Tesla's First Quarter 2024 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 Q1 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 and 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?

Thanks, Martin. So to recap in Q1 we navigated several unforeseen challenges as well as the ramp of the updated Model 3 in Fremont. As we all have seen, the EV adoption rate globally is under pressure and many other auto manufacturers are pulling back on EVs and pursuing plug-in hybrids instead. We believe this is not the right strategy and electric vehicles will ultimately dominate the market. Despite these challenges, the Tesla team did a great job executing in a tough environment, and energy storage deployments, the Megapack in particular, reached an all-time high in Q1, leading to record profitability for the energy business, which looks likely to continue to increase in the quarters and years ahead. We actually know that it will, significantly faster than the car business as we expected. We also continue to expand our AI training capacity in Q1, more than doubling our training compute sequentially. In terms of the new product roadmap, there has been a lot of talk about our upcoming vehicle line in the past several weeks. We've updated our future vehicle lineup to accelerate the launch of new models ahead, previously mentioned startup production in the second half of 2025, so we expect it to be more like early 2025, if not late this year. These new vehicles, including more affordable models, will use aspects of the next-generation platform as well as aspects of our current platforms, and will be produced on the same manufacturing lines as our current vehicle lineup. So it's not contingent on any new factory or massive new production line. It'll be made on our current production lines much more efficiently. And we think this should allow us to reach over 3 million vehicles of capacity when fully realized. Regarding FSD Version 12, which is the pure AI-based self-driving, if you haven't experienced this, I strongly urge you to try it out. It's profound, and the rate of improvement is rapid. We now have over 300 billion miles driven with FSD V12. Since the launch of full self-driving, it's become very clear that the vision-based approach with end-to-end neural networks is the right solution for scalable autonomy. Our entire road network is designed for biological neural nets and eyes. So naturally, cameras and digital neural nets are the solution to our current road system. To make it more accessible, we've reduced the subscription price to $99 a month, so it's easy to try out. And as we've announced, we'll be showcasing our purpose-built robotaxi, or Cybercab, in August. Regarding AI compute, we've been actively working on expanding Tesla's core AI infrastructure. We are no longer training constrained, so we're making rapid progress. We've installed and commissioned approximately 35,000 H100 computers or GPUs, and we expect that to be about 85,000 by the end of this year. We are making sure that we're being as efficient as possible in our training. It's not just about the number of H100s, but how efficiently they're used. In conclusion, we're super excited about our autonomy roadmap. It should be obvious to anyone who's driving Version 12 that it is only a matter of time before we exceed the reliability of humans. We are really headed for an electric vehicle, autonomous future. And I'll go back to something I said several years ago: in the future, gasoline cars that are not autonomous will be like riding a horse and using a flip phone. That will become very obvious in hindsight. We continue to make the necessary investments that will drive growth and profits for Tesla in the future, and I wanted to thank the Tesla team for incredible execution during this period. I look forward to everything that we have planned ahead. Thanks.

Thank you very much, and Vaibhav has some comments as well.

Thanks. It's important to acknowledge what Elon said from our auto business perspective. We did see a seasonal decline in revenues quarter-over-quarter, and those were primarily because of seasonality, the uncertain macroeconomic environment, and other reasons mentioned earlier. Auto margins declined from 18.9% to 18.5%. Excluding the impact of Cybertruck, the impact of pricing actions was largely offset by reductions in per unit costs and the recognition of revenue from the Autopark feature for certain vehicles in the U.S. that previously did not have that functionality. Additionally, while we experienced higher costs due to the ramp of Model 3 in Fremont and disruptions in Berlin, these costs were largely offset by cost reduction initiatives. In fact, if we exclude Cybertruck and Fremont Model 3 ramp costs, the revenue from Autopark, auto margins improved slightly. Currently, normalized Model Y cost per vehicle in Austin and Berlin are already very close to that of Fremont. Our ability to reduce costs without sacrificing quality was due to the amazing efforts of the team in executing Tesla's relentless pursuit of efficiency across the business. We've also witnessed that as other OEMs are pulling back on their investments in EV, there is an increasing appetite for credits, which means a steady stream of revenue for us. Obviously, seeing others pull back from EV is not the future we want—we would prefer the whole industry go all in. On the demand front, we've undertaken a variety of initiatives, including lowering the price of both the purchase and subscription options for FSD, launching extremely attractive leasing specials for the Model 3 in the U.S. for $299 a month, and offering attractive financing options in certain markets. We believe that our awareness activities, paired with attractive financing, will go a long way in expanding our reach and driving demand for our products. Our Energy business continues to make meaningful progress, with margins reaching a record of 24.6%. We expect the energy storage deployments for 2024 to grow at least 75% higher than in 2023, and accordingly, this business will begin contributing significantly to our overall profitability. Note there is a bit of lumpiness in our storage deployments due to various outside factors, so deployments may fluctuate quarter-over-quarter. On the operating expense front, we saw a sequential increase from our AI initiatives, continued investment in future projects, marketing, and other activities. We had negative free cash flow of $2.5 billion in the first quarter. The primary driver of this was an increase in inventory from a mismatch between builds and deliveries, as discussed before, and our elevated spend on CapEx across various initiatives, including AI compute. We expect the inventory build to reverse in the second quarter and free cash flow to return positive again. As we prepare the company for the next phase of growth, we had to make the hard but necessary decision to reduce our headcount by over 10%. The savings generated are expected to exceed $1 billion on an annual run rate basis. We are also getting hyper-focused on CapEx efficiency and utilizing our installed capacity in a more efficient manner. The savings from these initiatives, including our cost reductions, will help improve our overall profitability and ultimately enable us to increase the scale of our investments in AI. In conclusion, the future is extremely bright and the journey to get there, while challenging, will be extremely rewarding. Once again, I would like to thank the whole Tesla team for delivering great results. We can open it up to Q&A.

Okay. Let's start with investor Q&A. The first question is, what is the status of 4680? What is the current output? Lars?

Sure. 4680 production increased about 18% to 20% from Q4, reaching greater than 1K a week for Cybertruck, which is about 7 gigawatt hours per year as we posted on X. We expect to stay ahead of the Cybertruck ramp with the cell production throughout Q2 as we ramp the third of four lines in Phase 1, while maintaining multiple weeks of cell inventory to ensure we are ahead of the ramp. Because we are ramping, COGS continues to drop rapidly week-over-week, driven by yield improvements throughout the lines and production volume increases. Our goal is to beat supplier costs of nickel-based cells by the end of the year.

Thank you. The second question is on Optimus. What is the current status of Optimus? Are they currently performing any factory tasks? When do you expect to start mass production?

We are able to do simple factory tasks or, at least, factory tasks in the lab. In terms of—we do think we will have Optimus in limited production in the natural factory itself, doing useful tasks before the end of this year. And then I think we may be able to sell it externally by the end of next year. These are just guesses. As I've said before, I think Optimus will be more valuable than everything else combined. If you've got sentient humanoid robots that can navigate reality and do tasks at request, there is no meaningful limit to the size of the economy. So that's what is going to happen. I think Tesla is best positioned of any humanoid robot maker to reach volume production with efficient inference on the robot itself. This is a point worth emphasizing: Tesla's AI inference efficiency is vastly better than any other company. We've had to do that because we were constrained by the inference hardware in the car; we didn't have a choice. But that will pay dividends in many ways.

Thank you. The third question is, what is the current assessment of the pathway towards regulatory approval for unsupervised FSD in the U.S. And how should we think about the appropriate safety threshold compared to human drivers?

Sure.

I can start. There are a handful of states that already have adopted autonomous vehicle laws. These states are paving the way for operations, while the data for such operations guides broader adoption of driverless vehicles. I think Ashok can talk a little bit about our safety methodology, but we expect that these states and the work ongoing as well as the data we are providing will pave the way for broad-based regulatory approval in the U.S. at least and then in other countries as well.

Yes. It's actually been pretty helpful that other autonomous car companies have been cutting a path through the regulatory jungle, which is absurd, and they have obviously been operating in San Francisco for a while. I think they got approval for the City of LA. So these approvals are happening rapidly. If you've got a statistically significant amount of data that shows conclusively the autonomous car has at least half the accident rate of a human-driven car, that's difficult to ignore because stopping autonomy means killing people. I do not think there will be significant regulatory barriers if there is conclusive data that the autonomous car is safer than a human-driven car. This will be much like elevators. Elevators used to be operated by a person with a relay switch. Sometimes that person would get tired or drunk or make a mistake and cause an accident. We don't think about it anymore; we just get in and press a button. That will be how cars work. You think of it as summoning the car using your phone, getting in, and being driven to your destination.

You don't even think about it?

You don’t even think about it. Just like an elevator, it takes you to your floor. That’s it. Don't think about how the elevator is working or anything like that. I should clarify that Tesla will be operating the fleet. So think of it as a combination of Airbnb and Uber, meaning there will be some cars that Tesla owns and operates in the fleet, and there will also be cars owned by the end user. The end user can add or subtract their car from the fleet whenever they want and can decide if they want to only let the car be used by friends and family, only by 5-star users, or by anyone at any time. They can have the car return to them and be exclusively theirs, just like on Airbnb. Our fleet will grow to 7 million cars, eventually tens of millions worldwide. With a constant feedback loop, every time something goes wrong, that gets added to the training data, creating a training flywheel similar to how Google Search operates. It is very difficult to compete with Google because people are constantly searching and clicking, and Google is getting that feedback loop. It's the same with Tesla but at a scale that may be hard to comprehend.

Ashok, do you want to chime in on the air process and safety?

Yes. We have multiple tiers of validating the safety in any given week; we train hundreds of neural networks that can produce different trajectories for driving the car. We replay these through millions of clips that we've already collected from our users and our QA teams regarding critical events. Generally, critical events are those where someone jumps out in front or similar occurrences that we've gathered over many years and we replay them to ensure that we are making net improvements in safety. Additionally, we have simulation systems that try to recreate this and test in a closed-loop fashion. We also have hundreds of QA drivers in different cities who drive and collect real-world miles. We estimate the critical events and whether they are an improvement compared to the previous week’s builds. Once we are confident that the build is a net improvement, we start shipping to early users, like 2,000 employees initially. They will give feedback on whether it's an improvement or if they're seeing new issues we did not capture in our QA process. Only after all this is validated do we go to external customers, and even then, we have live dashboards monitoring every critical event occurring in the fleet, sorted by criticality. We maintain a constant pulse on build quality and safety improvements along the way.

Yes. We do have insights into how good things will be in three or four months because we have advanced models that are far more capable than what is currently in the car, but they do have some issues that need to be addressed before release. There will be a step change improvement in the capabilities of the car, but it will have some quirks that need fixing before it can be released. We have good insight into where the model is and how well the car will perform in three or four months.

In terms of scaling laws, the AI community generally discusses model scaling laws relating to increasing model size and corresponding performance gains. We have also figured out scaling laws in other areas, including data scaling and training compute scaling. We can extract predictions about future performance based on trends observed in the past. It takes time to conduct experiments because it takes weeks to train and gather vast amounts of video clips, but we can estimate the next performance improvements based on past trends.

Thank you very much. I'll go to the next question, which is, can we get an official announcement of the timeline for the $25,000 vehicle?

I think we—Elon mentioned it in the opening remarks. We're updating our future vehicle lineup to accelerate the launch of our low-cost vehicles in a more CapEx efficient way. Our mission is to get the most affordable cars to customers as fast as possible. We will build these new vehicles on our existing lines and open capacity. This is a major shift to utilize all our capacity with marginal CapEx before we go spend high CapEx anywhere.

Yes. We’ll talk about this more on August 8. The way to think of Tesla is almost entirely in terms of solving autonomy and turning it on for a gigantic fleet. I think it might be the biggest asset value appreciation in history when unsupervised full self-driving is turned on.

5 million cars?

Yes. It will be 7 million cars in a year or so and then 10 million, eventually several tens of millions by the end of the decade.

Thank you. The next question is, what is the progress of Cybertruck ramp?

I can take that one too. Cybertruck had 1K a week just a couple of weeks ago. This happened in the first four to five months since we SOP late last year. Of course, volume production is what matters. That's what drives costs, and our costs are dropping. The ramp still faces many challenges with new technologies, supplier limitations, etc., and we continue to ramp this year, focusing on cost efficiency and quality.

Okay. Thank you. The next question, have any of the legacy automakers contacted Tesla about possibly licensing FSD in the future?

We’re in conversations with one major automaker regarding licensing FSD.

Thank you. The next question is about the robotaxi unveil. Elon already talked about that. So we’ll have to wait till August. The following question is about the next-generation vehicle. We already talked about that. So let’s go to the semi. What is the timeline for scaling semi?

I think…

So we’re finalizing the engineering of the semi to enable a super cost-effective high-volume production, leveraging our learnings from our fleet and Pepsi’s fleet, which we are marginally expanding this year. In parallel, as shown in the shareholders’ deck, we have started construction on the factory in Reno. Our first vehicles are planned for late 2025, with external customers starting in 2026.

Okay. A couple more questions. So our favorite, can we make FSD transfer permanent until FSD is fully delivered with Level 5 autonomy?

Yes.

Okay. Next question, what is the getting the production ramp at Lathrop, where do you see the Megapack run rate at the end of the year? Mike?

Yes, Lathrop is ramping as planned. We have our second GA line allowing us to increase our exit rate from 20 gigawatt hours per year to 40 gigawatt hours per year by the end of the year, as that line has been commissioned. There’s nothing limiting the ramp. Given the longer sales cycles for these large projects, we typically have order visibility 12 to 24 months prior to ship dates, allowing us to plan the build for several quarters in advance. This allows us to ramp the factory to align with business and order growth. Lastly, we’d like to thank our customers globally for their trust in Tesla as a partner for these incredible projects.

Okay. Thank you very much. Let’s go to analyst questions. The first question comes from Tony Sacconaghi from Bernstein. Tony, please go ahead and unmute.

Thank you for taking the question. I was just wondering if you can elaborate a little more on the new vehicles that you talked about today. Are these tweaks on existing models, given that they’re going to be running on the same lines? Are these new models? And how should we think about them in the context of the Model 3 Highland update? What will these models be like relative to that? Given the quick time frame, the Model 3 Highland has required a lot of work and a lot of retooling. Maybe you can help put that all in context. Thank you, and I have a follow-up, please.

I think we've said we were on that front. What's your follow-up?

It’s a more personal one for you, Elon, which is that you’re leading many important companies right now. Can you just talk about where your heart is at in terms of your interests and do you expect to lessen your involvement with Tesla at any point over the next three years?

Tesla constitutes a majority of my work time and I work pretty much every day of the week. It’s rare for me to take a Sunday afternoon. So I’m going to ensure Tesla is prosperous. It is prosperous, and it will be very much so in the future.

Okay. Thank you. Let’s go to Adam Jonas from Morgan Stanley. Adam, please go ahead and unmute.

Okay. Great. Hey, Elon. You and your team on volume expect a 2024 growth rate notably lower than achieved in 2023. What’s your confidence in growth above 0%? In other words, does that statement leave room for potentially lower sales year-on-year?

No, I think we'll have higher sales this year than last year.

Okay, my follow-up, Elon, on future product. If you nail execution, assuming that you nail execution on your next-gen cheaper vehicles, more aggressive giga castings, I don't want to say one piece, but getting closer to one piece, structural pack, unboxed, 300-mile range, $25,000 price point, putting aside robotaxi, how long would it take your best Chinese competitors to copy a cheaper and better vehicle that you could offer in a couple of years? How long would it take your best Chinese competitors to copy that? Thanks.

I don't know what our competitors could do, except we’ve done relatively better. If you look at the drop in our competitors in China sales versus our drop in sales, ours was less. But I think Cathy Wood said it best: we should be thought of as an AI or robotics company. If you value Tesla as just an auto company, that is fundamentally the wrong framework. If someone doesn't believe Tesla is going to solve autonomy, they should not be an investor in the company. However, we will solve it, and then you will have a car that goes from 10 hours of use a week to probably 50% more.

I think that's the key thing to remember, especially if you look at FSD supervised. If you don't believe in autonomy, this should give you a view that this is coming. It’s actually getting better day by day.

If you haven't tried FSD 12.3, and as I said, 12.4 will be significantly better, and 12.5 even better than that. If you don't see that, you really don't understand what's going on. It’s not possible.

Yes, and that's why we can't just look at Tesla as a car company because a car company would just have a car. Here, we have more than a car company because the cars can be autonomous, and like I said, it's happening.

Yes. This is all in addition to Tesla—the overall AI community is just improving rapidly.

We are putting the actual auto in automobile. It’s akin to discussing future horse carriages. The point is, it doesn’t need a horse; that’s the entire point.

Okay. Thank you. The next question comes from Alex Potter from Piper Sandler. Alex, please go ahead and unmute.

Great, thanks. Yes, I couldn't agree more. The thesis hinges completely on AI, the future of AI, full self-driving neural net training, all of these things. In that context, Elon, you've spoken about your desire to obtain 25% voting control of the company. I understand completely why that would be; I’m asking if you've come up with mechanisms to ensure you will obtain that level of voting control.

I think even if I was kidnapped by aliens tomorrow, Tesla will solve autonomy—maybe a little slower, but it will solve autonomy for vehicles. There’s enough momentum for Tesla to solve autonomy even if I disappeared for vehicles. There’s a range of things we can do in the future beyond that. I would be more reticent regarding Optimus. If we have a super-sentient humanoid robot, deployment has to be carefully controlled. There’s a need for meaningful influence over how it is deployed.

All right. That's actually all very helpful context. Thank you. Maybe one final question. OpEx reductions—thank you for quantifying the impact there. I’d be interested in a qualitative discussion of what the implications are for these headcount reductions and the types of activities you're sacrificing as a result of parting ways with those folks. Thanks very much.

As we said, these headcount reductions were across the board. As companies grow over time, certain redundancies and duplication of efforts happen in certain areas. We need to look at where those pockets are and eliminate them. We're basically going through that exercise to set the company right for the next phase of growth. The way to think about it is like a tree that needs pruning. This is the pruning exercise we went through. Ultimately, we’ll be much stronger and more resilient moving forward because the future is really bright. We just have to get through this period.

We are not giving up anything significant that I'm aware of. After a long period of prosperity from 2019 to now, if a company is 5% wrong per year organizationally, that accumulates to 25-30% inefficiency. We've made corrections along the way. It’s time to reorganize the company for the next phase of growth, like a human's progression as cells grow. If you don't reorganize the company for different phases of growth, it will fail.

Thank you. Let's go to Mark Delaney from Goldman Sachs. Mark, please go ahead and unmute.

Yes. Good afternoon. Thanks very much for taking the question. The company previously characterized potential FSD licensing discussions in the early phase. Can you elaborate on how far the licensing business opportunity has progressed?

We just need to show that our approach is the right one—and I think it is. With FSD 12.3, if you just have the car drive you around, it’s clear that our solution with a relatively low-cost inference computer and standard cameras can achieve self-driving. No LiDARs or radars are necessary.

No heavy integration work for vehicle manufacturers.

It’s a case of having them use the same cameras and inference computer and licensing our software. Once it becomes obvious that if you don't have this in a car, nobody will want your car, licensing becomes not optional.

It becomes a method of survival?

Absolutely. It’s license it, or nobody will buy your car.

One thing to note is that these OEMs take their product development cycles—a long time. They typically make decisions over several years so that they can start selling new products with our technology. We might have a licensing deal earlier than that, but it generally takes a while.

Yes, a deal signed now would likely result in it being integrated into a car in about three years.

Yes, very helpful. Thank you. My follow-up was to understand Tesla's approach to pricing going forward. Previously, the company said that price reductions were driving incremental demand. Do you still see meaningful incremental price reductions as making sense from here? Can the company lower prices while remaining free cash flow positive?

Yes. I think we can be free cash flow positive meaningfully.

As Vaibhav mentioned in his opening remarks, our cost reduction efforts are offsetting price cuts; we’re trying to pass savings back to customers.

At the end of the day, if you have a great product at a great price, sales will be excellent. Over time, we need to make sure it’s a great product at a great price. Moreover, that price must be accessible to people.

More accessible.

Yes, exactly. We need to continue improving affordability while improving the car's quality and lowering production costs. That’s what we’re doing.

In fact, the revised Model 3 is a fantastic car. I don’t think people fully understand that a lot of engineering effort went into it. It looks and feels different, and we’ve added so much value to it. You can lease it for as low as $299 a month.

Without gas.

All right. The next question comes from George from Canaccord. George, please go ahead and unmute.

Hi, thank you for taking my question. First, could you please help us understand the timing of launching FSD in additional geographies, including maybe clarifying your recent comment about China?

I mean like new markets, yes, we are—there are a bunch of markets where we don’t currently sell cars that we should be selling in. We will see some acceleration of that.

And FSD new markets?

Yes. Think about the end-to-end neural net-based autonomy. Just like a human, it actually works well without modification in almost any market. So, we plan on releasing it as a supervised autonomy system in any market where we can get regulatory approval for that; this includes China. Just like a human can rent a car in a foreign country and drive well, so can we enable our cars to perform well in those other countries.

The basics of driving are essentially the same everywhere; a car is a car, traffic lights, a road is a road.

It understands that it shouldn’t hit things, regardless of road rules. Additionally, in China, you shouldn’t cross over a solid line for a lane change. In the U.S., it’s merely a recommendation. We’ll need to do some modifications, but not massive overhauls.

Hey, George, do you have a follow-up?

Yes. My follow-up concerns the first-quarter deliveries. Did supply constraints mentioned throughout the release impact the results, and can you quantify that? Is that why you hold confidence in unit growth in 2024?

Yes, we covered this a little in the opening remarks. Q1 had a lot going on. Seasonality was significant, along with continued macroeconomic pressure, attacks on our factory, the ramping Model 3, and ramping Cybertruck. It feels like everything came together in a constrained period. This gives confidence that we don’t expect these challenges to recur.

Yes. We think Q2 will be a lot better.

Yes, it’s just one thing after another; it was chaotic. Our Cybertrucks are in demand.

If you’ve got cars sitting on ships, they obviously cannot be delivered to people. If there’s demand for Model 3 and Model Y in one market but not in another, it’s complex logistics. We also overcomplicated the sales process, which we’ve greatly simplified over the past week. It became far too complex to buy a Tesla, whereas it should just be take less than a minute.

Okay, thank you. Let’s go to Colin Rusch from Oppenheimer. Colin, go ahead and unmute, please.

Thanks so much, guys. Given Tesla's aim as a leader in AI for the physical world, can you talk about what distributed inference is unlocking beyond what’s currently happening in the vehicle?

Do you want to say something?

Yes. Like Elon mentioned, when it’s a full robotaxi, it will probably be used 150 hours a week. However, there will be downtime for charging, cleaning, and maintenance. In that world, you can leverage those computers for various workloads. We see LLM companies sending large batches of documents through neural networks that take lots of compute to process. Now, we’ve already paid for that compute in our cars. It makes sense to utilize it rather than leave it idle.

That’s right. It’s analogous to Amazon Web Services, where people didn’t expect AWS to be the most valuable part of Amazon, which started as a bookstore. They found they had excess compute and needed to monetize it during idle periods.

Exactly. We don’t want to leave this expensive machinery idle—let’s utilize it as much as possible.

Yes, if we reach the 100 million vehicle level and each has a kilowatt of usable compute, we’d have approximately 100 gigawatts of compute globally. This could potentially outstrip anything available today.

That’s right. Unlike laptops and cell phones, the cars are under Tesla’s control, allowing us to efficiently distribute workloads across nodes.

The phones are limited by battery life, whereas for the car, even if you are utilizing kilowatt-level inference compute, it is not a big deal to run while plugged in or not—it won't drain the battery significantly.

Yes, we have the built-in liquid cooling for data centers, already embedded within the car.

Yes, it's distributed power generation and access to thermal management—already paid for.

Yes, and the CapEx is shared by everyone; they all want a small chunk and generate a small profit.

Thanks so much. Just my follow-up is a little bit more mundane. Looking at the 4680 ramp, can you talk about how close you were to target yields and when you might start to accelerate incremental capacity expansions on that technology?

We're making good progress on that. I don't think it's super important for at least in the near term. As Lars said, it should exceed the competitiveness of suppliers by the end of this year, and we'll continue to improve.

Yes. The ramp right now is relevant to the Cybertruck ramp. We won’t build 4680s unless we have a place to put them. We need to ensure prudence regarding our cell suppliers, who are great partners and are doing fantastic development work for us.

A significant reason we pursued internal battery cell production was to hedge against supplier demand shocks. We needed this to mitigate cost per kilowatt-hour fluctuations from our suppliers due to massive orders.

Yes, that kind of hedging is essential as battery demand fluctuates dramatically.

Okay, thank you. The last question comes from Ben Kallo from Baird. Ben, go ahead and unmute. Ben, you’re still muted.

I want to recommend that anyone who is considering buying Tesla stock should drive FSD 12.3. It’s impossible to understand the company if you do not experience it.

All right. Since Ben is not unmuting, let's try Shreyas Patil from Wolfe Research. Final question.

Thanks so much. Just Elon, during Investor Day last year, you mentioned that auto COGS per unit for the next-gen vehicle would decline by 50% versus the current Model 3 and Model Y. About one-third of that was coming from the unboxed manufacturing process. But I'm curious if material cost savings and powertrain cost reduction opportunities would be transferable to some of the new products you're introducing?

Yes, sure. The on-box manufacturing method is revolutionary, but it comes with risks since it’s new. However, all the subsystems we developed—powertrains, drive units, battery improvements, automation, thermal systems, seating and integration designs—are transferable. We're leveraging these developments as quickly as possible.

Okay, great. And just on that topic of 4680 cells, it seems you would have a cost advantage against other automakers, given the rationalizing of your vehicle manufacturing plans. Is there a chance for 4680 cells to be sold to other automakers to generate additional revenue?

This is interesting. Orders for batteries from other automakers have declined dramatically, which means we are seeing more competitive prices from suppliers than in the past. Many of our suppliers have excess capacity.

In addition to what Elon said, the 4680 program helped us understand the upstream supply chain. Many materials we secured for 4680 can also supply materials to our partners, reducing overall costs for Tesla.

Yes, there will be fluctuations in battery cell production similar to DRAM cycles. What's true today may not be true in the future, leading to boom-and-bust cycles in both battery production and government incentives under the IRA.

This is why it’s crucial to possess both internal and vendor cells to hedge against demand fluctuations.

Okay, thank you very much. That's all the time we have today. I would also like to announce that about a month ago, I met with Elon and Vaibhav and announced that I'll be moving on from the world of Investor Relations. I will be around for another couple of months, so feel free to reach out at any time. After the seven-year sprint, I'm going to take a break and spend some quality time with my family. These seven years have been the greatest privilege of my professional life. I will never forget the memories from the beginning of production hell to where the company is today. I'm especially thankful to the people in this room and outside this room that I’ve worked with over the years. I think the team's strength and teamwork at Tesla is unlike anything else I've seen in my career. Elon, thank you for this opportunity that I got back in 2017.

The reason I reached out to you was because I thought your analysis of Tesla was the best I had seen.

Thank you. And yes, thank you for all the thousands of shareholders that we've met over the years and for all the interactions, even the tough ones. I look forward to the call in the next three months, but I’ll be on the other side, listening in. Thank you very much.

Thanks.