Good afternoon, everyone, and welcome to Tesla's Fourth Quarter 2023 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations, and I'm joined today by Elon Musk, Vaibhav Taneja, and a number of other executives. Our Q4 results were announced at about 3:00 PM 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 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. But before we jump into Q&A, Elon has some opening remarks. Elon?

Thank you. The Tesla team performed exceptionally well in 2023, achieving record production and deliveries of over 1.8 million vehicles, in line with our guidance. In the fourth quarter, we were producing vehicles at an annualized rate of almost 2 million cars. This is a remarkable accomplishment. At the Fremont factory alone, we produced 560,000 cars, setting a record for the highest output among automotive plants in North America. People are often surprised to learn that the most productive car factory in North America is located in the San Francisco Bay area, which might seem counterintuitive. This factory has significantly benefitted the surrounding community, turning what was once a neglected strip mall into the most productive car plant in the Americas. I'm incredibly proud of the workforce there. The Model Y has become the best-selling vehicle worldwide, surpassing 1.2 million unit deliveries. Our energy storage business also saw substantial growth, delivering nearly 15 gigawatt hours of batteries in 2023, a significant increase from 6.5 gigawatt hours the previous year. This impressive growth trend will likely continue. I have always stated that the storage sector would expand more rapidly than the car business, and that is coming to fruition. Our free cash flow remained robust at $4.4 billion in 2023, despite substantial spending on future projects, leading to record capital expenditures and research and development investments. Looking ahead to 2024, we are in between two major growth phases. We are committed to ensuring the success of our upcoming growth wave, which will be driven by new vehicle models, energy storage, full self-driving, and other initiatives. We have rolled out Version 12 of our full self-driving software, representing a complete overhaul from previous versions. This new version employs end-to-end artificial intelligence, making significant enhancements in object perception and vehicle control. Initially, it is available to our employees and a few customers, but we will soon make it accessible to all U.S. customers who request full self-driving. This will encompass over 400,000 vehicles in North America. We replaced 330,000 lines of C++ code with neural networks, which is quite impressive. Additionally, I believe Tesla is one of the most efficient companies in the world regarding AI inference. Our experience has driven us to maximize hardware performance, especially as our hardware is several years old now. This efficiency will become an increasingly important factor in various industries. The new Model 3 is now available globally. While it may look similar, we have made significant improvements, making it quieter, more refined, better equipped, and offering a longer range. I encourage anyone who hasn’t driven a Model 3 recently to test drive the updated version. We are also making significant progress on our next-generation low-cost vehicle. I know this is an earnings call and not a product launch, and while many may want to ask about new products, we reserve such announcements for specific events. However, we are truly excited about this project, which will dramatically influence both the vehicle's design and manufacturing system. The new manufacturing system is vastly more advanced than any existing automotive manufacturing technology. I previously mentioned that Tesla's future competitive edge will rely on manufacturing technology, and this will be evident with our next-gen vehicle. The first manufacturing site for this will be at our Gigafactory in Austin, Texas, followed by other global locations, with a factory in Mexico likely being the second. We expect to identify a third location outside of North America by the end of this year or early next year. In summary, we had an exceptional year with record production, deliveries, and strong free cash flow despite a challenging high-interest rate environment. We are focused on thrilling new projects that could lead to Tesla becoming the most valuable company in the world, although I want to stress that this is a challenging and uncertain journey. However, it is now a real possibility, which I didn't believe was attainable before. Thank you to all of our investors, employees, and suppliers for a fantastic year, and I look forward to a remarkable 2024 and beyond. Thank you.

Thank you. And our CFO, Vaibhav has some opening remarks as well.

Thanks, Martin. Good afternoon, everyone. As Elon mentioned, we had a record year in terms of both production and deliveries for our auto business as well as record deployments in our energy business. This was achieved despite 2023 being a challenging year in terms of higher interest rates and higher inflation. Big thanks to our customers for being with us through this challenging period. I would also like to thank the whole Tesla team for their resolve and dedication throughout. In terms of 2023 financials, we ended the year with over $96 billion of revenue and generated $4.4 billion of free cash flow to end the year with over $29 billion of cash and investments on hand. Our 2023 GAAP net income was impacted by the recognition of one-time non-cash benefit of $5.9 billion from the release of valuation allowance on certain deferred tax assets. This was due to our recent history of sustained profitability and is similar to several other companies who have recently gone through a similar change in their accounts. Accordingly, starting with Q1, our book tax rate will now be more in line with other companies in the S&P 500. In our vehicle business, we continue to see improvements in our per unit cost despite us being in the early phase of Cybertruck ramp. As a result, our auto gross margin improved sequentially. That said, predicting auto gross margins is extremely challenging since there are many moving parts to this equation, some of which are out of our control like the change in tariffs or local incentives to name a few. While the teams are focused on cost reductions, we are approaching the limits within our current platforms. On the demand front, as promised, we made investments in digital campaigns in 2023. We fully appreciate the importance of customer education as we are still in a customer acquisition phase. Our data suggests that around 90% of our vehicle buyers in 2023 never owned a Tesla before. We are being creative in figuring out ways to bring in new customers and educate them about the benefits of owning a Tesla versus gas-powered vehicles. The key among them being total cost of ownership. This concept is mostly overlooked for just the upfront cost. We will be rigorous in evaluating our campaigns, curating the content, and optimizing spend accordingly to support the overall demand. There are two additional things I would like to mention as it relates to the US market. First, for customers who qualify for the IRA buyer credit, we now offer that as a point-of-sale benefit for Model Y, which means an immediate reduction of $7,500 at the time of purchase to the end customer. Secondly, we continue to offer very attractive lease rates for Model 3 and Y using our Partner Leasing Program. Note that the sales under this program are recognized as upfront revenue and reported within automotive sales. Our energy storage business had another record year with deployments more than doubling and revenues increasing by more than 50%. This business is poised to again surpass our auto business in terms of growth rate in 2024. This has been in the works for quite some time with us laying the foundation a few years back by building our Megafactory in Lathrop. I would like to thank the whole Tesla Energy team for their efforts to make this a reality. Our services and others business also started contributing meaningfully to our results as our fleet grows. As we expected the fleet-based revenues from supercharging, used cars, and services continue to increase. For 2024, our focus is to continue growing our output, continuing our cost reduction efforts, and increasing investments in our future growth initiatives. Accordingly, we are currently expecting our capital expenditure for 2024 to be in excess of $10 billion. We believe this would be critical in helping us lay the foundation for the next phase of growth. Once again, I would like to thank everybody at Tesla, our investors, and our suppliers for being with us in this journey. We can open it up to questions, Martin.

Thank you. Let's go through investor questions. Question number one is from Michael. Given that you moved the start of the next-generation compact vehicle production to Austin, has the timeline improved so that we might see next-generation platform vehicles in 2025?

I would certainly say things should be taken with a grain of salt, since I am often optimistic. I don't want to blow your minds, but I'm often optimistic regarding time. Our current schedule shows that we will start production towards the end of 2025, so sometime in the second half. That's just what our current schedule indicates. There's a lot of new revolutionary manufacturing technology involved. I wanted to set up this new manufacturing line at Giga Texas because we really need the engineers to be present during the production process. This isn't a simple off-the-shelf solution. It's easier for Tesla engineers to be on-site in Austin than elsewhere. We currently expect to start production in the second half of next year. It will be a challenging production ramp, and I must emphasize that we will be fully immersed in it. I'm confident that once we get going, our technology will be far superior to any other manufacturing technology available globally. It's truly next level. However, predicting the specific S-curve of manufacturing is always difficult. It typically starts off slow before accelerating exponentially. Given that, it's hard to say what the unit volume will look like next year. We won't make any predictions on that front, but it seems quite likely that we will begin production next year.

Thank you. The next question is from Michael again. What has been the barrier to ramping 4680 cells into the multi-million cells per week rate and when do you expect to get there?

Karn?

Yeah. First, I just want to allay any concerns regarding 4680 limiting the Cybertruck ramp, because I've seen some people commenting about that. To date, 4680 production is ahead of the ramp with actually weeks of finished cell inventory. And the goal is to keep it that way, not only for Cyber but for our future vehicle programs. And as Elon said, it is an S-curve here too. It's hard to predict these things, but I'm just describing our goals.

It's a hard problem.

Yeah.

There are entire companies where all they do is make battery cells. That's like all they do.

Indeed, indeed.

We do a lot of other things, and we got a lot of breakthrough technologies that take time to figure out with 4680. It's not just that it's a 46 millimeter diameter by 80 millimeter cell. That's just the dimensions. There's a tremendous amount of new technology in the cell itself.

And manufacturing technology.

Yes, exactly.

And just regarding what the team was able to do in Q4, Texas successfully swapped line one from the Model Y design of the cell to the Cybertruck design of the cell, which was the 10% cell energy increase I've mentioned before. And as with any major new product introduction, the factory and engineering teams collaborated to ensure quality of the new design and the process changes as their first priority. And now our focus returns to cost and production ramp in Q1. And in terms of what we're doing, we're currently running one production line, one assembly line, using two assembly lines in addition for yield and rate improvement trials, and we have a fourth in commissioning, and four more will be installed starting in Q3 this year. So definitely this is a big year for ramping 4680.

But we also do want to emphasize that we also expect to ramp orders from our suppliers.

Yeah.

So this is not about replacing our suppliers, it's about supplementing our suppliers.

Yes.

So we are very appreciative of our suppliers. Panasonic, obviously, is our longest supplier. They're an amazing company. We've got CATL, we've got LG and BYD.

Thank you. The next question is from Adam. Should retail shareholders be concerned that Elon has stated that he is uncomfortable expanding AI and robotics at Tesla if he doesn't have 25% of voting?

I have a concern regarding the future of our artificial intelligence and robotics initiatives. I envision the potential for creating a powerful entity in this field, but I'm worried about having limited influence over the company at that point. I could risk being sidelined by some shareholder advisory group. We've faced various challenges with groups like ISS and Glass Lewis, where activists often have unconventional views on company direction. I want to ensure I can be impactful without seeking additional financial benefits. An ideal scenario would involve a dual-class stock structure that would allow me to maintain a significant influence, even if the circumstances changed and I was no longer in charge. My target is to secure enough influence without seeking control, and achieving that would be beneficial.

Thank you. The next question is, what is your expectation for automotive gross margin ex-regulatory credits for the full year?

Like I said in my opening remarks, we're focused on reducing the cost of our vehicles. This is a very extensive and involved exercise whereby we look at not just the component cost, but down to the packaging used to get the materials to the production flow. Each element of the cost is scrutinized to optimize further. A few pennies saved at the subcomponent level, whether through engineering redesign or from many other things which I mentioned leads to cost reduction. This is a constant exercise and we just have to chase down every penny possible. We have a strong team which is hyper-focused on this. However, this is a very difficult thing to predict precisely because there are lots of...

We can't predict this accurately since we don't have a crystal ball. If interest rates decrease quickly, margins should be favorable. If they don't decrease quickly, margins may not be as good. It's crucial to remember that most car buyers focus on the monthly payment rather than the total cost. Many people want to buy our cars but simply can't afford them. As interest rates and monthly payments decrease, more people can afford to buy the car. It's a straightforward situation without any tricks involved.

Okay. Thank you. The next question is, does the company anticipate a 50% volume CAGR to be realized in either 2024 or 2025? If not, why not?

As we have said in our prior guidance, there will be periods where we won't be growing at the same rate as before. We are between two major growth waves. The first one began with the global expansion of Model 3 and Y, and we believe the next one will be initiated with the next generation platform. In 2024, our volume growth will be lower, as we have said, because we are trying to focus the team on the launch of the next generation vehicle.

All right. Thank you very much. The next question is from Michael. When will Tesla start construction on the Giga Nevada expansion and Giga Mexico, and when can we expect each of these to produce their first products such as 4680 cell, Semi, and next-gen vehicles?

We have recently broken ground for the next phase of Giga Nevada expansion to incorporate Semi and other projects. But as said earlier, regarding Mexico, we want to first demonstrate success with the next-generation platform in Austin before we start construction. Therefore, we have started the long lead work to get the basics ready and plan to follow our recipe from the 3/Y ramp with Shanghai, where we started with learnings from Fremont and ramped really quickly.

Yeah, exactly. It's important to emphasize that I mean, Model 3 production was three years of hell, I've said it before, some of the really worst years of my life, frankly. I still have mental scar tissue from those three years, as do many. And then Model Y was somewhat of a variant on Model 3. So a much easier situation. And then we were able to actually do slightly improved versions of, in some cases, significantly improved versions of the Model Y production line in Shanghai and Berlin. And that's the right, I think the sensible way to go about things is kind of figure out the core technology of the manufacturing line and then replicate it with improvements throughout the world.

Thank you. The next question from Michael is, has there been any progress made with an FSD licensing agreement with another company?

I really think lots of car companies should be asking for FSD licenses. And we've had some tentative conversations, but I think they don't believe it's real quite yet. I think that will become obvious probably this year. And I do want to emphasize that if I were CEO of another car company, I would definitely be calling Tesla and asking to license Tesla full self-driving technology. It's definitely the smart move.

Thank you. The next question from Siddharth. What is the timeline for Optimus first production off volume production line and what are the barriers to getting there?

Optimus is a brand new and highly revolutionary product that has the potential to surpass the value of everything else Tesla offers combined. When considering the economy, it typically involves productivity per capita multiplied by the population. But what if there are no limits to the population? That would mean there are no limits to the economy. The AI technologies we've developed for our cars can be effectively applied to a humanoid robot since a car can be considered a robot on four wheels. Tesla is arguably already the largest maker of robots in the world, simply through our four-wheeled vehicles. Optimus is a humanoid robot with arms and legs and is the most advanced humanoid robot currently in development globally. We have a good chance of delivering some Optimus units next year. However, since this is a completely new product, there is significant uncertainty, making precise predictions challenging. We will keep the public updated on Optimus's progress every few months, and it is advancing rapidly. I just spent time in the Optimus lab late last night and the team is doing incredible work. Safety is a top priority for Optimus, especially as we scale up production, so we need to ensure that no centralized control can introduce malware into the humanoid robot. We will implement a localized shut-off that cannot be updated remotely from a central server. We have to carefully consider safety in this area. Ultimately, I believe Optimus could become the most valuable product in history by a wide margin.

Just to comment on the barrier, I think the barrier, and we've talked about this, is like getting it to actually do something useful. Like, we can get it to walk around, we can get it to do things, but it's like that utility part.

We can already do some useful things.

But like, to making millions of these things, it's like utility. Got to get the utility of it.

A smart robot capable of performing generalized tasks will do moderately specialized tasks as well. It can already do that and will improve throughout the year. As we enhance the technology in the car, the technology in Optimus will advance simultaneously. They utilize the same AI inference computer and training technology. We are truly building the future. The Optimus lab resembles the set of Westworld, although that wasn't exactly a utopian environment.

Yeah. Not the best reference.

Yeah. The creators of Westworld, Jonathan Nolan, Lisa Joy Nolan, friends, old friends of mine, actually. And I invited them to come see the lab. I think they'll come see it, hopefully soon. It's pretty wild, especially the sort of subsystem test stands where you've just got like one leg on a test stand, just doing repetitive exercises and one arm on a test stand. Pretty wild. Yeah.

We're not entering Westworld anytime soon.

Right. You take safety very, very seriously.

Thank you. The next question from Nermin is, how many Cybertruck orders are in the queue and when do you anticipate you will be able to fulfill existing orders?

First of all, I want to thank all the Cybertruck reservation holders for their patience. The reservation to order conversion rates so far has been very, very encouraging. If the trend continues as it very likely to be, we will soon sell out all the builds in 2024. And also, we have new orders come in after the launch. The auto numbers keep growing. So we're now all hands on deck, focused on ramping so we can fulfill all the demands in a reduced wait time.

It's important to emphasize that this is very much a production-constrained situation, not a demand-constrained situation. We could significantly raise the price, but that doesn't feel right to us to gouge people for early delivery. The demand is extremely high. As long as the price is reasonable, I see us ultimately delivering around 0.25 million, maybe more, Cybertrucks a year in North America. This is roughly on that time frame, and it sure is impressive.

Definitely is. Anywhere you go, people look at you, they give you thumbs up.

Yeah. It finally looks like the future. There are some very good trucks on the road, but if you switched out the brand name, you wouldn't hardly know which company made them. However, you would definitely recognize the Cybertruck. That's our best product ever.

All right. Thank you. The next question is, can we get Tesla Energy volumes reported in the production and delivery release?

Yeah. We will strive to do so starting from this quarter. And just a brief update from the business perspective. Megapack continues to see strong demand signals globally, driving consistent growth trajectory through '24 and '25. We want to thank all of our partners who've put their trust in the Megapack team to execute on critical infrastructure around the world. And I would like to personally thank the Megapack engineering and production teams for their strong 2023 execution. Lathrop continues to ramp through 2024 with the operation of a second final assembly line to double capacity from 20 gigawatt to 40 gigawatt hours by the end of the year.

Thank you. And the last investor question is from Siddharth, what are the preliminary results and return on investment of your ads and education campaign? Given that many people still lack awareness that Tesla's average price is less than the average non-luxury car price of $45,000, will you expand educational ads?

As Elon mentioned, the ultimate solution to increase EV adoption is really to address the affordability issue. But at the same time, we are aware there's an awareness issue as well. So in Q4, we ran a series of digital campaigns, very targeted digital campaigns across different geos and different channels. The target of these tests is really just to drive awareness and ultimately measure the return of investment on those digital channels. The messaging we're driving has really focused on our product and also try to address some of the misconception of the EV, such as safety and affordability. And one particular awareness campaign we ran in Texas will reach the audience, about 10 million unique viewers, and generated close to 0.5 million visits to our website. A large number of these viewers are first-time visitors to our website. The traffic through these digital channels actually behaved very similar to those organic traffic that come to our website. So going forward, we're just going to keep exploring different channels and doing our trials to get a better understanding of the effectiveness of these digital campaigns.

But I would also like to caution that we'll be very careful that we don't want to overspend on this side. We want to make sure people are aware. But that's where we'll keep tweaking our methodology about how and where we spend the money. Because we understand the importance of increasing awareness, but at the same token, we don't want to spend a lot of money on just creating awareness.

There are some locations where our market share is quite low, such as Japan. We also need to ensure that superchargers and service centers are appropriately located and that our product performs well there. Japan is the third largest car market in the world, and our market share should at least be comparable to other non-Japanese automakers like Mercedes or BMW, which is not the case at the moment. When I speak to friends in Japan, they mention that there is a significant lack of awareness about Tesla. Therefore, we definitely need to enhance our visibility in areas where awareness is limited.

Thank you. Let's go to analyst questions. The first question comes from Pierre Ferragu from New Street Research. Pierre, go ahead, please. Feel free to unmute. Pierre, can you hear us?

Okay. Wow. It's really tough to find the unmute button on Teams guide. I'm sorry for being late. So, yes, my question would on the cost reduction, you've talked about it already a lot. And if I look at it, over the last like five, six quarters, on average, the COGS per car has been coming down, like, more than 2% sequentially, on average. So that means you are, like, on a trajectory of COGS per car going down 10% a year. So that's probably, like, unheard of in the auto industry. I don't think any car manufacturer ever achieved that. But that's very mundane, and it's a good performance, but it's a very normal performance in a lot of other manufacturing industry, like microelectronics or consumer electronics. And so I'd love to hear your thoughts about whether you consider yourself closer to the latter to, like, a microelectronics business where you have this ability to actually always improve costs. You have more control on how things are pulled together into your cars, and you see yourself sustainably taking costs down with that kind of pace or do you think your ability to take down cost is actually going to become more like in line with the rest of the industry over time?

I believe I've addressed this in detail during my opening remarks and in response to a previous question. To clarify, we are always looking for ways to cut costs. It's a matter of small savings. We've discussed this before, and our team continuously investigates where we can further reduce expenses. I don't think we will maintain the same pace of cost reduction as in the past few years because we were coming out of a phase where commodity prices were increasing, which allowed us to benefit from those changes. Most of those advantages have already been realized, but we are still pursuing additional savings. I want to give credit to our teams at Tesla, both in engineering and supply chain, because they really put in the effort whenever we present them with a challenge to lower costs. However, I must caution against expecting the same rate of cost reduction going forward, as with our current platform, we are approaching certain limitations.

Yeah. The increased scale also sort of helps us there. As we introduce new products, we have the opportunity to renegotiate with existing suppliers for better pricing. We're looking at every penny, like Vaibhav and Elon mentioned. Just to give you an example, our inbound logistics cost has come down by 22% year-over-year. And this is because of optimization on using returnable packaging as opposed to cardboard, which is even better for the environment, optimizing trucking routes, negotiating better pricing with shipping companies and trucking companies, going with full truckloads and just doing that, sort of. The bigger we become, the more we put thought into these things and the more efficient we become as a result of it. So those work streams are going to continue.

And we are also getting into the tiers of supply chain to see if there are opportunities, getting into the tier 2, tier 3, tier 4 levels, and then negotiate those pricing as well to get more efficiency out of the system.

And then on the design side, we're not static, right, like, especially in areas where the technology is still improving rapidly. Power electronics is a great example. We continue to bring improvements there that are like fundamentals, sort of driven from the device up, that result in cost reductions, generation over generation. And they don't only go into the new vehicles, they come to the old vehicles as well. So that's closer to what you were talking about with the microelectronics space. Some of that exists in the vehicle.

Yeah. Certainly our car is more computer than car in many ways and has a lot of new tech over the last 100 years of automotive production that everyone's trying to scrape pennies from.

We have a crazy amount of compute in our cars compared to anyone else. It's like orders of magnitude.

And we get to ride that down, right?

1,000 times more. Some nutty number.

I mean, if I just look at the main microcontroller that makes the motor truck go, for example, when I think about what it costs when we stuck it in a roadster in 2006, it costs now. There's no comparison. So we've definitely been riding that electronics cost wave.

Yeah.

We are taking unique approaches on the non-traditional vehicle side to reduce costs by rethinking how structures are created and how we assemble our cars. This approach aligns more closely with the microprocessor or power electronics industry rather than the automotive sector.

Thank you. Pierre, do you have a follow-up?

Great. Yes, a quick one. You mentioned this phase in which you are between two big growth periods. I'd love to hear you about what you consider the size of your addressable market. With the portfolio you have today, like the three, the Y, the X, and the S, what's your estimate of your addressable market? You're shipping like, probably about a 2 million unit run rate today and given the price points of these cars, what kind of market share of what you address with these cars do you think you've already achieved today?

I'm not sure if anyone has a clear understanding of this. It's difficult to determine exactly.

Yeah, one way to look at it is to consider the automotive industry as a whole. Electric vehicles still represent a very small portion of the market. Our goal is to capture as much market share as possible from that segment. However, I can't provide a specific number with certainty.

And it's a growing pie as well.

Exactly.

It's like its 9% today, but it could be 20% in a couple of years or in the future.

Yeah.

Certainly, like the way we've looked at it, and we've always said this, it's not about how many EVs we sell. It's how many great cars you can sell, how many vehicles you can sell. And that market is 100 million a year, and we're barely 2% of that. I still think there's 98% more to get.

I mean, it's worth noting that if you look at, say, the average selling price of the other top-selling vehicles in the world, they are much lower priced than a Model Y.

Yeah.

So like Toyota RAV4, Corolla, Honda Civic, that kind of thing. They're much lower priced than ours. So people are really stretching their wallets to be able to afford a Tesla. It's quite a difficult thing for them to do, and remarkable that it's the best-selling car in unit volume, despite being much more expensive than other high-volume cars.

Thank you. Let's go to the next analyst. The next question comes from Adam Jonas from Morgan Stanley.

Hey, everybody. So I can't wait to see the Optimus lab. I'm sure everybody on this call feels the same way. Your last AI Day, Elon, was September 2022. Can we expect a Tesla AI Day this year? It seems like a lot has changed in that realm. And is this year the time?

Yeah, it's a good question. We have found that when we do these AI Days, some of our competitors literally look at what we do on a frame-by-frame basis. And then we find these things being copied.

They do.

And we have to be a little cautious about revealing the exact recipe of the secret sauce. But I think some kind of update would be good to do. I'll talk it over with the team, and yeah, I think we might do something later this year. Our main goal with these AI Day things is recruiting and to sort of change the perception of Tesla as people thinking of Tesla as a car company when they should be thinking of Tesla as an AI robotics company.

Maybe as a follow-up. Elon, I'd love your thoughts on the topic of China-based OEMs expanding into Western markets. As the China market kind of gets saturated and there's a tremendous growth in the supply, how much success should Tesla investors allow for this competition to achieve in Western markets? And can you envision a scenario where Tesla could partner with a Chinese OEM to help accelerate sustainable transport in markets like Europe and the United States? Thanks.

Well, our observation is generally that the Chinese car companies are the most competitive car companies in the world. So I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established. Frankly, I think if there are no trade barriers established, they will pretty much demolish most other car companies in the world. So they're extremely good. We don't see an obvious opportunity to partner. Certainly, we're happy to, except on the supercharger front. We're obviously happy to give any electric car company access to our supercharger network. We're also happy to license full self-driving, perhaps license other technologies, and anything that could be helpful in advancing the sustainable energy revolution.

Thank you. And the next question comes from Dan Levy from Barclays.

Hi. Good evening. Thank you for your questions. First, can you explain some of the key factors necessary to realize your next-generation platform? You mentioned various cost initiatives last Investor Day related to manufacturing and powertrain. Could you update us on the progress of these initiatives? Additionally, we know Cybertruck has many new features and technologies, such as the 48 volts architecture and the use of your 4680 batteries. How significant do you think Cybertruck will be as a testing ground for the next-gen platform, and will it be a crucial factor in achieving the cost reductions required for that platform?

Yeah, I don't think that anything on Cybertruck should be considered gating for the next-gen platform. We're obviously doing a lot of manufacturing innovation, as Elon said, for a next-generation vehicle. When you do something at that scale, you have to prove it out. You don't just throw it on the line and just build it. So we're going through those validation phases for all those new manufacturing technologies now. Sure, 48 volts was definitely something we wanted to carry forward, and it's something we hope the industry adopts as well. We're also open to partnering.

Yeah, 48 volts.

On that, if everyone wants to do that.

Certainly, it's well known among industry insiders that the auto industry should transition from 12 volts to 48 volts.

Random number of 48 volts.

Yeah. Well, it's much less random.

Slightly less random based on human injury, but...

I mean dramatically reduces the amount of copper you need in the vehicle and also moving to sort of higher bandwidth communications, sort of ethernet level communications versus CAN Bus, which is pretty...

Pretty slow.

So it's really just bringing cars to...

The 21st century.

Yeah, pretty much.

So, certainly like...

It's not exact; it's similar to what you would expect from a laptop. Yes.

Certainly bringing that is an evolution in our architectures of vehicles, but it's not gating by any means. The gating work is just to finish the design and manufacturing of the car, test them out and get them going.

Yeah, programs and execution mode, right?

Yeah.

So it's talking about tooling lead time, manufacturing equipment lead time, factory lead time, and executing those programs.

There's a lot of specialized machines that make the machine for a next-gen vehicle. So these are not machines you can just order from anyone. You have to design a machine that has never existed to build a car in a way that has never existed.

Yeah. So you don't just have like a design validation phase, but you have an equipment design validation phase as well.

It does make it very hard to copy us because you have to copy the machine that makes the machine that makes the machine.

Talk about tiers.

Yeah, exactly. Manufacturing exception. So I do think it's quite a powerful sustainable advantage because there just is no place to go to order the machines that make our next-gen car that don't exist.

Great. Thank you. As a follow-up, your release does not mention Dojo. So if you could just provide us an update on where Dojo stands and at what point you expect Dojo to be a resource in improving FSD or do you think that you now have sufficient supply of Nvidia GPUs needed for the training of the system?

The question about AI hardware is quite complex. We are making significant investments in Nvidia GPUs, but it's important to clarify that these aren't traditional graphics processing units; they serve more as neural net processing units. A lot of our advancements in self-driving technology depend on training. The amount of training we do is crucial—similar to how humans learn. The more we practice, the easier it becomes to do something. For example, when you first learn to drive, it takes a lot of mental focus. Over time, driving becomes second nature, allowing you to think about other things. This principle applies to training in our systems, where more training results in greater efficiency during inference. We are actively pursuing both Nvidia and Dojo for training, though I see Dojo as a high-risk, high-reward option. It's progressing and handling training tasks, and we have future plans for it, but the chances of success are not guaranteed. Despite the risks, it's worth exploring due to its potential. Additionally, we are moving forward with our inference hardware in vehicles. Currently, we are on Hardware 4, which is the second version of our AI inference chip, and we are nearing completion of Hardware 5, the third version. There's a notable potential where, in the future, when cars are not in use, the onboard computers could perform generalized AI tasks, similar to running advanced models. With a large fleet of vehicles, even if they are actively used part of the time, a significant amount of computational hours could still be available. With the right design choices, Tesla may end up with more compute power than all competitors combined.

Thank you. The next question comes from Colin Langan from Wells Fargo.

Thanks for addressing my questions. Looking ahead to 2024, the press release mentions reaching 36,000 or slightly more in Q4. The comments indicate that you are nearing natural limits, which suggests there isn’t much room for further growth. Furthermore, there’s the increase in hourly wages that will carry into next year. I recall you mentioning that the benefits from raw material costs are nearly exhausted. Is there still a chance to go below 36,000, or should we expect to maintain this level into 2024?

We are definitely aware of the cost increases which are coming through because of the wage increases. But like I said, we keep looking at other cost opportunities and try and figure out where else can we cut down. So there is definitely more opportunity to bring down costs further. I won't specifically guide to a number which we will try and get to, but there's definitely more opportunity there.

Yeah. We're chasing lots of cost opportunities on the design side still for 2024, north of eight figures is what we're just in my organization, and Lars has got a bunch. And then from a commodities perspective, it's such a long cycle time through the whole material supply chain that even with what we've already seen to this point...

There's more to come.

That's what I mean.

And there's still some tailwind left on the commodities.

Yeah and battery material.

It boggles my mind to think that if we make a 1% improvement in costs, that's $1 billion. So it's like, on average, if we reduce the cost by one penny, $1 billion. And we started off that long ago that we were only making like 10 cars a week. And yeah, so where does it lead ultimately? With good execution, like I said, it's not a slam dunk, but if we execute very well, I think Tesla could be the most valuable company in the world.

Thank you, Colin. Do you have a follow-up question?

Just a quick follow-up. In your comments, you mentioned that taxes would align with the S&P 500 level. I believe you've been slightly under 10%, while the S&P is usually around 25%. Should we expect that to rise significantly next year in our projections, or will it be a gradual adjustment over the next few years? Additionally, should we consider any cash impact from this tax change?

Yeah. So there's no impact on cash taxes from the release of the valuation amounts, which I spoke about. What it does is, it's how you account for taxes on your books? So it's basically an accounting change wherein there are certain jurisdictions because we had enough NOLs, etc., wherein we didn't have to accrue book taxes. Now that the valuation allowance has been released and we have recognized deferred tax assets on the books, that means your tax rate immediately goes up.

Okay. I think that's all the time we have for today. Thank you so much for all of your questions, and we'll speak to you again in three months. Thank you. Bye-bye.

Thank you.