do you need You could really be comfortable saying that the car could drive with no one in it. And, you know, that's some subjectivity is how many nines you need. But I think we'll be pretty close to having enough nines that you can have no one in the car by the end of this year. and certainly without question whatsoever in my mind next year. I think we'll also have enough data next year to be able to show to regulators that the car is safer, much safer than the average human.

Got it. And just as a follow-up, you mentioned in the prior questions about IRAs, I mean, it sounded like you thought you could get – can you get all of it? I mean, because my interpretation is like the production credits, battery component credits for buyers seems very likely for you guys. Is the sourcing part of it possible? Because that seems like a pretty tough hurdle given how much has to be sourced from the U.S. Yeah.

So we have a cross-functional team that's looking very closely at it. As you mentioned, the sourcing threshold increases by the year. So we're looking at all options and also getting some clarification from Treasury. It's important to say that's only a fraction of the other credits. We do manufacture ourselves in the U.S. We manufacture the modules in the U.S., so that's pretty free and clear. So, yes, we feel confident that we'll have a path as these incentives, as the threshold sort of increases by the year. Yeah, we'll meet those thresholds.

Thank you. The next question comes from Colleen Rush from Oppenheimer. Colleen, please go ahead and unmute yourself.

Thanks so much, guys. You know, the operating leverage has been pretty impressive here, and I'm curious about areas where you could, you know, invest in an incremental way, whether it's on the R&D side or on the sales side to accelerate growth or cost reduction, or should we be thinking about this level of spend on a go-forward basis and some significant operating leverage as you scale up from here?

Yeah, I mean, our operating leverage has improved quite a bit. It's the lowest this quarter, I think, ever, and by a decent amount. Our OPEX has a percentage of revenue. I mean, our forecast is that it will keep reducing. I mean, I think the way to think about it is, you know, our total amount of operating expenses will slowly pick up as the company grows. It's very hard to keep it flat with the rapid growth of the company, but it's growing much slower. So some amount of growth there, but the top line of the business is growing so quickly. So I think there continues to be enormous opportunity to improve the overhead efficiency of the business, and we're seeing it. Yeah.

All right, great, guys. I'll take the rest of that offline.

We are in the – at least for now – quite a good position of we're investing in everything we can think of to possibly invest in, and we're still generating cash. So I guess it's a pretty good place to be.

Yeah, I mean, how many R&D programs are we running in parallel right now? You know, People don't even know all the R&D stuff we're doing.

They know some of it, but I'm sure they don't. I also don't think cash is a good gauge of how much R&D. No, it isn't. It's not like engineers, they're not generic. So it's just like, oh, if you spend, you know, $5 billion or $10 billion, that will, like, that your actual R&D or Intel's useful product ship will be proportionate to that. It's just not true. Engineers aren't coming with some assembly line like cookies or something. Until we get optimists coming. Yeah, optimists don't change things. What matters is where are the most brilliant people working? And Tesla remains the Tesla and SpaceX are two companies where the smartest engineers want to work. I mean, like, we don't have to spend billions of dollars to, you know, invest in the future and invent the future. Engineers are also cost-conscious, and we don't necessarily just burn money out the window when we're trying to do R&D. So I wouldn't stop looking at, like, R&D as a cash investment for how much we're doing. Like, one Nikola Tesla is frankly worth an infinite number of dollars. Well, you can have, like, almost an infinite number of good engineers. and they would not be able to do what one Nikola Tesla could do. You can't make it up in volume.

Okay. Thank you very much. Let's go to the next question from George at Canaccord.

George, go ahead. Hi. Good afternoon, and thanks for taking my question. I think it was at your annual shareholders event where Elon mentioned that the prices of many of the materials used in your production have started to come off the boil. If that continues, does that give you an opportunity to adjust prices globally after several increases? Thanks.

Well, we're looking at the prices closely. I mean, obviously, anyone can just Google what the future price of copper or steel is. It's like one Google search way. And everyone can see that the commodities on a go-forward basis are dropping a lot. But in electric vehicles, things like battery-grade lithium are still crazy expensive. So we've got a mixture of things where price is dropping and things where prices are increasing.

Yeah, I mean, I would say oil, steel, Aluminum has dropped anywhere between 17% to 20% at the same time on the high-rate side.

The cost of shipping has come down tremendously. Like last year, the cost of a container on the spot market from Shanghai got as high as $20,000. And now it's $3,500, $3,600. That's reality. We're seeing deflation on a lot of commodities with a few exceptions, as you mentioned, on batteries.

There's more deflation than inflation.

Definitely.

And again, this is publicly available information anyone could just go with. And I think Kathy Wood at ARK Invest is trying to make this point over and over again to the Fed, and the Fed is not listening. Because they're looking out the rearview mirror instead of looking out the front windshield.

Yeah. Just to add a little bit more context. So, you know, But commodity increases were the highest in Q3 that we've seen over the last two years. And so, you know, when indexes change, it does take time before they float. Yeah, there's latency.

There's latency. This is what I say. The best decisions make sense if you're looking through the review mirror, but not if you look out the front windshield. But you look out the front windshield.

Yeah. And so what, at least of what we know so far, the peak on the commodity side in Q3, I say peak, hopefully it stays the peak. Hopefully it starts to come down. You know, there is a small amount of reduction that we're seeing going into our Q4 cost structure, you know, from steel and aluminum primarily. But it's less than 10% of the total increases we've seen so far. So, you know, we're optimistic here based upon what we're seeing on the indexes for some time. But I just want to set expectations that there's not some windfall of cost reduction in this space coming in Q4. Maybe some as we go into next year.

Yeah, we'll probably see some cost reduction in 2023. I'd be surprised if we did not.

And just as a follow-up, this is for Elon. With your pending acquisition of Twitter and your stakes in SpaceX and Neuralink and Tesla, How much would the combined companies benefit from operating under a single superstructure, if at all?

It's not clear to me what the overlap is. It's not zero, but I think we're reaching. I'm not Warren Buffett. I'm not an investor. I am an engineer and manufacturing person and a technologist. You know, I actually work and design and develop products. That's what I do. So it's not a – we're not going to have a short portfolio of investments or whatever. So I don't know. I don't see an obvious sort of where it could get combined under an umbrella, at least right now. So – I'm excited about the Twitter situation because I obviously know that part incredibly well. And I think it's an asset that has been sort of languished for a long time, but has incredible potential. Although obviously myself and the other investors are obviously overpaying for Twitter right now. The long-term potential for Twitter, in my view, is an order of magnitude greater than its core value.

Thank you. Let's go to the next question from Pierre Faragu from New Street Research. Pierre, go ahead, please, and unmute.

Yes, can you hear me, guys? Yeah, we can hear you now. Great. I'd love to have another update on 4680, Drew. So last time we talked about it, it was a question about scaling out manufacturing and there were still a few things to get right. Is it fair to say that now you are at scale and it's just a question of logistics to get bigger? So that's question number one. And then question number two, on the kind of like innovation and cost reduction and efficiency improvements kind of path that you described at the battery day, you know, where are we today and how much time is it going to take to deliver, you know, all the potential you outlined then?

Well, I'll take the second question first. At Battery Day, we showed a timeline out to 2026 for all of the ideas we had proposed and had, you know, shared with everybody then. Yeah, I'd be surprised.

I think we'll do better than that.

Yeah, but just that's the rough, just giving you all, you know, it's on that order. It's not like a month. It's not six months. It's years. we are executing on all of those different ideas pretty aggressively in parallel with the OpEx that some people think isn't enough, but we're getting it done. Um, I mean, I'm, I'm not turning down the O's, you know? No. Yeah. Yeah. Yeah. Or great talent. Like we find awesome engineers, we bring them on into the company. Um, and people shouldn't believe we are turning people away.

It's a hard problem, but we're solving it. And I think, um, We still feel confident that 4680 will be the most competitive battery cell in the world.

And it's the whole system around it, right? It's not necessarily a specific form factor. It's the attention to detail on how to break costs out of the manufacturing process, how to remove processing steps.

And all the way down from the mine to the cell.

Yeah, exactly.

Many steps along the way.

Yeah. And, you know, for those who... Watch the YouTube videos, like our onsite cathode facilities coming together. Really excited about that, which is a part of the plan that we discussed on Battery Day. Yeah. We're also building lithium refinery. In Corpus Christi. So we're making, you know, putting our money where our mouths are in all the various efforts that we discussed on Battery Day. On the technical challenges and the ramp question, which is your first question on 4680, Look, no ramp is ever easy even at the end when you're 80% to the end. Like, it's still very challenging to get to the end. And that sort of leaning out of yields, the final cycle time, you know, to achieve target. You mentioned logistics. It's not something that we're specifically focused on, I guess, but eventually could be a problem as we're talking about hundreds of gigawatt hours at different sites across the United States. But I would never sit here and say we have no challenges remaining. But we've made a lot of progress reducing technical risk in many areas. Cycle times have dramatically improved. Yield has dramatically improved. And, you know, just walking the line here in Texas, you know, like Martin was walking it yesterday, made some comments to me. You really see the acceleration around you. And we've made a ton of simplifications moving from the Fremont factory to Texas, and it It's coming to play in speed of ramp here. And, of course, that's on one line of many here in Texas. So it's not like factory to factory. It's a multiplication of both simplicity and scale. So, yeah, we're excited about where it's headed.

Yeah, and I think, you know, once we are fully integrated, I think we still do see a path to holding a roughly $70 kilowatt hour. So $70 per kilowatt hour, so. Yeah, before any incentive. Before incentive. Before incentive, yeah.

Thank you. And the next question comes from Tony Sakonagi from Bernstein. Tony, go ahead and unmute yourself, please.

Yes, thank you. I just wanted to follow up on the 4680 cells and where we are seeing them deployed today. Are those in the semis that are being delivered on December 1st? Are we seeing them in Model Ys that are being produced out of Austin? And do you anticipate 4680 being a gating factor for Cybertruck ramp later this year? And how do you balance the need for 4680 across semis, Cybertruck, and potentially Model Y in 2023? And I have a follow-up, please.

Wow. Okay. A semi doesn't use 4680s. Yes. We are making Model Ys. Some of the Model Ys coming out of Texas are 4680. And I think, Drew, the car you drive around is 4680 Model Y. 10,000 miles.

10,000 miles.

Yeah, that's pretty good.

No problems yet.

Yeah. Structural pack.

Structural pack.

Yes. So um and uh yeah i mean our and our output of 4680 is growing exponentially so um but it's worth bearing in mind that there are our entire highly competitive companies that are very smart that all they do is make battery cells this is this is simply one segment of tesla yeah so It's not a total walk in the park.

No, there aren't. There are challenges still ahead that we have not yet surpassed, no doubt.

We don't anticipate this being any limiting tactic for Cybertruck or anything else.

Okay, thank you. And the last question comes from William Stein from Truist. Go ahead and unmute yourself, please.

Great. Thanks for taking my question. I guess I'll go at one that I asked last time, Elon, which is your expectation for the likelihood of commercial success in each of the three major AI endeavors, you know, FSD, you know, sort of as imagined without a driver, the training computer, and, of course, Optimus.

We'll achieve full self-driving, full autonomy. the probability of that occurring is 100%. And I think we'll, you know, we're almost there. And then, of course, we have to prove it to regulators and get the regulatory approvals, which is outside of our control. But I mean, anyone who's driving a full self-driving, who has the full self-driving beta in their car can see the rate of improvement. You just experience for yourself that we are, in fact, getting there. In fact, we almost are there. And so, anyway, probably achieving that 100%. The Optimus, probably that being a successful product, I think also extremely high. Given enough time, 100%. Dojo, It's maybe more of a question mark around Dojo of, like, can we be competitive with NVIDIA GPUs even as NVIDIA continues to rapidly evolve their GPUs? So as the jury's out on Dojo, Dojo team thinks they can outperform NVIDIA for neural net training. If the jury's out, we'll probably you know, I don't know next year, if that's true or not. But we think we're probably, we think it's, let's say the architecture of Dojo is the right architecture to win. It depends on how well we execute within that architecture.

Thank you very much. I think, unfortunately, it's all the time that we have today. So thank you so much for your great questions and look forward to talking to you in about three months from now. Thank you and have a good day.

Thanks, everyone.