Tesla, Inc.

Good afternoon, everyone, and welcome to Tesla's third quarter 2024 Q&A webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Ivan Musk, Devat Taneja, and a number of other executives. Our Q3 results were announced at about 3 p.m. Central Time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings for 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, Elon has some opening remarks.

Elon. Thank you. So to recap, as someone saying It's something that whatever industry I've seen year over year declines in order volumes in Q3, Tesla at the same time has achieved record deliveries. In fact, I think if you look at EV companies worldwide, to the best of my knowledge, no EV company is even profitable. And to the best of my knowledge, there was no EV division of any company, of any existing auto company that is profitable. So it is notable. that Tesla is profitable despite a very challenging environment. And this quarter actually is a record Q3 for us. So we produced our 7th million vehicle actually just yesterday. So congratulations to the teams that made it happen in Tesla. That's a staggeringly immense amount of work to make 7 million cars. So let's see, and we also have energy storage business is growing like wildfire with strong demand for both mega pack and Powerwall. And as people know, on October 10th, we laid out a vision for an autonomous and electric future that I think is very compelling. The Tesla team did a phenomenal job there with actually giving people an opportunity to experience the future. where you have humanoid robots walking among the crowd. Not with the canned video presentation or anything, but literally walking among the crowd, serving drinks and whatnot. And we had 50 autonomous vehicles. There were 20 cybercaps, but there were an additional 30 Model Ys operating fully autonomously the entire night, carrying thousands of people with no incidents the entire night. And for those who went there, it's worth emphasizing that the siren cab had no steering wheel or brake or accelerator pedals. Meaning there was no way for anyone to intervene manually, even if they wanted to. And the whole night worked very smoothly. So regarding the vehicle business, we are still on track to deliver more affordable models starting in the first half of 2025. You know, this is, I think probably people are wondering, well, what should they assume for vehicle sales growth next year? And at the risk of, to take a bit of risk here, I do want to give some rough estimate, which is I think 20 to 30% vehicle growth next year. you know, notwithstanding negative external events, like if there's some force majeure events, like some big war breaks out or interest rates go sky high or something like that, then, you know, we can't overcome massive force majeure events. But I think with our lower cost vehicles, with the advent of autonomy, something like a 20% to 30% growth next year is my best guess. And then cybercap reaching volume production in 26. I do feel confident of cybercap. Reaching volume production 26, not just starting production, but reaching volume production at 26 and that. You know. That that that should be substantial, but we were aiming for at least two million units a year of cybercap. That will be in more than one factory, but. I think it's at least two million units here, maybe four million ultimately. So yeah, these are just my best guesses, but if you ask me what my best guess is, those are my best guesses. The cell 4680 lines, the team is actually doing great work there. The 4680 is rapidly approaching the point where it is the most competitive cell. So when you consider the fully landed, the cost of a battery pack fully landed in the U.S. net of incentives and duties, the 4680 is tracking to be the most competitive, meaning lower cost per kilowatt hour fully considered than any other alternative. Which is not quite there yet, but we're close to being there, which I think is extremely exciting. And we've got a lot of ideas to go well beyond that. So if I think there's, if we execute well, the 4680, we'll have the Tesla internally produced cell will be the most cost competitive cell in North America. A testament to a tremendous amount of hard work there by the team. So that's a rule. We'll continue to buy a lot of cells from our competitors. to make cells just internally. So I don't want to set off any alarm bells here. We're obviously increasing substantially our vehicle output and our stationary storage output, so we need a lot of cells. And most of them will still come from suppliers, but I think it is some good news that the Tesla internal cell is likely to be the most competitive in the US. So with respect to autonomy, as people are experiencing in the cars really from week to week, there are significant improvements in the miles between interventions. So with the new version 12.5, the release of full self-driving and Cybertruck, the combining the code into a single stack so that the city driving and the antenna highway driving are one stack, which is a big improvement for the highway driving. So it's just all neural nets. And the release of actually smart summon. We try to have a sense of humor here at test. And we're also so that's 12.5. Version 13 of FSD is going out soon. Ashok will elaborate more on that later in the call. We expect to see roughly a 506 fold improvement in miles between interventions compared to 12.5. And actually looking at the year as a whole, the improvement in miles between interventions we think we'll bring at least three orders 90. So. That's that's a very dramatic improvement in the course of the year. And we expect that trend to continue next year. So. The current the current internal expectation. Besides internal expectation for. The Tesla FSD having Longer miles between human is the second quarter of next year. Which means it may end up being the third quarter, but it's it's next. It seems extremely likely to be next year. Sure, do you want to say anything about that?

Yeah, and mentioning miles between clinical interventions. Like you mentioned, Elon, we already made a 100x improvement with 12.5 from starting of this year. And then with V13 release, we expect to be 1000x from the beginning, from January of this year on my production release software. And this came in because of technology improvements going to end-to-end, having higher frame rate, partly also helped by hardware force, more capabilities, so on. And we hope that We continue to scale the neural network, the data, the training compute, etc. By Q2 next year, we should cross over the average human minus for critical intervention, polycollision in that case.

I mean, that is just unbonished, our internal estimate. Yes. So that's not a sandbag or anything else. Our internal estimate is Q2 of next year to be safer than human. and then to continue with rapid improvements thereafter. The vast majority of humanity has no idea that vessels can drive themselves. So especially for something like a Model 3 or Model Y, it looks like a normal car. You don't expect a normal car to be able to be intelligent enough to drive itself. A cyber cab looks different. A cyber truck looks different. But Model Y and Model 3, they're good-looking cars, but they look fairly normal. You don't expect a fairly normal-looking car to have the intelligence, enough AI to be able to drive itself, but it does. So we do want to expose that to more people. And so we're doing, every time we have a significant improvement in the software, we'll roll out another sort of 30-day trial. So to encourage people to try it again. And we are seeing a significant improvement in adoption. So the take rate for FSD has improved substantially, especially after the 1010 event. Yeah, so so there's there's no need to wait for a robot taxi or cyber cab for. To experience full autonomy, we expect to achieve that next year with the with our existing vehicle item.

I wanted to actually spot someone gives a small taste of what it's going to look like when the car able to drive itself to the user within private parking lots. Currently it's speed limited, but then it's going to quickly be increased and we already had more than a usage at himself. Yep.

So and we actually we have for Tesla employees in the Bay Area. We already are offering a ride handling capability so. So you can actually use with the development app. You can request a ride and it will take you anywhere in the Bay Area. We do have a safety driver for now, but. the software required to do that. We've developed and I mean, David, do you want to elaborate on that?

Yeah, sure. David, we showed some screenshots of this in the Q1 shareholder deck. And yeah, this is real. We've been testing it for the part of the year and the building blocks that we needed in order to build this functionality and deliver it to production, we've been thinking about working on for years. It just so happens that we've used those building blocks to deliver great features for our customers in the meantime, such as sharing your profile, synchronizing it across cars so that every single car that you jump into, whether it's another car that you own or a car that somebody's loaned to you or a rental car that you jump into, it looks exactly like yours. Everything's synchronized, seat mirror positions, media, navigation, everything is the same. Just what you would expect from one of our robo taxis. But we gave that functionality to our customers right now because we built it intending for it to be used in the future. Releasing that functionality now. All the end to end cyber security that we knew we were going to need to deliver that functionality. Sending a navigation to destination from your phone to the vehicle and so you know you're doing that now with the ride hailing app, but it's something that we've made available to customers for years. Seeing the progress on route in the mobile app. That's something you'll need for the ride hailing app, but again, we released it in the meantime so. It's not like we're just starting to think about this stuff right now while we're building out the early stages of our ride hailing network. We've been thinking about this for quite a long time, and we're excited to get the functionality out there.

Yeah, and we do expect to roll out ride hailing in California, Texas next year to the public. Now, California is somewhere that there's quite a long regulatory approval process. I think we should get approval next year, but it's contingent upon regulatory approval. Texas is a lot faster. So it's I'd say like we'll definitely have available in Texas and probably have it available in California subject to regulatory approval. And then and maybe some other states actually next year as well, but at least California, Texas. So I think that'd be very exciting. That's really a profound change. Tesla becomes more than a sort of vehicle and battery manufacturing company at that point. So we published that Q3 vehicle safety report, which shows water crash for every 700 miles of water pilot. That compressed the US average water crash roughly every 700,000 miles. So it's currently showing a 10x safety improvement relative to the US average. And we continue to expand our AI training capacity to accommodate the needs of both FSD and Optimus. We are currently not training compute constraint. That's probably the biggest limiting factors that the FSD is actually getting so good that it takes us a while to actually find mistakes. When you start getting to where it can take 10,000 miles to find a It's a mistake. It's a. It takes a while to actually figure out which it is. Is this? Is this software both better than the software both A better than software both B. It actually takes a while to figure it out because neither one of them making mistakes. What takes take a long time to make mistakes, so. That's actually the single biggest limiting factor is how long does it take us to figure out which which which version is better? Um, sort of high class problem. Obviously, having a giant fleet is very helpful for breaking this out. And then with Optimus, we showed a massive improvement in Optimus' dexterity movement on October 10th, and our next-gen hand and forearm, which has 22 degrees of freedom, which is double the prior hand and forearm. It's extremely human-like. It also has much better tactile sensing. I feel confident saying that we have the most advanced humanoid robot by a long shot. And we're moreover the only company that really has all of the ingredients necessary to scale humanoid robots. Because the things that what other companies are missing is that they're missing the AI brain and they're missing the ability to really scale to very high volume production. So you sometimes see some impressive video demos, but they lack the localized AI and the ability to scale volume to very high numbers. As I've said on a few occasions before, I think Optimus will ultimately be the most valuable partner. I think it has a good chance of being the most valuable product ever made. For the energy business, that's doing extremely well. And the opportunity ahead is gigantic. The Lathrop mega pack factory reached 200 mega packs a week. which is now a 40 gigawatt hour a year run rate. And we have a second factory in Shanghai that will begin with a 20 gigawatt hour a year run rate in Q1 next year. So just next quarter. And that'll also scale up. It won't be long before we're shipping 100 gigawatt hours a year stationary storage at Tesla. And that'll, I mean, I, That'll ultimately grow, I think, to multiple terawatt hours per year. It has to, actually, in order to have a sustainable energy future. If you're not at the terawatt scale, you're not really moving the needle. So if you look at our really very complicated last master plan, which I think actually is too much detail, Maybe I'll ask Gerard to analyze it and shorten it up and give us the TLDR on the last master plan. We showed in that master plan that it is possible to take all of Earth to a fully sustainable energy situation using sustainable energy, power generation and batteries and electric transport. And there are no fundamental material limitations, like there's not some very rare material that we don't have enough of on Earth. We actually have enough of raw materials to take all of human civilization, make it fully sustainable. And even if civilization dramatically increased its electricity usage, it could still be fully sustainable. You know, one way to think of the progress of a civilization This may sound a little esoteric, but it is percentage completion of Kardashev scale. So Kardashev scale one would be you're using all the power of a planet. We're currently less than 1% on Kardashev level one. Level two would be using all the power of the sun. And level three, all the power of the galaxy. So we've got a long way to go. That's a long way to go. When you think in Kardashev terms, it becomes obvious that by far the biggest source of energy is the sun. Everything else is in the noise. So in conclusion, Tesla is focused on building the future of energy, transport, robotics, and AI. And this is a time when others are just focused on managing around near-term trends. We think what we're doing is the right approach. And if we execute on our objectives, and I think we will, Tesla, my prediction is Tesla will become the most valuable company in the world, probably by a long shot. I want to thank the Tesla team once again for strong execution in a tough operating environment. And we're looking forward to building an incredibly exciting future. Thank you.

Great. Thank you very much, Elon. And I hope that Bob has some opening remarks as well.

Thanks. Our Q3 results were overall positive and once again demonstrated the scale to which businesses evolved over the years with the generation of record operating cash flows of 6.3 billion. Automotive revenues grew both quarter on quarter and year on year, While we had unit volume growth, we did experience reduction in ASPs, primarily due to the impact of financing incentives. As a reminder, we are providing these incentives primarily using third-party banks and financial institutions and recognize the cost of these incentives as an upfront reduction to them. We released FSD for Cybertruck and other features like Actually Smart Someone, like Elo talked about in North America, which contributed $326 million of revenues in the quarter. We continue to see elevated levels of regulatory credit sales with over 2 billion of revenues so far this year. Expand on this at an industrial level, China continues to outperform US and Europe by a factor of three. And if there is something to be learned from that, this gives a signal of what is to come in other regions as customers acceptance of EV goals. and we feel that is the right strategy to build affordable and more compelling leads. Our focus remains on growing unit volume while avoiding a buildup of inventory. To support this strategy, we're continuing to offer extremely compelling vehicle financing options in every market. When you compare any vehicle in our lineup with other OEMs, we believe our vehicles provide much better value, particularly when you consider The safety features, performance, and unbalanced software functionalities, like David also talked about, include also what Ashok had talked about around autonomy, music options, parental controls, and much more. While every vehicle in our lineup comes up with these capabilities, there is an awareness gap, not just with buyers, but at times even with existing owners. We plan on making these more visible in our interactions with both existing and future customers. Automotive margins improved quarter over quarter as a result of FSD feature release discussed before. Increase in our overall production and delivery volume, continued benefit from commodity pricing, and more localized deliveries in region, which resulted in lower freight and duties. Sustaining these margins in Q4, however, will be challenging given the current economic environment. So that we are focused on the cost per vehicle, and there are numerous work streams within the company to squeeze our costs without compromising on customer experience.

Yeah, something that's a helpful, hopefully a helpful macro trend is if there's a decline in interest rates, this has a massive effect on the automotive demand. The vast majority of people, it's or the demand is driven by the monthly payment. Can they afford the monthly payment? So I think most likely we'll see continued decline in interest rates, which helps with affordability of vehicles.

Yeah, I mean, that is one trend which we observed in the industry that, you know, because of affordability being impacted because of interest rates, people are holding on to their cars longer, especially in the U.S. And that is actually having an impact on overall industry too. As we discussed earlier, as we discussed impact orders, energy deployments fluctuate quarter over quarter due to customer readiness, location of orders being fulfilled, and not necessarily an indicator of demand or production within the quarter. While we did see a decline in Q3, we expect to grow deployments sequentially in Q4 to end the year more than double of last year. Energy margins in Q3 quarter record at more than 30%. This is a function of mix of projects being deployed in the quarter. Note that there will be fluctuation in margins as we manage through deployments and our inventory. Our pipeline and backlog continue to grow quarter over quarter as we fill our 2025 production slots and we're doing our level best to keep up with the demand. Just coming back on automotive margins, I talked about what is happening. One other thing which I want to also share is that we will continue to keep whatever we can. Like I said before about squeezing out the cost, but this is something which we also are very capable of. Just in Q3, we reached our lowest cost per micro. And that is a trend which we want to keep focus on. Then going on to service and other, we continue to show improvements in Q3. This was a result of better performance, both in our service business, which includes collision, part sales, and merchandise, and continued growth in supercharging. These fleet-based revenues will continue to grow as the overall fleet size increases. Our operating expenses declined quarter over quarter and on year-on-year basis. This is partially due to the restructuring we undertook in Q2. Cost saving from these initiatives were partially offset by increase in costs related to our AI efforts. We've started using the GPU cluster based out of our factory in Austin ahead of schedule and are on track to get 50K GPUs deployed in Texas by the end of this month. One thing which I'd like to elaborate is that We're being very judicious on our AI compute spend too, and saying how best we can utilize the existing infrastructure before making further investments. On the CapEx front, we had over three and a half billion in the quarter. This was a sequential increase largely because of investments in AI compute. We now expect CapEx for the year to be in excess of 11 billion. We shared our vision for the future at the V-Robot event at the beginning of the month. The Tesla team is hyper-focused on delivering on that vision, and all efforts are underway to make it a reality. While we've achieved significant progress this year, it will take time to get this as we pioneered new and incredibly complex technologies and navigate a fragmented regulatory landscape. The future is incredibly bright, and I want to thank the Tesla team once again for all they have.

Great. Thank you very much, Vimal. Now we'll go to investor questions. The first one is, is Tesla still on track to deliver the more affordable model next year, as mentioned by Elon earlier, and how does it align with your AI product roadmap?

Sure. I mean, as Elon and Baiba both said, we are in plan to meet that in the first half of next year. Our mission has always been to lower the cost of our vehicles to increase the adoption of sustainable energy and transport. Part of that is lowering the cost for current vehicles, which is where All of the personally owned vehicles that we sell today come in, but the next stage in that really is it fits into AI roadmap is when we bring in robo-taxis, which lowers the initial cost of getting into an EV. And that's really where we see the marriage of EV roadmap and the AI roadmap.

Yeah. It'll be like with incentive sub 30K, which is kind of a key threshold.

Great. Thank you very much. Similar question next. When can we expect Tesla to give us the $25,000 non-robotaxi regular car model? We're not making a non-robotaxi.

All our vehicles today are robotaxi.

I think we've made very clear that the future is autonomous. I mean, it's going to be, and I actually said this many years ago, but that My strong belief, and I believe that is panning out to be true, and it'll be very obvious in retrospect, is that the future is autonomous electric vehicles. And non-autonomous gasoline vehicles in the future will be like riding a horse and using a flip phone. It's not that there are no horses. Yeah, there are some horses, but they're unusual. They're niche. Yeah, so so it's just everything's going to be electrical autonomous. I think this this is blind, like it should be frankly blindingly obvious at this point that that is the future. So. A lot of automotive companies, most automotive companies have not not internalized this, which is surprising. Because we've been shouting this from the rooftops for such a long time. And it will accrue to their detriment in the future. But all of our vehicles in the future will be autonomous. Yes, all the vehicles that we've really made, all the 7 million vehicles, the vast majority are capable of autonomy. And, you know, we're currently making on the order of 35,000 autonomous vehicles a week. If you compare that to, say, Waymo's entire fleet, they have less than 1,000 cars. We make 35K a week.

Yeah, and our cars look normal.

Yeah, they mostly look normal. The Cybertruck looks, thankfully, you know, looks abnormal. And then the, you know, CyberCab slash Robotaxi, you know, we wanted to have something futuristic looking, and I think it does look futuristic. It's worth noting with respect to the CyberCab, it's not, it's actually not just a Revolutionary vehicle design, but a revolution in vehicle manufacturing that is also coming with this with the cyber cab. The cycle time like the. The units per per hour of of the. Cyber cab line it is. Like this is just really something special. I mean, this is probably. Yeah, half order of magnitude better than other car. Manufacturing lines like like it like. Like like not in the same league is what I'm saying. Not in the same league. So. So it's it's you know, and I I said like several years ago that the. Maybe the most of the hottest Tesla car to copy will be the boundary. Yeah, just like buy a factory. You can't reverse engineer a factory and it's up to Maya. Yeah, it's like. in Africa. So we're rapidly evolving manufacturing technology. So anyway, there's like basically having an irregular 25k models pointless. It would be silly, like it would be completely at odds with what we believe.

In an autonomous world, what matters is the lowest cost per mile of efficiency of that vehicle. And that's what we've done with the Rope Taxi.

Exactly. Autonomous is fully considered cost per mile is what matters. And if you try to make a car that is, you know, essentially a hybrid manual Automatic cars, it's not going to be as good as a dedicated autonomous car. So, yeah, Saracab is just not going to have steering wheels and pedals. It's fully designed, optimized for autonomy. But no, it'll cost on the order of, cost roughly 25K. So it is a 25K car. And you can, you will be able to buy one on it exclusively if you want. So. Just one half steering wheel comes. You don't need it.

Great, thank you very much. The next question is what is Tesla doing to alleviate long wait times at service centers?

So we we aim on solving problems at the source, so at the factory before they can even affect our customers. believe the best service is no service and yeah it really is don't even have them if the car doesn't break yeah exactly that's the best thing don't see anyone with the test shirt you either do it fix the issue upstream or you would remotely do it through software maybe at work or at home you know car can be parked and we address the fixed issue and we've partnered the field with service to make sure we're looking at the same issues and additionally just in q3 and q4 this year alone we We have opened and will open in total at nearly 70 locations. And in North America, we've significantly expanded the size of each location and have doubled the size last year compared to this year.

Yeah, I think it was like actually a lot of Americans are having large service centers because you can have specialization of labor. You can start your approach. Yeah, it should be more factory-like, you know, where you can have dedicated lanes for particular types of service. and it's way easier for somebody to become expert in a few different types of repairs than in every repair exactly this has helped us with the base that these heavy repairs like clogging up the lane they've dedicated lanes for different type of repairs and so it's through that matters and really treating it like a factory yeah this is this is where it tells the structure i think it has a strong advantage relative to the rest of the auto industry um because we make the cars and we service the cars whereas I think there's a bit of a conflict of interest with the dealer model and the sort of traditional OEM and dealer model where the dealerships make most of their money on service. And so they obviously are less incented to reduce the servicing cost. Whereas in our case, we are incented to reduce the servicing cost because we carry that servicing cost. And we've got a good feedback loop with our cars.

Exactly. Yeah. With the factory, with the service leaders together and send people from the factory to the field and field to the factory to see it firsthand. Exactly. By suggestions for, you know, manufacturing as well as for engineering on design. Yeah.

So I view this as a structural, a fundamental structural advantage of Tesla versus the rest of the auto industry.

I also do a bunch of work on the software side, not only on and what needs to be done to a car before it comes into service, but also automating all of the preparation work and aligning all the resources that are necessary in order for the car to be very efficiently worked on once it arrives. So the parts are there, like the lift is scheduled, the technician's scheduled, like everything is scheduled. This is what's wrong with me.

And tell the service center to get everything ready in advance.

Please fix me. And this is what's wrong. This is what you're recommending now. Instead of a customer trying to translate, the car is telling us directly, and we're pulling that. Most of the time, you don't need to diagnose the car when it arrives.

This is, again, a fundamental technology advantage and structural advantage compared to the rest of the auto industry.

I think it's underappreciated as to what all we are able to do. And that's why, because like you said before, most of our cars, except for Cybertruck, look the same, right?

people don't realize that it has so much capability yeah yeah yeah they look better than other cars but they're not like obviously like super futuristic yeah great thank you very much uh the next question is uh please provide an update on the semi uh what will the next stage of growth look like and when will fsd be ready sure so as you we posted an earnings

progressing swiftly on the build of the Semi factory in our data factory in Reno. We've released all our major capital expenditures for that program, and we're on track to start pilot builds in the second half of next year with production starting the first half of 2026 and ramping really throughout the year to full production. Semi growth will largely depend on our customers' adoption of the product.

Well, I don't think we're going to be demand limited, honestly.

Yeah, which is what I was going to say, which is like a no-brainer for Semi because it's really a commodity of total cost of Ownership.

Yes, exactly. It's good. We have kind of ridiculous demand for the semi.

In that world where it's about how much do I spend to move goods, it's a no-brainer.

Yeah. Fundamentally, if you've got a semi where the fully considered cost per mile per ton of transport is better than, say, a diesel truck, any company that doesn't adopt an electric semi will lose. It's not a It's not, it's not a subjective thing. It's like, whether do you like this? I mean, we, we, like, we, we want the style and we want, we want to have a beautiful semi truck, but frankly, if we made an ugly semi truck, it wouldn't matter.

Um, and this is proving so in our fleets and in Pepsi's partner. Um, in fact, the Pepsi actually said last week, they're having nobody want their drivers. Don't want to go back.

Yeah. Yeah. As soon as we give anyone the electric semi it's it's it's like the, that's like the choice.

It's what they want to drive.

Yeah, yeah, yeah. That's like, like, so they're like the most, you know, like their top drivers will, they get to drive the Tesla Semi. It's the thing they want to drive. It's super fun to drive. It's also very easy to drive. It's easy to drive and it holds ass. It's like fast. Maybe too fast. Well, but I mean, like, you know, like, you've seen, like, the videos of where, like, I think, like, Tesla Electric Semi, like, you know, can go uphill. Yeah, speeding past, like, the diesel truck. Or even cars. Yeah, even cars. So, like, it's responsive. It's, you know, you floor it, and the truck actually moves.

And that's a benefit not only for the driver and for the goods, but also for safety in terms of other drivers on the road. You don't get stuck behind a semi. You're not, like, in a... a slowdown situation in the on-ramp. I mean, how that plays into FSD, which is the second part of the question. All of the semis have been, since the couple hundred we've deployed already, and the ones that we'll be building next year and throughout the future, have all of the hardware and the cameras necessary to deploy FSD. And we're currently training with that small fleet that we have. And as soon as the fleet is trained and the neural nets are up, we'll get FSD onto that platform.

It'll be a massive improvement in driver fatigue and driver safety. We've got the anti-jackknifing software. You don't have to worry about your brakes overheating if you go down a steep hill because we use regenerative. That energy goes back into the pack. Actually, when we leave Reno sometimes. It's radically better than a diesel semi. It's why the drivers love it.

Great, guys. Thank you very much. Our next question is, when will Tesla incorporate X and Grok in all the Tesla vehicles?

Well, I mean, these are relatively small fry things, you know. But yeah, I think we'll keep expanding, you know, what is available in the car on the screen. And improving like the browser so like just generally you can access anything you want in the car in fact for the tesla you know once you get to full autonomy you actually want fully a a system that is uh can do anything like if you want to browse the internet if you want to you know ask ask ai questions if you want to watch a movie if you want to play a video game if you want to do some productivity thing you can do anything you want in an autonomous vehicle because you don't need to drive Um, so that's why the cyber cabs got a nice big screen and a great sound system. So you can watch it, watch a great movie with it's like bringing like a personal movie theater.

Um, yeah, this is why we've been building this functionality. I think gaming to the car, uh, adding MVs and other, you know, all sorts of different media applications to the car, because, you know, The cars will be built today.

There's some really fun games, by the way. People haven't tried it. There's Castle Doom Bad and Polytopia and a bunch of really fun games in the car.

We're constantly looking at what features to add next, and we're paying attention to what's most commonly requested by our customers. Play Castle Doom Bad. You won't regret it.

Great. Thank you guys very much. The next question is Elon mentioned unsupervised FSD in California and Texas next year. Does that mean regulators have agreed to it in the entire state for existing hardware three and four vehicles?

As I said earlier, California loves regulation. But they have a pathway. Yeah, I mean, there's a pathway. Obviously Waymo operates in California, so there's just a lot of forms to fill out and a lot of approvals that are required. I mean, I'd be shocked if we don't get approved next year, but it's It's just not something we totally control. But I think we will get approval next year in California and Texas. And towards the end of the year, it will branch out beyond California and Texas.

I mean, I think it's important to reiterate this, like homologating or certifying a vehicle at the federal level in the U.S. is done by meeting FMVSS regulations. All our vehicles today that are produced, that are autonomous capable, meet all those regulations. The cybercat will meet those regulations. And so the deployment of the vehicle to the road is not a limitation. What is a limitation is what you said at the state level where they control autonomous vehicle deployment. Some states are relatively easy, as you mentioned, for Texas.

Yeah.

And other ones have pathways like California that may take a little longer. The other ones haven't set up anything yet. And so we will work through those state by state.

I do think we should have a federal... I agree. Autonomous vehicles should be approved.

It should be possible to... Congress, if you're listening, let's get a federal AB.

There should be a federal approval process for autonomous vehicles. I mean, that's how FMVSS started and worked. Federal motor vehicle. FMVSS is federal. Yeah, so I mean...

in 2017 and 18 that we, you know, it's when regulators started looking at it and it's really kind of stalled since then, but we would appreciate and would support helping out with those regulations.

It really needs to be like a national approval is important. You know, if there's a Department of Government Efficiency, I'll try to help make that happen. And for everyone, not just Tesla, obviously. But, you know, just like some things in the U.S. are state by state regulated, like, for example, insurance. And it's like a, It's incredibly painful to do it state-by-state for 50 states, and I think we should have, there should be a national approval process for autonomy.

Great. Thanks, guys. The next question is, what is the plan for 2025? I mean, I think we were just talking.

I mean, basically, we talked about this. There's a lot going on. Elon already mentioned that we're working on cheaper models to come out. I mean, they have work which the team is doing to get the factories ready today to try and make that happen.

Yeah, by the way, the amount of work required to make a lower cost car is insanely high. But like it is harder to get like 20% of the cost out of a car than it is to design the car and build the entire factory in the first place. It's like excruciating. And it's not a lot of movies made about The heroes who got 20% of the cost out of a car. But let me tell you, there should be. That is incredibly heroic. It's a little change, isn't it? Yeah, it's like, there should be the heroes who got 20% of the cost out of a car. It's like, damn, I want to respect them. It's like a movie. It's like, you know, I think you probably could make a compelling movie, but it just... Like... If you actually saw how hard it was to do that, you'd be like, whoa, that's damn hard. Just yesterday, we were talking about potting. Yeah, I mean, honestly, like literally, yeah. I mean, there's a lot of, what I do call it sort of like getting costs out of things. It's kind of like, it's like a game of pennies. It's like Game of Thrones, but pennies. You know, first approximation, if you've got 10,000 items in a car, very rough approximation. each of them cost four dollars then you have a forty thousand dollar car so if you want to make a you know a thirty five thousand dollar car you've got to get fifty cents on average out of the ten thousand items every time every part yeah and it's like you know and then obviously the best is you delete some parts in fact we found we're able to delete a lot of parts um i'm great i'm not very excited about the the cybercap uh design and and and the but you know how how we're Rethinking the design of a car for the cyber camp, designing it will offer high volume production and then design machine that builds the machine. That is that I think is also revolutionary and it's just. But there's no other car company that's even. Trying to do what we're doing like I've even heard of it actually. In fact, I'm certain there is someone. Like. But like I'm, I think this this the on your machine that pulls the machine like it's It's inherent. It's designed to be five times better than a traditional factory. Cycle time.

Cycle time and part deletion. I don't think any other car company has the same level of integration of thought that we have when it comes to when you design a part from a white sheet of paper, who's going to make it? Where is it going to be made? How is it going to be shipped? How's it going to be assembled into the vehicle? And at any one point, if something is done in a silo, it becomes a bottleneck of either cost or time or efficiency. But with the robotaxi development, we've done a good job on combining all that and then blowing up how it's made and saying it should be made this way and rethinking it all so that it's the most efficient factory possible. That shows in our, it will show in our capex efficiency when we deploy it. It shows in the number of parts, it shows in the simplicity of the vehicle, but also how it performs in terms of end-user state.

Just to close out, just on the energy front also in 2025, we will have started manufacturing at the mega factory Shanghai. We'll continue to increase our storage deployments with Powerwall 3. We plan to continue expanding our supercharging network, getting more OEMs on our network, 4680 cell ramp, as Elon talked about, That will keep going. And then we also will have our lithium refinery starting to produce. So there's a lot which is going on.

Yeah, so many things. The crazy thing is Tesla is winning basically on almost every single thing we're doing. If we're not winning now, we're going to try to win. In an arena where there are entire large companies, that's the only thing they do.

Yeah. I mean, it's a company, there are multiple companies within the company.

Yeah, Tilda is like many companies within one.

Yeah.

Fantastic. Thank you, guys. Just a few more. What is going on with the Tesla Roadster?

Fun things. Well, I'd just like to thank our long-suffering deposit holders of the Tesla Roadster. You know, the reason it hasn't come out yet is because the Roadster is not just the icing on the cake, it's the cherry on the icing on the cake. And so... you know, our larger mission is to accelerate the progress towards a sustainable energy future, you know, try to do things that maximize the probability that the future is good for humanity and for Earth. And so that necessarily means that like the Things like that are kind of like dessert, but we'd like like we'd all love to work on the Tesla next gen Tesla Roadster. It is super fun and we are working on it, but it has to come behind the more things, the things that have a more serious impact on the good of the world. So just thank you to all our suffering Tesla Roadster deposit holders. And we are actually finally making progress on that. And we're close to finalizing the design on that. It's really going to be something spectacular. You know, a friend of mine, Peter Thiel, you know, and sometimes people think Peter Thiel and I are rivals. We're really good friends, to be clear. You know, Peter, you know, was lamenting how, you know, the future doesn't have flying cars. Well, we'll see.

More to come.

Yeah.

Great. Thank you very much. The next one is quite similar to other questions we've had, so I might combine it with the final question. So briefly, could you just detail how Robotexy will roll out? Will it start with a Tesla-deployed fleet and then allow customers to add theirs on the subscription model? And then will hardware 3 be capable of Level 5 at this point?

As you're in the hardware three, what we saw with 12.5 was it was easier to make rapid progress with starting with hardware four and figuring out the solution and then backporting it to hardware three instead of directly working on hardware three, given that hardware four has more like fundamental hardware capabilities. I think that trend will continue into the next few quarters as well, but we first figured the solution rapidly with AI4 and then backported the kernels. It just takes longer to develop those things because it's not fundamentally supported in the hardware and it's emulated. But yeah, initially working on hardware 4, backporting it to hardware 3.

Yeah, so it's I guess the answer is we're not 100% sure, but as a short question, because by some measures, hardware 4 has really several times the capability of hardware 3. It's easier to get things to work with hardware 4, and then it takes a lot of effort to sort of squeeze that functionality into hardware 3. There is some chance that hardware 3 does not achieve the safety level that allows for unsupervised FSD. There is some chance of that, and if that turns out to be the case, we will upgrade those who have bought hardware 3 FSD for free. And we have designed the system to be upgradable. and it's really it's really what you know just to sort of sort of switch out the computer type of thing um like the camera the cameras are okay you know they're they're capable but um anyway we don't we don't actually know the answers to that but if it does turn out um we will take we'll make sure we take care of those who have bought msd on hardware three great

In the last few minutes that we have left, we will try to get in some analyst questions. The first question will be coming from Pierre Faragu at New Street. Pierre, please feel free to unmute yourself.

Thanks a lot, guys, for taking my question. I was wondering about the compute you're ramping up. So you gave interesting statistics on how much you have, and you said you don't feel your compute constraint. And I was wondering how you are putting to work this additional compute. Is that a game for you of creating larger and larger models, like next generation of models that are larger the way OpenAI go from GPT-3 to GPT-4? Or is that more like you're set on your model and you need to throw more and more compute to accelerate the pace of learning to improve reliability? And then I had a quick follow-up, pretty quick, on your rollout in Texas and in California next year. The plan, as you see today, is to roll out like a fleet or two with cars that will start with like a supervisory team. like some onboard supervision, someone sitting at the wheel just in case and removing the supervisors progressively, or are you aiming for going fully fledged without even a human supervisor when you get started?

Okay, well, I guess we're going to answer the first part of the question. The nature of real-world AI is different from, say, an LLM. in that you have a massive amount of context so that like the the. You've got a case of Tesla seminary cameras that you know 9 after 9 if you include the internal camera that. That that so you've got. Gigabytes of context and and that that is then distilled down into a small number of control outputs. you know, whereas it's like you don't really, it's very rare to have, in fact, I'm not sure any LLM out there can do gigabytes of context. And then you've got to then process that in the car with a very small amount of compute power. So, you know, it's all doable and it's happening, but it is a different problem than, what say a gemini or an open ai is doing um and uh now part of the way you can make up for the fact that the inference computer is is quite small is by spending a lot of effort on training um and just like just like a human like the more you train on something the less um the less mental workload it takes when you try to when you when you do it like when the first time like a human starts driving it absorbs your whole mind but then as you train more and more on driving get very good then you the driving camera becomes a background task it doesn't it only absorbs a small amount of your mental capacity because you have a lot of training so we can make up for the fact that the inference computer is um it's it's tiny compared to know a 10 kilowatt bank of GPUs because you've got a few hundred watts of inference compute we can make up that with heavy training so yeah that's and then there's also vast amounts that the actual you know petabytes of data coming in are tremendous and then sorting out what training is important with you know of the vast amounts of video training or video data coming in complete, what is actually most important for training? That's also quite difficult. But as I said, we're not currently training compute construct. I'm sure if you want to elaborate.

Yeah. Like you mentioned, the training has both trained larger models, also trained quicker. But in the end, we still got to pick which models are performing better So the validation effort to picking the models, because the miles per intervention is pretty large, we have to drive a lot of miles to go in close to. We do have simulation and other ways to get those metrics, those to help. But in the end, that's a big bottleneck. Yeah, that's why we're not training compute constraint alone. And there's other access of scaling as well, which is the data, figuring out which data is more useful. That is an important task and we're focusing on that. Yeah.

So as it relates to the second part of your question here about safety drivers and rolling it out, each state has different requirements that, you know, in terms of how many miles and how much time you need to have a safety driver and not have a safety driver, we're going to follow all those. We're not going to violate whatever regulations are out there, but safety is a priority. But the goal is obviously that when we're ready and safety is there, we'll remove all the drivers from the rideshare car.

Yeah, I mean, I guess like we think that we'll be able to have driverless Teslas during paid rides next year, sometime next year.

Thank you. And our next question comes from Adam Jonas at Morgan Stanley. Adam, please feel free to unmute yourself.

OK, thanks, everybody. Just had a question about the relationship between Tesla and XAI. Many investors are still not clear how the work at XAI is truly beneficial to Tesla. Some even take the view that the two companies may even be in competition with each other in terms of talent and tech and even your time, Elon. So what's your message to investors on that relationship between Tesla and XAI and where do you see it going over time? Thanks.

Well, I should say that XAI has been helpful to Tesla AI you know, quite a few times in terms of, you know, things like scaling up, like training, you know, just even like recently in the last week or so improvements in training where if you're doing a big training run and a node fails, being able to continue training and you know, easy to recover from on a training one, XAI has been pretty helpful. So, but there are different problems. You know, XAI is working on artificial general intelligence or artificial super intelligence. Tesla is trying to make autonomous cars and autonomous robots. There are different problems. So, yeah, I mean,

I think we've said this before also, like, not all AI is equal, right? I mean, AI is a broad spectrum.

Yeah.

And we have our own swim lanes. Yes, there are certain things which we can collaborate on if needed, but for the most part, we're solving different issues.

Yeah, Tesla's focused on real-world AI. And as I was saying earlier, it is quite a bit different from an LLM. Because you have massive context in the form of video and some amount of audio that's got to be distilled with extremely efficient inference compute. I do think Tesla is the most efficient in the world in terms of inference compute. Because out of necessity, we have to be very good at efficient inference. We can't put 10 kilowatts of GPUs in a car. We've got a couple hundred watts. It's a pretty well-designed Tesla AI chip, but it's still a couple hundred watts. But there are different problems. The stuff that XAI does, when it's running inference, it is running inference. answering test questions on a 10-kilowatt rack. It's like, yeah, put that in a car. It's a different problem. Please, no. No, exactly. So, you know, XAI is because I felt there wasn't a truth-seeking digital superintelligence company out there. Like, that's what it came down to. There needed to be a truth-seeking... an AI company that is just very rigorous about being truthful. I'm not saying XAI is perfect, but that is at least the explicit aspiration. Even if something is politically incorrect, it should still be truthful. I think this is very important for AI safety. Anyway, I think XAI has been helpful to Tesla and will continue to be helpful to Tesla. But there are very different problems. Great. And I mean, like, if you're like, like, what is like, what are the car company has, it has a world class chip design team. Like zero. What are the car company has a world class AI team like Tesla does? Zero. Those are all startups. They're created from scratch.

Great. Thank you, Milan. And I think that's unfortunately all the time that we have for today. We appreciate all of your questions and we look forward to hearing from you next quarter. Thank you very much and goodbye.