Good afternoon everyone and welcome to Tesla's Fourth Quarter 2022 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations and I'm joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q4 results were announced at about 3:00 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 with the SEC. During the Q&A session portion of today’s call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue. But before we jump into Q&A, Elon has some opening remarks. Elon?

Thank you, Martin. In 2022, we had an outstanding year at Tesla, achieving our best performance ever across all metrics. The team did an exceptional job, and it’s a privilege to collaborate with such a talented group. We delivered over 1.3 million cars with a 17% operating margin, the highest among any major carmaker, possibly in the industry overall. We also generated $12.5 billion in net income and $7.5 billion in free cash flow. Notably, these records were achieved despite significant challenges like mandated shutdowns, high interest rates, and delivery obstacles. The team's success during such tough times is commendable. We've frequently been asked about demand, so I want to clarify that in January we experienced the highest order rates in our history. Orders are currently nearly twice our production rate, which may not continue indefinitely, but demand remains strong. We have slightly increased the Model Y price as a response. We believe demand will remain solid even with a likely contraction in the overall automotive market. Affordability is crucial; many people want to buy a Tesla but find it unaffordable. Our price adjustments aim to make our vehicles accessible to more consumers. We are also making excellent progress in cost control, with production costs in Berlin and Austin declining as production scales up. Regarding Autopilot, we have rolled out the full-self driving beta for city streets to around 400,000 customers in North America, marking a significant milestone in autonomous driving. We've logged approximately 100 million miles of FSD outside of highways, with clear safety improvements based on our published data. We only released the FSD Beta because safety statistics met our high standards. In terms of batteries, the production rate of 4680 cells reached 1,000 cars per week at the end of last year, and we are boosting 4680 cell capacity by another 100 gigawatt-hours, as announced at Giga Nevada. Our long-term aim is to surpass 1,000 gigawatt-hours of internally produced cells while still utilizing external suppliers, as the demand for lithium-ion batteries is virtually limitless for the foreseeable future. We're confident we can scale rapidly using both our own cells and those from suppliers. Energy storage has also seen significant growth and is set to accelerate. Remember that a sustainable energy future relies on electric vehicles, solar and wind energy, and stationary storage to harness that energy when conditions are not favorable. With these three components, we can achieve a fully sustainable energy system for humanity, and Tesla's goal is to expedite that progress. We are ramping up Megapack production and expect to exceed our output goals. In summary, we aim to manufacture and sell as many cars as possible while maintaining the best operating margins in the industry. Our focus is on becoming the best manufacturer, with manufacturing technology being our key long-term advantage. We will share more about our plans at the Investor Day on March 1st. Lastly, I want to express my gratitude to all our employees for their efforts in delivering a record-breaking year. Congratulations to everyone.

Thanks, Elon. And I think Zach has some opening remarks as well.

Yes. Thanks, Martin. So as Elon mentioned, 2022 was a terrific year for Tesla. I also want to congratulate the Tesla team and also say thank you to our suppliers for your support during quite a volatile year. On a full year basis: revenue increased over 50%, operating income doubled, free cash flows increased over 50%, and our margins remained industry-leading. Additionally, we continued to make progress on overhead efficiencies as non-GAAP OpEx as a percentage of revenue improved further. For Q4 specifically, sequential and annual margin was impacted by ASP reductions, as we are managing through COVID impacts in China, uncertainty around the consumer tax credit in the U.S., and a rising interest rate environment. Note that in 2022, rising interest rates alone had effectively increased the price of our cars in the U.S. by nearly 10%. Additionally, COGS per unit has increased on a year-over-year basis, driven primarily by three factors. First is raw materials and inflation led by lithium prices and discussed at length in previous calls. Second, we are working through the early ramp of inefficiencies of our Austin and Berlin and in-house cell production factories. Third, our vehicle mix over the last year has moved more heavily towards Model Y, which carries a slight cost premium to Model 3. Partially offsetting these impacts, we've continued to execute on Tesla controllable cost reductions, in line with the progress we've made in prior years. These improvements include our continued work to gradually move towards a regionally balanced build of vehicles. The Energy business had its strongest year yet across all metrics, led by steady improvement in both retail and commercial storage. While much work remains to grow this business and improve costs, we believe we are on a good trajectory. As we look towards 2023, we are moving forward aggressively leveraging our strength and cost. There are three key points I wanted to make here. First, on demand, as Elon mentioned, customer interest in our products remains high. Second, on cost reduction, we're holding steady on our plans to rapidly increase volume while improving overhead efficiency, which is the most effective method to retain strength in our operating margins. In particular, we're accelerating improvements in our new factories in Austin, Berlin and in-house cells, where efficiencies are the highest. But we are attacking every other area of cost and unwinding cost increases created for multiple years of COVID-related instability. This includes logistics, expedites, accumulation of material buffers, part premiums, productivity and overheads as an example. As the world transitions from an inflationary to deflationary environment, we expect a strong partnership with our suppliers on this journey as well. In that, we've priced our products with a view towards a longer-term cost structure. Thus, there will be an impact on operating margin in the near term. However, we believe our margins will remain healthy and industry-leading over the course of the year. Third, we are continuing to ensure funding is prioritized for our long-term road map. This includes expanding in-house cell production, bringing Cybertruck to market, development of our next-generation vehicle platform, expansion of our manufacturing footprint and growth of the energy business. We're looking forward to discussing these plans in more detail on our Investor Day in a month. Thank you.

Thank you very much, Zach. Let's now go to investor questions. The first question is, some analysts are claiming that Tesla orders, net of cancellations, came in at a rate less than half of production in the fourth quarter. This has raised demand concerns. Can you elaborate on order trends so far this year and how they compare to current production rates? I think…

We already answered that question.

Yes, exactly.

Demand far exceeds production, and we actually are making some small price increases as a result.

Thank you. The second question is in a similar vein. What has the initial reaction been to global price reductions in early 1Q 2023, specifically in terms of order intake levels? We've answered that one as well. So let's go to the next one. The next investor question is, will Tesla be able to take full advantage of advanced manufacturing production credits for battery cells packs? So $3,700 per long-range Model 3 and Model Y, it's $45 a kilowatt-hour for autos and energy products and how much does Tesla expect to earn in the coming year from these credits?

I'll mention a bit about it, and then Zach can add some details. In the long term, we anticipate that the value of these credits will be quite substantial. If we achieve production levels close to 1,000 gigawatt-hours a year, or even a few hundred gigawatt-hours, the impact will be significant. However, these credits depend on domestic manufacturing. With Panasonic's domestic manufacturing, we're sharing the value of the credits. Therefore, the value of the credits this year may not be very large, but we believe it could become very significant in the future.

Yes, to clarify our expectations regarding Tesla's impact this year, we anticipate that different products will receive varying amounts of credit. The regulations are still evolving, and we are making our best assessment based on current information. We project that the impact could range from $150 million to $250 million per quarter this year, increasing as our production volumes rise. Part of our strategy, which this incentive package aims to support, is to shift more manufacturing to the United States, aligning with Tesla's existing plans. We believe we are well positioned to benefit from this in the coming years. Additionally, this incentive package aims to enhance customer adoption, and we intend to leverage these incentives to improve affordability while considering future pricing for our products. In light of the pricing adjustments we announced a few weeks ago, we are evaluating how the credit benefits will ensure that customers receive advantages, including the current $7,500 tax credit per vehicle, subject to MSRP and income limits. Our goal is to use this initiative to further our mission of promoting sustainable energy, which is also the purpose of this bill.

Thank you very much. The next question from investors is, after recent price cuts, analysts released expectations that Tesla automotive gross margin, excluding leasing and credits, will drop below 20% and average selling price around $47,000 across all models. Where do you see average selling price and gross margins after the price cuts?

Yes, go ahead, Zach.

Yeah, I'll jump in on this. So there is certainly a lot of uncertainty about how the year will unfold, but I'll share what's in our current forecast for a moment. So based upon these metrics here, we believe that we'll be above both of the metrics that are stated in the question, so 20% automotive gross margin, excluding leases and rent credits and then $47,000 ASP across all models. And so two other comments I want to make on this. Just tactically on sequential ASP changes from Q4 to Q1. And just as a reminder, the ASP reduction is not as large as the reduction in configurator prices. As in Q4, we had backlog customers that we're delivering cars to at a lower price book, given that backlogs had been so long for so much of 2022. But then also, there are various programs in place that we used in Q4 that lowered ASPs. The second comment I wanted to make here is that as a management team here, we're most focused on what our operating margin is. And so as other areas of the business become more important, particularly the energy business, which is growing faster than the vehicle business and as we're heavily focused on operating leverage here, improving the efficiency of our overheads, we think the right metric for us to be focused on is operating margin. And so I wanted to make sure that I shared that with the investor community as well, because that is what we're primarily managing to now.

Yes. Something that some retail investors understand, while others may not, is that each time we sell a car, it can be equipped with full self-driving capability through software updates. This technology is improving rapidly, creating significant upside potential. Most of the cars sold are equipped with Hardware 3, which allows us to sell full self-driving at nearly 100% gross margin. The value of this capability increases as the autonomous technology advances. Once the cars are fully autonomous, it could represent a substantial increase in fleet value, potentially the largest asset value increase in history.

Thank you. Let's go to the next investor question. Since Elon started political influencing, polls from Morning Consult and YouGov show…

YouGov, crush that with your left.

...show Tesla brand favorability declining in 2022 and division among partisan lines. Such brand damage can impact demand. Does Tesla track favorability? And how will any brand image be mitigated?

Well, let me check my Twitter account. Okay, so I've got 127 million followers. It continues to grow very rapidly. That suggests that I'm reasonably popular. It might not be popular in the way with some people, but for the vast majority of people, my follow count speaks for itself. I'm the most interactive account, social media account, I think, maybe in the world, certainly on Twitter, and that's actually predated the Twitter acquisition. So I think Twitter is actually an incredibly powerful tool for driving demand for Tesla. And I would really encourage companies out there of all kinds, automotive or otherwise, to make more use of Twitter and to use their Twitter accounts in ways that are interesting and informative, entertaining, and it will help them drive sales just as it has with Tesla. So the net value of Twitter, apart from a few people complaining, is gigantic, obviously.

Thank you. Let's go to the next question. Please provide a detailed explanation of where you are on the 4680 ramp. What are the current roadblocks? And when do you expect to scale to 10,000 vehicles a week?

Thanks, Martin. First, I want to congratulate and thank the Tesla 4680 team for reaching the milestone of producing 1,000 units per week in Q4. This achievement is the result of several years of dedicated effort. Currently in Texas, one of our four production lines is operational, while the other three are in the commissioning and installation phases. Our objective for the 4680 team in 2023 is to establish a cost-effective ramp-up of 4680 cells ahead of the Cybertruck launch. We are focusing on refining and enhancing the quality of high-volume supply mechanical parts and maximizing factory process yields. If we succeed in these key areas, we will be well positioned for a significant 4680 production year in 2024.

Thank you. Next investor question is Elon said previously that FSD Hardware 4 will most likely come first in Cybertruck. Is that still the current plan? Do you expect there to be an upgrade path for Hardware 3 cars to Hardware 4?

Yes, Cybertruck will feature Hardware 4. To clarify, for 2023, Cybertruck won't significantly impact our bottom line, but it will in the following year. It’s an amazing product, and I’m eager to drive it myself. It will be my daily vehicle. I'm even wearing a T-shirt with its design. This is a unique product that is truly special. Regarding the upgrade of cars with Hardware 3, I don’t believe that will be necessary. While Hardware 3 won't match the capabilities of Hardware 4, I’m confident it will greatly surpass the average safety of human drivers. Our goal is to improve safety on the road, aiming for Hardware 3 to be 200% or 300% safer than a human, with Hardware 4 potentially reaching 500% or 600% safer, and Hardware 5 beyond that. However, retrofitting Hardware 3 with Hardware 4 is complex and costly, so pursuing that may not be economically viable.

Thank you. The next question is for Zach. Zach, when do you think Tesla Insurance will become a big enough revenue source to warrant providing more details in the financials of the business so investors can compare it to other insurance companies?

Yes. I think it's probably going to take some time before this business is large enough for specific financial disclosures. But I'm happy to provide an update on where we stand in the business. So, we're currently at a $300 million annual premium run rate as of the end of last year. We're growing 20% a quarter, so it's growing faster than the growth in our vehicle business. And in the states in which we're operating, on average, 17% of the customers in the states are using a Tesla Insurance product. And that number continues to tick up as we spend more time in markets. And we see most of the adoption occurring when folks take delivery of a new car, as they're setting up insurance for the first time as opposed to going back and switching when they already have insurance set up. So there's an inherent stickiness in the Insurance business.

No, go ahead.

No, I was just going to say, just as a broader reminder on kind of the motivation for starting this business, it was to improve and still is to improve the total cost of ownership of our cars, given that we're seeing high premiums of insurance from third-party companies. And that remains our priority here. We'll obviously run this as a healthy business, but we want to make sure we keep our costs low and insurance stays affordable to our customers.

There are two significant benefits of our Tesla Insurance that are important to highlight. First, by offering insurance for our cars at a competitive rate, Tesla forces other car insurance companies to improve their rates for Teslas. This has a broader impact by lowering overall insurance costs even for those who do not choose Tesla Insurance, as others must compete with us to avoid charging excessive rates. Secondly, it provides us with valuable insights that help reduce repair costs for Teslas globally. Previously, we lacked visibility into repair costs since other insurers covered them, and in many cases, those costs were unreasonably high. We've made design adjustments and software changes to lower repair costs, aiming first for no repairs at all, which is achievable since every Tesla is equipped with advanced active safety features, regardless of whether full self-driving is purchased. Most accidents are minor, often involving just a broken fender or scratched paint. We are working on getting cars repaired quickly and efficiently so they can be returned to customers. Moreover, small design changes to bumpers and improvement in the logistics of spare parts have a significant impact on repair costs. Delays in obtaining parts can lead to expensive rentals and inconvenience for our customers, affecting their satisfaction and overall ownership experience.

Thank you. The next question from investors is, is Cybertruck production still on track for mid-year?

We do expect production to start, I don't know, maybe sometime this summer. But, I always like to downplay the start of production, because the start of production is always very slow. It increases exponentially, but it's always very slow at first. So I wouldn't put too much stock in the start of production. It's kind of when does volume production actually happen, and that's next year.

Thank you. That's great Elon. Like just to emphasize on that, we've started installation of production equipment here in Giga Texas, castings, GA, general assembly, body shops. We built all our beta vehicles, some more coming still in the next month, but as you said the ramp will really come in 2024.

Yes, exactly.

Thank you. And the last investor question is, with near-infinite global demand for energy storage.

Yes.

Where will Tesla build the next Megapack factories? How many are needed on each continent?

It's a good question. We plan to provide an update about that in the future, but it is something we're considering very carefully. I am really focused on finding the fastest path to achieving 1,000 gigawatt-hours of production per year. You will see announcements later this year and next that will address that question.

Thank you. Okay. And now let's go to analyst questions. The first analyst question comes from Rod Lache from Wolfe Research. And Rod, feel free to unmute your mic.

I think I’m unmuted. Can you hear me?

Yes. We can.

Okay. Thank you. Just firstly, it sounds like your 1.8 million unit volume indication for this year is somewhat more supply constrained than demand constrained. Then I have a follow-up on cost. Is that an accurate statement?

Our internal production capacity is actually closer to two million vehicles, but we mentioned 1.8 million because there always seems to be some unexpected event that occurs somewhere in the world. We can't control natural disasters, conflicts, or pandemics. If the year goes smoothly without significant supply chain disruptions or major issues, we have the potential to produce two million cars this year. While we're not making a commitment to that figure, I'm highlighting that it is a possibility. I also believe there would be sufficient demand for it.

Yeah. Thanks for clarifying that. And on the cost side, the numbers that we just saw from you, as you pointed out, were weighed down by the 4680 ramp, the Berlin, Austin, Giga castings, processes, not at rate. Can you give us a bit of an indication of the headwind that you're absorbing from those things like you did last quarter? And then lastly, on cost, do you think that we can tease out an interesting data point on where battery costs are headed from this announcement that you just made last night? If I'm correct, it looks like the investment cost per kilowatt-hour is less than half of what I've seen anywhere else, maybe $30 a kilowatt-hour for that capacity?

I don't think we want to say the specific number, but it's interesting, if you look at the size of the Giga Nevada that is allocated to make 100 gigawatt-hours, is a small fraction of the size that currently makes about 35.

Yes. I mean, the goals we've outlined at Battery Day on using the investment required to deploy cell manufacturing, I mean, that's been a key focus of ours and the team is doing a good job hitting the marks on that focus.

Yeah. And it goes back to the point, I was making. I said, it several years ago, I think Tesla's really the competitive strength that will be, by far, the hardest for other companies to replicate is Tesla being just damn good at manufacturing and having the most advanced manufacturing technology in the world. And if you've got that sort of advanced manufacturing toolbox, you can apply it to many things and we're applying it now to battery cells. I should also say that, we have other products in development. We're not going to announce them obviously, but they're very exciting. And I think we'll work for those clients when they reveal them. Tesla has the most exciting product of any company on Earth by a long shot. And we'll continue to, I think, be in that position. We've got more great ideas. I mean, we know what to do with. So the future is very exciting. As I said in the last call, there's going to be bumps along the way and we'll probably have a pretty difficult recession this year, probably. I hope not, but probably. And so, one can't predict the short-term sort of stock value, because when there's a recession and people panic and the stock market then prices of stocks, worth value of stocks can drop sometimes to surprisingly low levels. But long term, I'm convinced that, Tesla will be the most valuable company on Earth.

Thank you. And I think, Zach, there was a question on cost headwind in Q4.

Yeah. I mean, our weighted average COGS for the company, if you were to assume Austin and Berlin were at the cost structure of our other factories, it was on the order of 2,000 to 2,500 of headwinds. So I think from there, you can back into the margin impact of those factories as of end of Q4.

Thank you very much. And let's go to the next question from Pierre Ferragu from New Street Research.

Thanks, Martin. Can you hear me well?

Yes.

Excellent. Zach, I’d like to follow up on the cost data point you just mentioned. Looking back at the cost of goods sold per car, it dropped to about $36,000 in mid-2021. Then the number increased as you dealt with inflation and the ramp-up of the Berlin and Texas facilities. Currently, we are nearing $40,000, and at one time last year, it may have peaked around $42,000. My question is, how long do you think it will take to return to approximately $36,000, which would indicate that the situations in Berlin and Texas and those input costs are stabilizing? Would that represent about a 10% reduction in the cost per car? Is this a realistic expectation for this year, or is that too hopeful?

The Austin and Berlin ramp inefficiencies in 4680 will make a substantial amount of progress on that over the course of the year, and that's within Tesla's control. We're doing a lot of work on cost reduction outside of that. And we talked about supply chain costs, expedite, logistics, attacking everything. On the raw materials and inflation side, where lithium is the large driver there and this was a meaningful source of cost increase for us, we'll have to see where lithium prices go. And we're not fully exposed to lithium prices, but I think in general, from what we've seen from our forecast here, the cost per car of lithium in 2023 will be higher than 2022. So that's a headwind that would have to be overcome to return back to those levels. So, I don't think we'll get there this year, but I think we'll make progress. And we'll continue to find ways to offset these raw material costs that we don't have control over. Is there anything on that?

Yes. Like on the non-cells raw materials, we begin to capture benefits of indexes tapering out, but due to the length of various supply chains, it does take time before this is reflected in our financials. And while alumina is down like 20% year-over-year, steel is about 30% down year-over-year, the global non-cells raw materials market continues to be influenced by geopolitical situations in Europe, high production cost due to labor cost increases and energy spikes and disruptions due to natural disasters like the typhoon in Korea four months ago, and pandemic lockdowns. So, we believe that meaningful price corrections will ultimately come, but it remains uncertain exactly when. In the meantime, we continue to redesign the supply chain to make it more efficient and work with our supplier partners to find more efficiencies, streamline logistics and transportation to reduce costs.

Excellent. Thank you. And I…

Sorry, do you want to go say something?

Our fleet is starting to mature, specifically the 3, Y fleet. We're collecting a lot of data from that fleet to identify ways to improve margins that we were previously unaware of. Throughout 2023, we plan to focus on materials where we are paying for more performance than necessary or have excessive content, all without compromising reliability. This will lead to substantial cost reductions in the powertrain over the year. We are not only dependent on supply; we are also making design changes to reduce costs.

Yes. I think that if the recession turns out to be serious, which I believe it might be, although I hope it isn't, we could see significant decreases in almost all of our input costs. Therefore, we expect to experience deflation in our input costs, which would likely lead to improved margins. I'm just speculating here. That would be my estimation.

Thank you very much. As a quick follow-up, Elon, I was thinking about FSD. When you compare the current situation to a year ago, the progress in both the quality of the product and its rollout has been remarkable. I'm curious about how much this is affecting the take rate of FSD today. Are people getting more enthusiastic about FSD now that they see it in 400,000 cars and recognize the value of the service, or is it still too soon to expect an increase in the take rate?

The trend towards the use of FSD is very strong. With each improvement, enthusiasm naturally increases. Many people may not realize that Tesla is as much a software company as it is a hardware company, but it is also one of the world's leading AI companies. This is significant for both the software and hardware aspects. The Hardware 3 inference computer remains the most efficient in the world, despite being five years old. We anticipate Hardware 4 and 5 will bring substantial advancements. The Dojo computer is expected to be operational at Tesla later this year, and we are seeing a surge of top-tier AI talent joining the company. Additionally, there is long-term potential with Optimus, where we can leverage our expertise in electric motors, power electronics, batteries, and advanced manufacturing to create a humanoid robot that is practical and can be produced in large quantities with remarkable capabilities. Cars function like robots on four wheels, while Optimus is a robot on legs. As we move closer to solving real-world AI challenges, we don't see anyone approaching us in this area. This could lead to a significant increase in Tesla's market cap.

Thank you. And the next question comes from Alex Potter from Piper Sandler.

Can you hear me, guys?

Yes.

Yes.

Okay, great. So a quick one on FSD. This, I guess, for Zach. Obviously, you unlocked some deferred revenue in the quarter that will translate presumably into higher margins on every incremental sale going forward so long as people opt in for FSD. But was wondering if you're able to disclose the percentage of the $15,000 price that you're not going to be able to recognize as revenue upfront rather than deferred?

Yes. I mean, the way that we've structured this is a full self-driving package has two components. There's enhanced Autopilot, the price of which is listed on the website. We fully recognize that. Then there's an incremental, which is for the additional features of full self-driving offers and we've released a portion of that. And then there's a minority of the total package that's remaining that will be released over time as software updates are there. And in our shareholder letter, in addition to disclosing the dollar amount of the deferred revenue release, we also included in there the dollar value of the balance of unreleased deferred revenue that will be released over time with future software updates.

Okay, great. And then maybe one additional question here on the incremental capacity in Nevada, the 4680s that you're planning. That's a lot of batteries obviously, and presumably, you won't be putting all of those in Tesla Semi. So I guess, two questions about that incremental capacity. First, is it correct to assume that all of those 4680s are going to be more or less fungible and usable in your entire range of products? And if the answer is yes, then if you had to guess, how do you think that 100 gigawatt-hours would be allocated between your various end markets?

I don't know, this is a bit too much guessing.

Yes.

You're correct that not all of the 100 gigawatt-hours will be used for the Semi trucks. I mentioned that there are several future products, and those future products will utilize the 4680 battery.

Thank you. And the next question comes from George from Canaccord Research.

Hi, everyone. Thanks for taking my question. So you recently adjusted prices and that may have put many of your competitors in the back foot. In addition to that, capital markets have recently gotten a lot tougher. So with those factors in mind, I'm curious how you see the current competitive landscape changing over the next few years. And who do you see as your chief competitors five years from now?

Five years is a long time. Regarding the Tesla order, the AI team was just discussing who we think is close to Tesla in terms of a general solution for self-driving. Right now, we still can't identify anyone who would even qualify as a distant second. It feels like, at this moment, you couldn't see a second place from afar. However, I don’t believe this situation will last indefinitely. In five years, I imagine someone will have figured it out, but I don't think it will be any of the car companies we know of at this time. Just a hunch that someone might eventually emerge.

I mean, beyond that, Elon, like in the vehicle space, even though the market is shrinking, we're growing and EVs have doubled almost year-over-year. So, like it ever keeps up with the trend of EVs is going to be our competitor. The Chinese are scary; we always say that. But like a lot of people always look at the EV market share, but we always look at it is how much of the total vehicle space do we have, and we're just going to keep growing in that space. There's 95% for us to go get.

Yes, I want to acknowledge the car companies in China. They are among the most competitive globally, based on our experience, and the Chinese market is extremely competitive. These companies put in significant effort and demonstrate smart strategies. We believe there might be some companies from China that could be strong contenders to challenge Tesla. Our Tesla team in China is performing well, and we are also fortunate to attract top talent there. We are optimistic about the future, and we believe it will be promising.

Just as a follow-up, the Inflation Reduction Act has created huge tax incentives for commercial vehicles. You mentioned an incredibly interesting product pipeline. Are there maybe some plans to accelerate commercial vehicle form factors outside of the Tesla Semi to help accelerate EV adoption?

I was saying that, yes, but I'm not going to provide details. We actually look at what is limiting new vehicle production because we have been constrained by total lithium-ion cell output. People have asked why we don't bring different cars to market, but if it only means moving batteries from one car to another, it doesn't help. It actually complicates things without increasing volume, which makes it counterproductive to add model complexity if we don't have enough lithium-ion batteries available. We want new product introductions to align with cell availability or utilize those cells without affecting the battery supply for existing models. That's the true limiting factor for new models, not anything else.

Thank you. Let's go to the next question. The next question comes from William Stein from Truist.

Great. Thanks for taking my question. You started to answer this earlier, but I'd like to ask this question about the AI elements of your business and ask if you could comment on progress around Dojo and Optimus and your anticipation for the likelihood, for example, for the company to disconnect the GPU cluster in favor of Dojo and to have some market achievement in Optimus?

Yes, we’re in the early stages, so there are significant challenges in making predictions. It's generally easier to forecast long-term outcomes but more difficult to estimate the timeline leading up to those outcomes. We believe that Dojo will be competitive with NVIDIA H1 by the end of this year and potentially surpass it next year. The critical factor is the energy usage required for training, such as training a video frame. We anticipate an order of magnitude improvement in energy efficiency compared to GPUs for Dojo, which is specifically designed for AI training. It’s very specialized for this purpose and may not excel in other areas. This is somewhat analogous to an ASIC being more effective than a CPU. Since we already manage one of the largest GPU clusters globally, we have a solid understanding of their efficiency and what Dojo needs to do to remain competitive. We believe Dojo has a structural advantage because it focuses solely on training, unlike GPUs that cater to multiple applications such as graphics, gaming, and crypto mining. We are also optimizing the low-level software to enhance training efficiency. The internal communication between Dojo modules is highly efficient, not reliant on standard Ethernet connections. We foresee a path for significant improvements in energy efficiency per unit of training, though achieving it is still uncertain. Once something is trained, the efficiency of inference becomes crucial, particularly for products that may not be directly related to cars. We are confident that our FSD computer in vehicles offers the most efficient inference capabilities, which holds promise for various automotive applications.

Thank you. And William, do you have a follow-up?

Yes. It sounds like the 1.8 million units you expect this year is supply, not demand limited supply, it sounds like by the lithium batteries. If you were to become demand limited, can you talk to us about your propensity to use price and your relatively high industry margins to grow units and share?

Yes. To be clear, the 1.8 million is not cell supply limited. And I mean, we did address that number earlier in the call if you want to answer.

Yes. Cell supply is roughly aligned with that. If we're fortunate, the 1.8 million cars could exceed that number. The remainder would be allocated to stationary storage, such as Powerwall and Megapack. So, yes, that's correct.

Okay. Let's have the final question from Adam Jonas.

Hi. Elon, first question is, is it time for Tesla to significantly expand the captive finco? I mean, you only have like $4.5 billion of receivables. It's basically nothing compared to other big auto companies. And then I have a follow-up.

Zach maybe is best to answer that.

Yes. I mean, the way that we've been using captive financing so far is to plug what we believe to be gaps in the market of existing third-party products. And so we have a couple of offerings in Europe. We do loans for our energy business, retail energy business here in the US. We do leasing and we do a small amount of U.S. loans that are very targeted. And so we're using captives to support market caps, as I mentioned. So basically, it's a vehicle to support vehicle sales, make sure customers have access. I do think there's opportunity here to continue to grow this. We are growing it slowly here. It is a consumer of cash, so we're being cautious on how we do that. But the plumbing is in place to do a lot more here. And I think we'll have to see how things unfold over the course of the year and make decisions real time as to how much we ramp it up versus ramp it back.

If we encounter a significant recession this year, which I hope we don't, cash will be extremely valuable as it becomes scarce. Therefore, we need to be careful about using cash for loans, particularly for cars. I believe we are well-equipped to withstand a recession since we have no debt and over $20 billion in cash, which is excellent. This cash is generating a substantial return. It's important to note the relationship between the basic value of a security and the risk-free rate, typically represented by T-bill rates. The long-term return of the S&P 500 is around 6%. We need to be cautious if federal rates exceed 6%. If deflation occurs, as I suspect it may, we must factor that into the risk-free rate from the Federal Reserve. If the total surpasses 6%, the justification for investing in the S&P 500 becomes questionable compared to simply placing money in a savings account, given that the bank interest rate is stable while the S&P 500 fluctuates. Thus, the Federal Reserve poses a risk of diminishing the value of all equities, which is a serious concern.

Thanks Elon. And just a follow-up, I don't want to steal thunder from March 1st and in Austin, but how close are we to that step change improvement in BoM cost where you could sell an EV for under $25,000 or $30,000 and actually generate a profit, that kind of real moving assembly line moment in manufacturing? Again, I don't want to steal the thunder but just if you wanted to kind of wrap-up with thoughts there that would be helpful. Thanks Elon.

I would love to answer, but I might be asking the same question, and it would be premature to discuss future announcements.

Fantastic. Thank you very much, everyone, for all your good questions. And we will see you again in three months' time.

Thank you.

Thank you. Bye-bye.