Thank you, Sherry, and good afternoon, everyone, and welcome to Tesla's third quarter 2020 Q&A webcast. I'm joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q3 results were announced at about 1 PM Pacific time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today's call, please limit yourself to one question and one follow-up. But before we jump into the Q&A, Elon has some opening remarks. Elon?

Thanks, Martin. All right. So Q3 was our best quarter in history. We achieved record production deliveries, record revenue, record net income; both GAAP and non-GAAP, and record free cash flow of $1.4 billion. This is really due to the amazing execution by the Tesla team. I could not be more proud to work with such a great group of people. Just really outstanding performance throughout the world. Of course, we had our Battery Day. So we hosted and showed our plans for how we can expand in the future and improve core battery technology, core cell technology at the form factor level, chemistry level and I think more significantly at the manufacturing technology level. There's only a comment I made in the past; I think Tesla's long-term competitive strength will be primarily manufacturing. This is counterintuitive, but I'm quite confident this will be what happens. So we presented what the team has been working on for a long time with batteries. We really wanted to step back and rethink batteries from scratch. First, wishful thinking; just look at it from the fundamental physics and say what, rather than compare it to other products in the market, just say from a physics standpoint, what’s the limit of physics? What’s the platonic idea of the perfect cell and how close can we get there? And that was our aspiration. I think we've got a pretty good approach to it, which will have to get better over time. We went through all the engineering solutions for every important part of battery design and production. We will continue to iterate on that and just recursively improve the core cell and battery technology. The result, we think, in a few years will be batteries that cost half as much and where the capital expenditures required are a third or less of what they are today. We expect Giga Berlin will see our first battery cell production line at scale. Regarding the Full Self-Driving beta release, the Autopilot team, again, just an outstanding team. I spent a lot of time with the Autopilot team, and there's a lot of really talented people in that team who've worked incredibly hard to get the beta release out. So I'd just really like to thank them for their hard work. It’s just a very smart group of people. I think we're starting very slowly and very cautiously because the world is a complex and messy place. And so, we put it out there last night, and then we'll see how it goes and then probably release it to more people this weekend or early next week. We'll gradually step it up until we have hopefully a wide release by the end of this year. Of course, as the system collects more data, it becomes more robust. It's sort of like how does Google as a search engine get better? It's because everyone is programming it by asking questions all the time and clicking on particular links. It gets this great feedback and makes it an extremely effective search engine. It’s the same for autonomy. Having on the order of 1 million cars that are providing feedback and specifically feedback on strange corner case situations that you just can't even come up with in simulation is truly valuable. It's not just the obvious stuff; the obvious stuff you can do in simulation. But the weird corner cases, only reality can give you that. So that's what we're able to say, okay, we need to train the system on this corner case situation, look for examples, so we can then train against those examples and improve on some very esoteric corner case. It’s also important to emphasize this is a generalized neural net-based approach. There is no need for high-definition maps or a cellphone connection. The system is designed such that even if you have no connectivity whatsoever and you're in a place that you have never been to before and no Tesla has ever been there, the car should still be able to drive, just like a person. That's the system that we are developing and aiming to release this year. In terms of capacity build-out, we're making progress on three major factories. We're continuing to expand Shanghai significantly, which is going incredibly well with the Tesla China team. It's just, I mean incredibly good. Super smart, hardworking. I'm always amazed by how much progress the Tesla China team makes. It's beyond all reasonable expectations. Then we're under construction in Berlin and Austin, and we’re also making good progress there. Yes, it’s good. So it’s overall going well. I should make a point that for Berlin and Austin, we expect to start delivering cars from those factories next year. But because of the exponential nature of the spool-up of manufacturing plants, especially one with new technology, it will start off very slowly at first and then become very large afterward. Generally, manufacturing follows the S-curve and I think some people spend a lot of time manufacturing, thinking that once you have a factory, you can just sort of turn it on and it's at capacity. It typically takes about 12 to 18 months to reach capacity, a very fast period of time, especially for new technology. So, yes, I’d say 12 to 24 months even. What I see is that manufacturing capacity is underestimated in the beginning for quite some time. It is sometimes overestimated because this is an S-curve. It goes from exponential to linear to logarithmic. It’s an incredibly hard thing, bringing a production plant up to volume technology. If you can actually think of it, you've got to first-order approximation; 10,000 unique parts and processes, all of which operate on an S-curve, and with a bunch of uncertainty, and you can just slide 10,000 S-curves on an x-axis, and that’s what bringing up a large automotive plant is like. Which one is the laggard, which one is the leader, it’s very difficult to tell, and it’s constantly changing. It’s one of the most difficult challenges I've ever seen. In conclusion, I want to thank all the incredible hard work of tens of thousands of Tesla employees and all our suppliers as well. We continue to grow as fast as we can while focusing on cost control and improving quality. Ultimately, the best company will be one that makes great products at an affordable price, and that’s our goal. I think I’ve never felt more optimistic about the future of Tesla than I do today. I’d also like to thank the investors who have stuck with us through thick and thin. I think there’s a lot more good stuff to come. All right. With that, we can move to questions.

Thank you, Elon. I think our CFO, Zachary Kirkhorn, has some opening remarks as well.

Yes. Thanks, Martin. Overall, our financial health continues to rapidly improve with Q3 being another great quarter on nearly all dimensions, as Elon has mentioned. On net income, we achieved our fifth sequential quarter of profitability, our best net income, and nearly double-digit operating margins. Two things that are important to note to set context for Q3 profitability. First, the regulatory credits business was stronger than our expectations, and we are tracking to more than double this year compared to last. Second, as a result of the rise in the market cap of the company, the second and third tranche of the CEO grant vested during the quarter. Additionally, we have begun expensing one more tranche, resulting in roughly $300 million of combined period expense. It's reasonable to view the quarter excluding both these items to get a true sense of the health of the core business. On automotive gross margin, including regulatory credits, it increased materially from 18.7% to 23.7%, with some of our programs achieving greater than 25% gross margin. Keep in mind that inefficiencies related to factory shutdowns affected our margins in Q2. We continue to reduce our manufacturing and operational costs. We are also seeing benefits from the ongoing upward trend of locally built and delivered cars, which has increased from under 50% at the beginning of last year to over 70% most recently, which is a core component of our cost reduction strategy. We also see financial benefits from improved vehicle reliability across the fleet. Services and other margins improved yet again, driven by our used vehicle business and efficiencies in our service operations. In the Energy business, we achieved record storage deployments, aided by the positive reception of the Megapack and Powerwall products as production and deployments grow. Additionally, our filler deployments doubled, and we continue to make progress in that front. On cash flows, our cash balance increased to $14.5 billion, which includes free cash flows of $1.4 billion, our highest yet. Our operating cash flows were $2.4 billion, including a $600 million benefit from working capital as we’ve made progress on days of receivables and inventory despite a reduction in days available. Note that the majority of our operating cash flows are driven by the strengthening of our core operations. Capital expenses grew to $1 billion, driven by Model Y incidents in Shanghai, Berlin, and Austin. As with previous investments in Model 3 Shanghai and Model Y in Fremont, we’re expecting these programs to have fully paid for their respective investments by the end of this year. Looking forward to 2021 and 2022, we have revised up our expectations for capital spending by $2 billion to $2.5 billion, which we have ample liquidity and expected cash flows to fund. This is driven by an increase in-source scope for certain factories, including battery cell manufacturing and investments to enable greater capacity expansion in the future. While we expect the return on our investments to remain very strong, keep in mind that with additional scope and location-specific costs, the payback of these investments may be slightly longer than what we saw in Model 3 in Shanghai and Model Y in Fremont. Financing cash flows were $4.5 billion as we reduced the use of our working capital lines, offset by a $5 billion equity raise in September. Note that we're expecting over $1 billion in early convert paydowns in Q4, primarily associated with the 2021 conversions, but also our 2022 and 2024. Looking forward, we remain focused on strengthening the core fundamentals of the business. We are increasing production to meet demand, reducing costs, including localization, driving higher efficiency across the business, and tightening our cash conversion cycle. We’ve made tremendous progress on this front over the last year and a half. We’re also aiming to achieve our original 2020 guidance of 500,000 deliveries despite the operational interruptions earlier in the year. While this goal remains a genuine challenge, we believe it's possible with tight execution across the company. Congratulations again to the Tesla team for a great quarter and a great year. I’ll hand it over to RJ Johnson, who joined Tesla earlier in the year and is leading our Energy business for a few comments.

Thank you, Zach. First, I'd like to also thank and congratulate the team on a job well done. Q3 was a strong quarter for the Energy business, and we're poised for continued strong growth in Energy storage and solar. Megapack is going to be a large growth segment for the business and deployments will continue to expand rapidly as the product reaches full capacity. We have more demand than supply through 2021 and we continue to ramp the product to match unprecedented demand across the globe through 2023 and beyond. Our order book is rapidly filling up to a multiple gigawatt-hour scale. Large scale solar plus storage is now more cost-effective than traditional fossil fuel generation in many locations across the globe. This trend will continue as we remove costs, which will further displace existing and new fossil fuel generation. This is true for standalone storage as well. Many customers are utilizing Autobidder to maximize returns as we optimize our hardware and software with advanced real-time bidding strategies that continue to outperform the market where deployed. For PowerWall, we see continued strong demand for residential storage as customers seek increased reliability and backup home generation. We have a very large backlog of PowerWall orders and continue to invest to increase capacity to fulfill customer orders. We're just now capturing the full power of customer-cited solar plus storage as customers in some jurisdictions are providing services back to the grid when they don't need to consume energy or have backup power. This has massive potential to reduce system cost and make the grid more efficient globally. In the United States, we lowered our residential solar retrofit price to $1.49 a watt after tax incentives, which is the lowest in the industry. We're able to do this by leveraging our online vehicle ordering infrastructure, which significantly reduces the soft costs associated with sales and marketing. As a result, our fixed costs remained relatively flat as our volume and efficiency increase, leading to increased profitability in the retrofit business. We're using the same methodology across the entire Energy business, including services, to capitalize on the technology backbone of the company. Solar Roof is especially exciting as we've gained significant experience over the last year in the installation process, which is a key enabler to scale the business. We've recently demonstrated our ability to complete Solar Roof installations in just one day. We’re pleased now that this still requires one to two days to remove the existing roof and prepare it for the Solar Roof installation. Clearly, there’ll be a range of installation times based on size, complexity, weather and other factors. Overall, our reduced installation time provides a better customer experience and will enable the business to grow exponentially as scale effects allow for increased efficiency. In closing, we believe the Energy segment is poised for strong growth as we continue to focus on increasing scale while reducing costs to maximize profitability. I want to thank the team again for their hard work, and I look forward to another strong quarter ahead of us.

Thank you very much, everyone. And let's begin with questions from retail shareholders. The first question is: is Tesla planning to start 4680 cell production at Giga Berlin at the same time as vehicle production? Can Tesla share more information on what products you'll use the battery cells from the pilot line in Fremont?

Yes. Drew, do you want to take that?

Sure. Yes, we will incorporate 4680 design solutions into many applications in time across both energy and vehicle. We can use our pilot production facility in Fremont to support the new factory in Berlin as it ramps.

Thank you very much. Let's go to the next question: Does Tesla's tablet cell design allow for significantly higher peak charging rates? Does it improve the required taper curve?

Yes. The fundamental limitation on charge rate in lithium-ion batteries is avoiding lithium plating on the anode. While the tablet's architecture helps avoid overheating because it's a more power-dense architecture at high continuous charge rates, it doesn't change the anode plating story. Electro design and anode material choice more directly determines the maximum charge rate and how to avoid that lithium plating problem.

Okay. Thank you very much. The third question is: would FSD be able to be transferred to our next vehicle or pay a transfer fee? It would add to brand loyalty, in the same way gaming companies and cellphone companies keep you in their ecosystem by letting new transfers of purchases to upgraded hardware?

Yes. We'll give it some thought.

Okay. The fourth question is: what are the remaining constraints to solar installations to ramp significantly?

Yes. The biggest constraint right now in Solar Roof ramp is getting enough installers on board and trained and experienced. We've made a lot of progress on this in Q3, and we're continuing to hire. The next opportunity is improving the material flow on the job site. We've talked about this a lot in the factory, setting up the right packaging, kitting so that every installer on the roof has the parts they need at their fingertips. We have had great response from third-party roofing contractors as they're ramping up installations for Solar Roof on their customer homes, which is a big source of future growth.

Thank you, Carl. Elon, I mean, here’s the way to think about that product, in my opinion. You have to say, I think, what do you want the world to look like? When you look around the neighborhood future, a decade from now, what do you want? What products are going to make your life better? What future do you want? I think a future where we've got beautiful roofs generating energy that are tough and resilient and better in every way than a regular roof and a lab with energy. That’s the future we want. The Solar Roof is a killer product. This will become obvious next year. Thank you. And the last question from retail shareholders is: you recently referred to Tesla as a conglomerate of start-ups. Other than manufacturing electric cars, what do you suppose will be the most valuable business units within Tesla over the next five to seven years? Could you envision any of them ever spinning out from Tesla?

Well, yes, I think about this today. Tesla there's probably in excess of a dozen startups effectively in Tesla. Every major product line is a startup. Every new big plant is a startup. Often, frankly, we have to learn a lesson a few times before it sinks in. But even things like service and sales are startups. Other car companies, OEMs, they don’t own their sales and service. So we have to create our service network. We have to create our sales and delivery network. We have to do this in 40 countries, multiple languages. Most people don’t know much about our internal applications team that writes the core technology that runs the company. We are not dependent on enterprise software. That’s a very big deal. My hat goes off to the great work of the internal applications team; they are like the nervous system, the operating system of the company, very fundamental. Obviously, insurance is substantial. Insurance could very well be 30%, 40% of the value of the car business. As we’ve talked about before, with a much better feedback group, instead of being statistical, it can be specific. Obviously, somebody does not have to choose our insurance, but I think a lot of people will. It’s going to cost less and be better. The whole autonomy thing is a startup. Designing our computer chips was a start-up. Obviously, sales are a startup. Designing and making our own power electronics, design, manufacturing our own motors, chargers, the Supercharger network is a startup. What people don’t really understand about Tesla is that it’s a whole chain of startups. We haven’t had any of them fail, so far, so good. No plans to spin anything out. That just sounds like added complexity.

Thank you very much. Let’s go through institutional investor questions. The question number one is: as a bridge to the ride-hailing network, could you leverage the insurance product to give customers the ability to rent out their vehicles via the app, thereby enabling the car to make money for them, basically a proprietary version of Toro?

We believe our focus is on developing the robotaxi system. Essentially, this is a small part of the larger robotaxi or robocar concept, where the vehicle can operate autonomously for you. If you are an Uber or Lyft driver, you might manage a fleet of ten cars, which resembles a shepherd looking after a flock. It allows you to gain more leverage. We could implement that without much difficulty, but our priority is to establish an autonomous network that incorporates elements from Uber, Lyft, and Airbnb.

Thank you. And the second question from institutionals is: residential energy use accounts for roughly the same magnitude of carbon emissions as road transport. Today's boilers and air conditioning units are profoundly unsexy. Could you elaborate on HVAC advances with the Y? Could they also find use in a domestic system?

Yes.

Yes, go ahead, Drew.

I was just going to say, one of the things we focused on with the Model Y and Model 3 pump system was learning how to build a tightly integrated system capable of moving heat to and from anywhere really, powertrain battery, cabin, environment, outside ambient temperatures, all the way down to like negative 20 C, up to 30 C. That’s definitely applicable to the home needs of heating and cooling the home and the water in your house.

Yes, absolutely. The heat pump in the car, being able to use the batteries, both as a thermal and electric energy reservoir, is very significant. The same thing could be applied to a home with the water heater and the back of the pack itself, of course. I think there’s potential for an integrated home system that combines power generation, storage, heating, cooling, air filtration, and water purification in a really tight package. We don’t actually have a prototype or anything, but I think conceptually, that is something that would be probably good to have.

Thank you. The third question from institutionals is: if meeting your long-term volume targets requires price reductions that preclude you from achieving your low double-digit stated margin targets for the autos business, will you still reduce prices accordingly?

We want to make our cars more affordable, and it's very important to separate out affordability from value for money. If the car is too expensive or any product is too expensive, then people simply can’t buy it no matter what the value proposition is. Of course, we want to improve the affordability of our products, so they are not out of reach for people. We want to bring them closer over time but also improve our cost of production. We get better every year and sometimes we improve significantly. In terms of margins, all of these margins will look pretty comically small when you factor in autonomy.

Two things I’d add: without a doubt, we’re moving forward to push as much volume as we reasonably can. Elon spoke earlier about the S-curve and the timeline incremental factories. The second comment would be that over the last year and a half, we’ve grown volumes and gross margins despite a number of price reductions during that period. We’ve also managed to keep OpEx fairly stable. Key is what Elon mentioned here; we have to improve the affordability of the vehicle while continuing to improve the cost structure of not just COGS, but OpEx as well.

Thank you very much. The fourth question from institutionals is: at what point do you expect to have enough internal or external battery capacity to start ramping up stationary storage deployments again?

Yes. We’re ramping up stationary storage a lot. It’s approximately doubling as we expect, and hopefully we can accelerate that in years to come.

We’re approximately doubling it this year, too, so the growth is looking good.

Yes, yes, yes. If you just keep doubling things, pretty soon, you hit the mass of the universe, and we'll need to start turning Jupiter into cells.

And the last question from institutionals is: manufacturing is hard. Delays happen. What contingencies do you have in place to ensure that bottlenecks that you might encounter while ramping internal cell production will not preclude your ability to hit your Model Y production volume targets in Berlin and Texas?

Yes. We’re trying to derisk 2021 so that there’s almost no dependency on our internal cell production. It’s very, very small. The internal cell production will help us ramp in '22, but we’re not dependent on it for '21.

To derisk the manufacturing system itself, that was one of the reasons we located our pilot production facility here in Fremont, to rapidly iterate on manufacturing scale-up challenges and provide rapid feedback.

Yes. Our pilot line is pretty big as pilot lines go. It will be in the top 10 cell factories on Earth, I believe.

Thank you very much. Now we can go to questions from analysts online.

Thank you. Our first question will come from Rod Lache with Wolfe Research. Please go ahead.

Hi, everybody. I wanted to ask about the targets from your Battery Day, looked like you could be approaching something like 20 million vehicles by 2030 if you hit those goals. Could you maybe share with us a little bit more of a midterm target, like where would you be by 2025? Could you give us a little more insight into the investment required to get there, just to put that extra $2 billion to $2.5 billion per year into context?

Yes. The challenge in predicting outcomes during periods of exponential growth is that if something is doubling annually or growing by 50%, even a slight adjustment of one year can significantly impact the figures. It may seem like there’s either a tremendous overperformance or underperformance, but what’s actually happening is a large S-curve. Many substantial S-curves come together to form one massive S-curve. This is why predicting the midpoint is so complex. I’m not claiming we will definitely reach 20 million vehicles, but it feels like a reasonable objective since that would indicate we are replacing 1% of the global fleet annually. I’m not sure we can support that claim unless we at least change 1% of the vehicles each year. That target is based on that reasoning.

Okay. And just secondly, if solid-state lithium metal were to become viable, could you pass along your perspective on that? Would you be able to repurpose much of what you’re putting in place for changes in technology?

Yes. I mean, the cell production system is fairly agnostic on anode, cathode, electrolyte. We could change and upgrade all aspects of the cell. We could, for example, use ion phosphate or nickel manganese. It’s quite adaptable. I wouldn’t say it’s just too much more about. But the lithium, a pure lithium anode isn't as great as it may sound. Volumetrically, you’re not gaining all that much. Yes, volumetrically, you’re not gaining a lot in the form if you got nothing on the anode side.

Yes, lithium is less volumetrically dense in pure metal form than it is intercolated into silicon. So it’s kind of hard to understand, but that’s the truth. As we showed in our presentation, the total anode cost we talked about is only $1 or $2 per kilowatt hour, so the value of removing the anode material isn’t super high either.

Yes, exactly. But if it were announced that a pure lithium anode is the right move, that would simply be no problem.

All right. Thank you.

Thank you. The next question, please?

Our next question will come from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much, guys. You’re talking about in-sourcing a number of processes. Can you talk a little bit about which processes you’re moving in-house and the equipment that you’re planning to make yourself versus some equipment that you’d be buying from other folks?

Sorry, are you talking about the cell manufacturing and selling or?

Cell manufacturing for sure, as well as on the molds that you talked about, but in terms of the CapEx budget you mentioned earlier, talking about a number of processes coming in-house and which equipment pieces you're planning to make yourself versus buying?

Tesla is absurdly vertically integrated compared to other auto companies or any company. We have a massive amount of internal manufacturing technology that we built ourselves. We literally make the machine. In fact, we design what we want to make and then design a machine that will make that. This makes it quite difficult to copy Tesla, which we’re not all that opposed to people copying us, but it’s quite difficult. You can’t just pick up the supplier catalog and go out and get one of those machines, you have to make the machine that makes the machine. We would like to outsource less.

Okay. And then the second question is really around, just the balance sheet has really changed. You’ve run awfully lean and you’ve got a lot more cushion at this point. There are opportunities around insurance to drive out some of the cost of ownership as well as financials. How are you guys thinking about that as you move into trying to accelerate demand a little bit and your ability to leverage your access to capital and enable some of those other products? Is that changing from where you’ve been in the past?

Yes, I mean something like insurance is a good example of a product made by our internal applications team. We made the insurance product and connect it to the car, look at the data, calculate the risk. This is all internally, it’s a pretty low capital, but it has very high return. We’re trying to spend money at the fastest rate that we can possibly spend it and not waste it. It’s quite hard to spend money without wasting it. We will certainly waste some of it but trying to waste not too much; it’s very difficult. We’re trying to spend sensibly in a way that yields more value than cost.

Thank you. Our next question will come from Adam Jonas with Morgan Stanley. Please go ahead.

Hey, Elon. A question on LiDAR. If LiDAR were totally free, would you want to use it in your cars near-term? Would that tech significantly help Tesla on the training of your neural network for FSD?

I mean totally free, probably not. Even if it was free, we wouldn't put it on.

Okay. Let's follow-up then. Amazon appears to be investing and building an autonomous or electric transport network of some ilk through some organic investments, but also Zuk, Aurora, Rivian, etc. What advice would you give Jeff Bezos in his endeavor?

I don’t know how much he cares about this, but he is investing a lot of money. You need to focus on vision because the entire road system is based on past optical. You have to sell past optical to have a self-driving system that is generally a solution. Once you solve past optical, you’ve solved self-driving. So why bother with anything else?

Thank you. We'll go to the next question, please?

Our next question will come from Pierre Ferragu with New Street Research. Please go ahead.

Hey, thanks for taking my question. You haven't talked that much about the Cybertruck today. I was wondering how the ramp of that product is looking? When should we see the product hitting the road? And how fast do you expect to ramp volumes? Then I have a quick follow-up.

Sure. I was in the studio actually last Friday with Frans and the team just going over improvements to the Cybertruck. We aim to make the car that is delivered better than the car that is unveiled. It drives me crazy when car companies unveil awesome looking cars, and the actual make is much worse. We always want to make the car we deliver better than the car we unveil. So there are improvements compared to what was unveiled. Yes, it's cool. If things go well, we'll be able to do Cybertruck deliveries towards the end of next year, yes. It’s difficult to predict, but a lot of deliveries in 2022, and some deliveries towards the end of next year.

Okay. And I'm trying to get a sense of how next year is going to look. If I look at your production capacity at the end of this year, it's going to be almost 850,000 units on an annualized basis, and you're going to increase capacity in Shanghai, open Berlin. You say today you would open Austin as well. So you should expect to deliver between 840,000 and 1 million cars next year?

Yes. We’ll provide guidance on 2021 after the next earnings call.

I mean, it’s in that vicinity. We’re not far off.

Thank you.

Thank you. Our next question will come from Dan Levy with Crédit Suisse. Please go ahead.

Hi. Good evening. Thank you. Just wanted to start with a question on the quarter. Zach, maybe you could give us a sense of where directionally Model Y and China Model 3 gross margin was in the quarter relative to Fremont Model 3? A little more color on the gross margin in the quarter. Was this purely a function of higher volume? Or was there also FSD revenues? Just puts and takes on gross margin in the quarter?

Sure. On your question about FSD, there was a small amount of that deferred revenue release, not particularly material in the $10 million range for the quarter. With respect to product margins, what we’re seeing across the board is continued reduction in cost, really across every product. Shanghai continues to make good progress there. Model Y cost is coming down quickly as we ramp that. We’ve guided in the past that Model Y cost should be roughly equivalent to Model 3 built in Fremont costs. It’s not quite there, and it’s also a bit of a moving target as Model 3 Fremont costs come down, Model Y also has to come down with that. Overall, I think it was quite a good story for the products.

Great. Thanks. And then as a follow-up, I wanted to ask about your strategy in Europe. Your strategy has been to cut costs to generate extra volume. What’s the reasonable expectation of what pricing might look like in Europe? How flexible will you be on pricing to generate incremental reg credit?

Generally, we’ve been in a position where we are prioritizing where in the world we send our production. There are different factors to that depending on when product changes are made, what the logistics routing looks like, different things going on in different markets. But we are in a position where we need to prioritize. What we’re trying to do as fast as we possibly can is get production up higher so that we’re not in a position of needing to prioritize again.

Okay. Let’s go to the next question, please?

Our next question will come from Gene Munster with Loup Ventures. Please go ahead.

Good evening. A question on Semi. If you could just walk us through the development of Megachargers, platoon and how you think about autonomy for Tesla Semi? How do you envision it impacting the broader trucking industry beyond just EV?

Yes. We continue the development of the Semi. In particular, Megachargers, we realized that 350-kilowatt or so that we might be looking for cars is not going to be enough for Semi. We’re looking for something much more powerful that can achieve charging for the Semi as fast as during a break, during your driving time so that you can drive until the next break. We’re not working in isolation; we’re trying to invent something that could be helpful for everybody.

Just a note on the sort of Semi. The Semi does consume a lot of cells, four to six times more than a passenger vehicle. If we are cell-constrained, it’s difficult to ramp up the Semi because there’s no cells. We need to resolve the cell constraint before ramping Semi to significant volume. That’s the only real constraint on Semi's progress. We keep running into cell production limitations.

It makes sense. A question just, as you think about, you’ve talked about robotaxi and how that’s going to impact how humans move around. How do you think about the Semi impacting freight longer term? This could be a material business.

It’s very material for sure. All transport will eventually go autonomous. Yes. Horses are like autonomous. All transport will go autonomous. It will be significant.

The technology that we're putting in Semi is identical to what we're putting in the other vehicles.

Yes. It’s just bigger and more motors.

Our next question will come from Ben Kallo with Baird. Please go ahead.

Hey, thanks for taking my question. Elon, what do you think the biggest structural issue is with the old-school OEMs, or one or two of the structural issues for them in getting their act together and catching up with you? You mentioned what you want the world to look like ahead of us. Is it just Tesla or Tesla and Rivian?

I do think there will be other car companies. I don’t think we’re going to be the only one. The things other car companies do in the auto segment is a small subset of what Tesla is. Tesla, we design and build. We’re very vertically integrated. Other OEMs largely go to the traditional supply base. If you inherit legacy components, you inherit the limitations of legacy, cost structure. To have new components, you need to make new machines. Tesla is probably an order of magnitude more vertically integrated. If we're not now, we certainly will be.

Thank you. Let's go to the last question, please.

And our final question today will come from Philippe Houchois with Jefferies. Please go ahead.

Yes, thank you for taking my questions. I tried to understand your business model for stationary storage. Have your thoughts on it? There are broadly two directions: one is selling hardware, a bit of a cost-plus business. I’m just wondering if there’s an opportunity for Tesla to share into the savings that utilities could achieve. Your business in Australia a few years ago suggests that your hardware could have been sold at a higher price. I'm wondering if you have some views on that.

Yes. I think you're probably right about that. I mean, RJ and Zach, what do you guys think?

We’re already seeing this in Australia, where we're seeing behind-the-meter aggregation providing grid services back to the grid, reducing the price to the customer and for the grid operator. This trend will continue at residential and wholesale levels.

The largest battery power plant in Australia, we continue to operate it and generate revenue in the market. Whether we could have sold it for less, we’re continuing to make money from that power plant.

Thank you. The follow-up question is, during Battery Day, you talked about this cell vehicle integration approach. When I look at that, it looks like this means that the skateboard design, the Tesla Pioneer that many of your followers are using is going to become obsolete? Or am I not thinking about it the right way?

It will be obsolete long term. I mean several years from now. It’s not like existing cars still have value. If you have a structural pack that contributes structural value to the car, anything that doesn't do that will have to duplicate hardware.

Thank you very much. Unfortunately, this is all the time we have for the Q&A today. I appreciate all your great questions, and we'll speak to you again in about three months. Thank you. Goodbye.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.