Good afternoon, everyone, and welcome to Tesla second quarter 2023 Q&A webcast. My name is Martin Vieca, BP of Investor Relations, and I'm joined today by Elon Musk, Zachary Kirkhorn and a number of other executives. Our Q2 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 forwardlooking 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 recent 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 the Q&A, Elon has some opening remarks. Elon. Thank you, Juan. So just the Q2 recap. In Q2, we achieved record vehicle production and deliveries and record revenue of about $25 billion in a single quarter and Model Y became the best selling vehicle of any kind globally in Q1 support surpassing the likes of likes of Corolla and Gold.
So it was the number one vehicle of any kind including vehicles that are at a seller farming price, which is I think an incredible achievement by the Tesla team and just a huge thank you to our customers of for their support. So and this came in spite of high interest rates and a lot of macro uncertainty and nonetheless we managed to achieve operating margin of about 10%.
We continue to target 1.8 million vehicle deliveries this year, although we expect that Q3 production will be a little bit down because we've got some of shutdowns to for. A lot of factory upgrades, so just just probably a slight decrease in production in Q3 for sort of global factory upgrades in the long term. Autonomy we think is going to just drive volume through the ceiling next level and and our so future Robitaxi products, dedicated ROBITAXI products.
We think have like quasi infinite demand so and it we're the way we're going to manufacture the robot taxi is is also itself a revolution. So it's revolutionary design made in a revolutionary way. It'll be by by far the highest units per hour of of any vehicle production ever so. Very excited about that. With respect to Autopilot and Dojo, in order to build autonomy, we also need to train our neural net with the data from millions of vehicles.
With the more, I mean this has been proven over and over again. The more training data you have, the better the results. And I mean there's times where we see basically the inner neural net, basically it's sort of at a million training examples. It barely works at 2,000,000. It's it slightly works at 3,000,000 it's like wow, OK we're seeing something for they get like 10 million training examples. It's it's like it becomes
incredible. So you just there's just there's just no substitute for massive amount of data and obviously Tesla has more vehicles on the road that are collecting this data than all the companies combined by I think maybe even an order of magnitude. So I think we might we might have 90% of all or a very big number. So you know the success in a I endeavors is function of talent sort of unique data and computer resources and and we have outstanding capabilities or all three arenas.
And I really just don't know how anyone anyone could do what we're doing even if they had our software and had our computer if they did not have the the the training data. So Speaking of which our do training computer is designed to significantly reduce the cost of neural net training. It is designed to it's it's so optimized for the kind of training that we need which is a video training.
So you know would. We just see that that the needful neural net training again to give fear quasi and the things is is just enormous. So I think having having we we we we expect to use both NVIDIA and Dojo to be clear but there's there's we just see a demand for really vast main resources. And we we think we may reach in house the old net, the old net training capability of 100 exoplos by the end of next year. So to to date over 300,000,000 miles have been driven using FSD
beta. That 300,000,000 mile number is going to seem very small very quickly, right it'll it'll soon be billions of miles then 10s of billions of miles and. FSC will go from being better for being as good as a human to them being vastly better than a human. We see a clear path to full self driving being 10 times safer than the average human driver. So and between autopilot delta computer our inferred hardware in the car which we calls.
Sort of hardware 3-4, you know but it's really dedicated, it's a, it's a, it's a high efficiency in first computer that's in the car and our optimist robot translates fairly at the cutting edge of a had moment to with regard to our side which we continue to build our release candidates of the cyber truck on our final production line in Austin. I'm actually here in Austin at the Eager Factory.
This is the first truck that we're aware of that will have 4 door was over a six foot bed and 1 foot into a 20 foot garage. So it's it's a it's for the biggest on the outside but it's even bigger on the inside. So it's a I think that's a one of the one of the elements of good design is it should feel bigger on the inside than it looks on the outside. And and this is this is no small car but we we've we really cared about the exterior dimensions of the side truck down to the last
millimeter. So they said just before you try to get rid of the goalie block zone, not too big, not too small and and then really maximize the the utility of the volume and we can't wait to start delivering it later this year. Some some other highlights, our global supercharging network now stands at over 50,000, roughly 50,000 connectors and over 5000 locations as I think a lot of people are aware.
The Tesla starting the the Tesla charging standard which we made open source is now called the North American charging standard. We're we're deeply honored that Ford, GM, Mercedes and many other Williams have signed up to use our connector and gain access to our charging network and we we we strongly believe in helping. Other other car companies to accelerate the EV revolution and just trying to do the right thing in general.
So that's up goal there Then it's something I think I want to emphasize like very, very strongly. This is a very important point is that Tesla just as with the. The North American charging standard, although we're not licensed and that case is not licensing, we're just making it available. But but we are very open to licensing apples of driving software and hardware to other car companies. And we are already in discussions with early, just early discussions with a major
OEM about using the Tesla FSD. So we're not trying to keep this to ourselves. We're more than happy to to license it to others. And lastly, our new lithium refinery and catheter facility are progressing well that in conclusion, we continue to focus on making as many cause as we can while maintaining healthy financials. Our artificial intelligence development is obviously entering a new era and we're incredibly excited about what's to come. Our other businesses such as
Megapac supercharging service. And whatnot all started to become a miracle contributor to overall profitability this quarter. And then lastly, I'd just like to profusely thank all of our employees for making it a lot of extra effort during uncertain times. Thank you very much for your hard work and the impact you're making. Thank you very much, Elon. And I think Zach did some opening remarks as well.
Yeah. Thanks, Martin. As Elon mentioned, Q2 was another record quarter of production and deliveries, as well as records and profit for energy and services and other businesses. Congratulations again to the Tesla team on the continued progress as we navigate through a period of economic uncertainty, rising interest rates, volatility and consumer confidence and regulatory change. I want to comment on our financial approach.
First, the single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the longterm value of the business. This include increasing spending on AI related technologies such as full self driving Optimus and Dojo as well as new products such as Cybertruck, our next generation platform and the semi as evidenced by the continued growth in our R&D spend. This also includes continuing our investments in capacity
expansion. Not only in our vehicle factories, but also our supercharging network, service internal applications and battery processes as we continue with meaningful capital expenditures to lay this foundation for the future. 2nd, we continue to work towards our goals of maximizing volumes on both our vehicle and energy business, but most importantly doing so in a way that generates the capital to continue our pace of R&D and capital investments.
This requires a strong focus on per unit COGS reductions in each of our key businesses. As well as working capital improvements on raw materials, working process inventory and customer AR, all of which progressed appropriately in Q2. If we look specifically at our automotive business, our gross margin showed a modest reduction and remain healthy despite action taken to further improve vehicle affordability.
Early in the quarter, we recognize we realize per unit cost improvements in nearly every category including material costs and commodities, manufacturing costs and logistics. While also continuing to rapidly increase the build rate in our Austin and Berlin factories.
For our energy business, we improved margins and gross profit driven by cost reductions in deal economics, particularly with Megapac. As a reminder, storage volumes are typically volatile sequentially based on the types of projects and their specific revenue recognition milestones. As we look forward to the rest of the year, I want to reiterate Elon's comments on Q3 volumes driven by plan down times for
factory upgrades. These upgrades will also carry some amount of factor at all cost how. However, we are working to minimize as much as possible. It's also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term. Regardless, we continue to remain dynamic with a focus on fundamental efficiency and a longterm outlook. Congratulations again to everybody on a great quarter. Thank you very much, Zack.
And let's go to invest your questions. The the first question on licensing FSD we've already answered. So let's go to the second one. The second question is what is the status of 4680 cells and how far are you from the specs you laid out on battery day? When do you expect to achieve what you laid out on battery day? Yeah. First, I'll just start with a little bit of a production update. So in Texas 4680, cell production increased 80% Q2 over Q1.
And the team surpassed 10 million production cells produced here in Texas, so Congrats to the team for that. Their focus on yield produced our scrap bill by 40% quarter over quarter and that resulted in a 25% reduction in cell COGS here in Texas. We're preparing to launch our cyber truck cell, which is 10% higher energy density than current production. That was accomplished through process and mechanical design optimization as we scale cyber cell production through the end of.
The year and early next we should be in a comfortable place on cost per cell against our battery energy density targets. The cyber cell is at our expectations on a like for like electrochemistry basis. We're yet to integrate silicon or in house capital production both reviewed on battery day which do break significant further energy density and cost improvements, but that is a topic for another day. Lastly, it is important to remember that most of what we
focused on a battery day with the Tesla engineered. 4680 production system and the improvements we strove to achieve on equipment factory density, capital cost and utility cost reduction, all of which we are realizing in our Texas scale up to date. Thank you very much.
The next question is, can you talk more to the upcoming Tesla Energy products and how you your thinking has evolved on the revenue model given Tesla's A I capabilities, how do you see the longterm mix between hardware margin and recurring softer margins from auto bidder? As the segment accelerates. We can't comment on future product road map, but I can
provide a cool energy Q2 update. Megapac continues to show strong demand globally with Lathrop ramping successfully to meet our contracted projects in 2023. As stated last quarter, Megapac margins are in a reasonable place in line with our target market vehicle target margins. The second final assembly line at Lathrop is progressing on schedule, eventually doubling Lathrop capacity ahead of our full factory ramp in 2024.
We have several exciting large projects and construction or nearing completion, including the KES project in Hawaii, the River Rena project in Australia, several projects in California and one here at Gigafactory, Texas that I toured today. Actually, we want to thank our customers, utilities and grid operators for trusting us with these projects on the Automator
question. We continue to grow auto bidder contracts in wholesale markets like Australia, Texas, UK and California with over 6 GW hours under Tesla's dispatch next year In the UK, our project performed best in the industry. In Q2. Auto bidder does have software margins and is an enabler for hardware sales, but it's a relatively small contributor to revenues given how much deployment growth on the magnet back hardware side is occurring.
It's important to remember that these large projects, these large capital projects have lifetimes, 20 years of occurring revenues on an analyzed basis. Relative to upfront, CapEx are small. On the residential side, we have some fun things happening. We recently surpassed a half
million power walls installed. Just this week we were launching charge on solar, which allows festival power wall and vehicle customers to charge their vehicles using their excess solar and drive only on the sunshine that hits their roof. Yesterday we began paying customers in Texas for participating in our virtual power plant to provide grid support to IRCOT. We expect these credits to lower our median customers annual bill by 1/3.
And to increase these credits over time as ERCOT expands market access and today we are expanding Tesla electric enrollment to new Model 3 honors in Texas, followed by all Texas vehicle customers over the rest of the quarter. Unfortunately and somewhat similar to Tesla Insurance, bringing Tesla electric and BPP capabilities to our customers requires working through a fractured regulatory environment on a jurisdiction by jurisdiction basis.
In the long run, the value of residential energy software and hardware will be driven by the level of market access that utilities. Market operators and regulators permit for power walls eligible to provide the full stack of energy services like peaker, peaker capacity and system buffering such as in Australia. We can more than double the value of ownership relative to a typical system today.
Thank you very much. The next question is, could you quantify the benefits to COGS per unit from the IRA battery manufacturing incentives? And secondly, battery raw material declines year to date? Right. I can take that. On the first part of the question for IRA manufacturing incentives, we provided previous guidance that we expect these to be for the course of this year in the range of 150 million to 250 million per quarter. We are staying within that boundary as we got it
previously. So that was the case in Q2 as well. I will note, I think we've mentioned this before that. This includes a 5050 sharing of credits for qualified cells from our longterm battery partner Panasonic. On the commodity side are we are continuing to see improvements there. As we've discussed previously, lithium is the most notable
improvement so far. I think I commented on this on the last call because typically we see this coming about 1/4 before it actually is realized in our financials. And also just as a reminder, we're not fully exposed to the price of lithium. Our supply chain team has done a terrific job in partnership with another bunch of other companies to put in place some longterm agreements here. But we do have some exposure that moves up and down.
We're also seeing benefits in aluminum and steel, which I think is great, not as large as the lithium impacts, but they contribute nonetheless. So if we add up the total impact of this in Q2 relative to prior quarter, it's about the same size and magnitude as the IRA benefits that we also received. You know just to put this in context, you know as you look at COGS per unit sequentially from Q1 to Q2, I think there's there's two things to keep in mind there.
The 1st is that our SX mix and IT for deliveries increased quite a bit from Q1 to Q2. So as you think about fundamental cost reductions. It's important to adjust for
that. And then secondly, you know as we continue to work on reducing our Austin and Berlin costs which we did quite a bit of that from Q1 to Q2, You know these factories are still a slightly above model wide production costs elsewhere and in the quarter our mix of Austin and Berlin related builds increased And so that's something to consider as you model out the impact on from Q1 to Q2 in terms
of COGS per unit. And I do want to ask Claren if there's anything else on the commodity side or just more generally you want to add here. Yeah. As you mentioned Zach, we we've naturally been a little bit hedged from the losing position because they the longterm contracts we have in place. But we have seen reduction in pricing across the board for all commodities that and specifically going to batteries such as nickel, cobalt and and
and graphite. And the reductions and pricing translate into thousands of dollars when you look at it from a PURV vehicle and plant. We're taking advantage of the historically low commodity pricing and in certain areas to kind of expand some of those fit price contracts through the end of the decade since a playbook that will continue to kind of go back to as you look to the future. Thank you. And the next question on FSD.
Have you considered allowing FSD transferability as a lever to allow existing customers to upgrade to a new Tesla instead of being locked into an existing car due to the price of FSD? Yeah, this is a question we get asked a lot. So we're excited to announce that before Q3 we will be allowing transfer of FSD. This is a one time amnesty.
So it needs to be take, you need to take advantage of it in Q3, but or at least place the order in Q3 with within with within reasonable delivery time frames, so. Yeah, yeah, yeah. I hope this makes people happy this one time thing. Right. The next question, when will, when will we give more information about the cyber truck orders, estimated delivery schedules, pricing and specifications? The demand is so is so far off the hook you can't even see the hook, so that's really not an issue.
I do want to emphasize that the cyber truck has a lot of new technology in it like a lie, it doesn't look like, it doesn't look like you know any other vehicle because it is not like any other vehicle. So at the and the production ramp will move as fast as the slowest at least like the element of the of the entire supply chain and an internal so. You know, I I wouldn't expect you know it, I I hope it's
smooth. We're, you know, we're certainly better production ramps than you know we've got a lot of experience with production ramps. But you know first order approximation is there's like 10,000 unique pots and processes in in a you know in the cyber truck and if any one of it'll go as fast as the least lucky, you know least well executed elements of the 10,000 so.
Always pretty difficult to predict the the ramp initially, but I think we'll be making them in high volume next year and we will be delivering the car this year. Thank you. The next question is critics of Giga casting contended that process makes vehicles harder and more costly to repair, essentially pushing costs onto the customer. You share some details about the initial repair experience with Giga Cast vehicles. That must be why everyone's copying us. Yeah. Thank you.
On this is Larris and Martin, that that's like simply not true. There's a misconception that traditional bodies are easy to repair, but they're made of multiple materials and multiple joining methods. Spot wells and rivets have to be drilled out. Panels and structural adhesive have to be chiseled out, tried adhesive has to be removed, stamp things cut, blah blah, blah. It's a crazy patch of quilt.
Yeah, And so putting that back together means time and money, using an example of replacing a rear cast rail on the Model Y. To do that versus like what we replaced it with from the Model 3, it's 1010 times cheaper and three times faster to do it with
the cast rail. My design team works with our collision repair team Since we're closed loop on this with insurance and we designed specific parts that are make it easier and faster to repair, we have an incentive to do that because we have our own insurance and our own body shops. We expect that we'll continue to do this and collision repair will continue to become cheaper and faster over time. And we already need this available to all body shops or a tester include Body Shop
training, yeah? Closing loop on collision repair and factoring that into design is is a big deal. It's crucial. I don't think anyone else can do it with that ecosystem that we have, so yeah. And and we are actually able to change the details of the casting with inserts, and we actually do do that all the time. So because the answer is actually we're out and it should be replaced anyway. So we can actually make design changes to the inserts and tweak
the castings. But the the, the cast that you know, basically cast the rear, rear body or front body is lighter, cheaper, better for noise, vibration, harshness, much easier to manufacture and it's better in every way. And that's why so many other car companies are copying us because probably they don't really stick well. They certainly put out a lot of fresh releases about it. I think it's basically got to be how old old cars are made in the future. Thank you.
Next question, how many optimist bots have been made and when will they be able to start performing useful tasks? 10 million, yeah. I think, I think we're around 5:00 or 6 bots like, you know, there's a look 10, I guess. Yeah, which, which is how many are working and what phase. It's a it's sort of yeah like this there's more more every month the they're saying it's large things, large interesting
things about the Octopus spot. We found that there are actually no suppliers that can produce the actuators. There's no there are no off the shelf actuators that work well for a Humor Aid robot at any price.
Certainly not compelling. Yes, not a not a human robot that can do something that you know the things that human can do. So we've actually had to design our own actuators that integrate the motor of the power electronics, the controller sensors and really every one of them is custom site so. And then of course we'll be using the the same infrared hardware as the car. So you know and but we are in designing these actuators, designing them for volume production.
So they're not just lighter, tighter, more and more capable any any other actuators that that we're aware of that exists in the world. There's also actually manufacturable. So we should be able to make them in volume. The the first optimist that is that will have all of the test that designed actuators sort of production candidate actuators on it integrated and walking
should be on to November ish. So and then we'll we'll we'll start wrapping up after that you know in terms of when we'll be able to do some useful things. Like, we'll first be trying this out in our own factories and just proving out its utility. But I I think I think we'll be able to have it do something useful in our factories sometime next year. I I would be, yeah, I'm pretty, pretty confident of that. So yeah. And that's going well.
I should say another cool thing about Optimist is that you know there's. Just in the US alone there are two million amputees and I was just talking to the neural link team and by combining A neural link implant and a robotic armour leg that for someone that has has had their arms and leg, all arms and leg amputated, we believe we can get basically a sideball body that is incredibly capable. $6 million man. In real life before no word cost $6,000,000.
Sixty $1000 man since I was impressive but it's it'll actually yeah so that that that actually could be a really I think would be incredible to you know potentially help most people around the world and and give them you know a robot or like that is. As good make a long time better than a biological 1. Thank you. The next question is how has the order intake trended relatively to production levels during Q2 and how is it trended in the
quarter to date period? Conceptually, how does this law decide when is it appropriate to reduce prices or at other sales
incentives to increase demand? I guess demand is roughly track production, so. Which is what we aim for is, is that we look at you know something that we have that really I think no other car maker has is that we have real time demand and real time production like so seven days a week, you know, I get an e-mail order generated e-mail that shows output from both factories and orders globally. So it's like a real time thing on the pulse of earth.
Basically and and we would you know we just we're just course according to what the word of the of the public is. You know buying a new car is a is a big decision for vast majority of people. So you know at anytime there's economic uncertainty people generally pause on your car buying at least to see to see what happens and you know and then obviously another challenge is the.
In the interest rate environment, as the interest rates rise, the affordability of anything bought with that decreases, so effectively increasing the price of the car. So when interest rates rise dramatically, we actually have to reduce the price of the car because the the interest payments increase the price of the car. So and and this is at least at least up until recently it was the, I believe the sharpest. Interest rate rise in history, Do we have to do something about that?
And if somebody's going to crystal ball for the global economy, I really appreciate it if I got borrow that crystal ball. DMS. Yeah, exactly. Damn. Yeah, it should be known on Twitter. So I mean one, one day it seems like the world economy is pulling apart and the next day everything's fine. I don't know what that was going on. I'd be totally frank, I wish I did.
So I mean that's why that's why I say like yeah, I always, you know you know on Twitter I posted like you know, just really advising because I care a lot about the the, the, the sort of the small shareholders especially ones that have stuck, stuck with us through through thick and thin. I love you guys and so the. We we can't control these macro shocks you know or the the manic depressive nature of the stock
market. So that's why I I recommend against margin loans in times that are turbulent. You know if I if times are are not that turbulent actually a margin loan can be a smart move within reason but we're in I would call it turbulent times. I like I have very high confidence, confidence in the longterm value of Tesla. Like I, I see it. I really, you know, see a path to a 10X. Well, we're not telling these
days about you. The 5X increase in the value of the company, maybe a 10X and the the where things go along the way that the trials and tribulations and the mood of the mood of the markets, well, I cannot predict. And so you know, I mean. The the old adage of buy and hold, this is right, you know, for investment advice I say like identify companies products you love see if they you know, does it seem like they'll continue to make good products or great
products. Buy that stock and holds it, That's it. But you all went and the reason companies exist is to make goods and services. Ideally, great goods and services, they don't exist for any other reason they shouldn't. So that's why you should buy stock of a company that makes me like some has a great future pipeline. It's common sense actually.
And and then and then generally if you see if if you provided you're confident about what that company's products or services are when the market panics by. And when the market is, you know, overly exuberant, yeah, you can sell. I'm not recommending yourself to as a bitch, but but yeah, buy low, sell high. You know, Warren Buffett actually I think has saying I'm paraphrasing him. But you know, a publicly traded company is like, it's like imagine you're living in your house and some.
A crazy manic depressive guy comes to, stands at the outside your house and yells property prices at you, you know, so it's and it's a different price every day. The house is still the same house, so who's talking about? Yeah, that's warm. Thank you. Let's go to the next question. With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise to the efficiencies outpacing the cuts?
And if so, when? Where's that cross the ball? Again, if I may, It's like look the short term variances in in. The most margin profitability really are minor relative to the long term picture. Autonomy will make all of these numbers look silly. I'd recommend looking at Arc Invest. I think their analysis is very good, the best that they you know I mean and generally fin, Twit or like the finance, smart finance people on Twitter. Follow their accounts. They're great.
So that that's what that's that's an idea where you'll get the best, best info. So you know, I strongly believe Tesla is an epic long term investment and don't swear when you know things go up and down. In fact, the market panics by if your market's a little too exuberant sell time. But. But just generally like like I feel I confident you know we will deliver a long term but can't control short term. So and these the autonomy is really where it's at exactly. I fully agree with you.
I mean, I think the only thing in the short term that matters is, is what I said in my opening remarks, which is, you know, are we generating enough money to continue to invest? In, you know, the portfolio of products and technologies that the technical teams are investing in right now. And this is intense. It's intense in terms of investment. It's intense in terms of
potential. Frankly, I think it's ridiculous that we have positive free cash flow in a capital intensive business while investing massive amounts of money in new technology. That is super hard. And critical integration, it's not even just like new products, but also. Yeah, we actually make our shit. We don't. Yeah. And and. So others. And. Very cool.
And so at least from my perspective, what matters is continuing to generate the cash to invest and you know that means continuing to be hyper focused on your term cost
reduction. Does everything we do in your term cost reduction provides capital to reinvest hyper focused on working Capital Management which we've made quite a bit of progress there on the raw materials and whip as a side of that and very focused on accounts receivables as well to ensure that we can continue to reinvest, reinvest the cash. You know that this is what we're focused and you know so there's
you know a set of this that. We control, you know we have a pipeline of cost reductions, but we are getting tailwinds in the commodity space right now as Carn mentioned, that's helpful variability around average selling prices. You know goes back to Elon's point and we don't control interest rates, we don't control macro consumer sentiment, but we have an obligation to be responsive to that to ensure that we're matching supply and demand and keeping things
balanced. And so this is how we're managing the next handful of quarters and soon enough these quarters will be behind us. They won't be part of the present value of future cash flows of the business. And so we wanna make sure we keep that view and make sure that the long term of the business is exactly the way that we want it to be it. Will suit, yeah. All right. Thank you very much. And now let's go to analyst questions. The first question comes from Dan Levi from Barclays.
And then feel free to unmute. Yourself. Great. Good evening. Thank you. Bob, wanted to start first with the with a question about here at Person AI and Dojo. It's pretty clear it sounds like you're accelerating your focus. Can you maybe provide us with a sense of what the process is of refining a product, Is it more machines and and maybe you could give us a sense of you know when the the payout starts to when you start to see the payout and what the resource outlay is.
You know what should we expect on the OpEx front as a result of this? Sorry, are you saying how much are we gonna spend on Dojo or yeah? Warranty of Dojo. Yes. Well, we're not going to be open loop on our Dojo expenditures.
So but I mean I think we, we will be spending you know for the north of a billion for the next year on on you know flip through the end of next year, it's whatever billion dollars in Dojo. And yeah, so we've got a truly staggering amount of of video data to do training on. And this is another thing I like. In order to copy us. You also need to spend billions of dollars on training compute. I mean it's like and it's also hard to you know you need the data, you need the training
computer. It's like they think well things needed to actually achieve it at scale toward generalized solution for autonomy is it's this is this is one of the hardest problems ever. You know, you see a lot of AI companies doing, you know, Llms and and and whatnot and I'll say if they're so great, why can't they make yourself a great driving car? Because it's harder, that's why. So but I do think those, let's say, I think there's, you know, great, great AI companies out there, but but just
fundamentally the the. About the the staggering amount of data we've got to process is going to process somehow and custom silicon is the best way to do that. So that that's what Dojo is is designed to do is is you know optimize for for video training it's it's not optimized for all of them it's optimized for video training with with with video training you have a a. A much higher ratio of compute to memory bandwidth. So this you know whereas LMS tend to be memory bandwidth choked.
So that's that's it. I mean like so we're also we have some, we're using a lot of the video hardware continued to you. We'll actually take the video hardware as fast as NVIDIA was delivered to us. Tremendous respect for Jensen. Kind of video on they've done an incredible job and and frankly I don't know if they could deliver us enough Gpu's we we might not be Dojo but they can't.
So because they got so many customers they've been kind enough to you know but nonetheless prioritize something about our GPU orders but. Yeah, the, the, the sheer magnitude of video training because like I said, we're not trying to just get as good as human. We want to get to, you know, 10 times better than human, maybe 100 times better than human. Right now I believe there's something on the order of 1,000,000 automotive deaths per
year. And and if you say permanent serious injuries, I think it's probably closer to 10 million per year. And you know, so it matters if you're, if you're, you know. Twice as good as as humanity 10 times you know like 10 times better than here would would still mean 100,000 deaths on and and a million severe permitted
injuries. So it's like OK well we'd probably be 100 times better So there's there's really you know it's a March of 9th and and we want to achieve as perfect safety as possible and to ask truly mind boggling amounts of video and and and computer needed for that. So and then I just, yeah, I do think there's this other applications for for Dojo, but we just definitely needed for video training. Right.
Just to just to add to what Elon mentioned, so you know the numbers that he mentioned are you know between R&D spend and capital spend and you know this is moving quickly you know and so we provide a three-year outlook on our capital expense we are considering. These paid expenses in that outlook and as that moves up and down, we'll continue to update our guidance in the queue. Yeah, I wanna say the big, the fundamental rate limiter on the progress of both self driving is
trading. But that's if if we had more training compute we would get it done faster. So that's that's it. And it's just difficult to predict how quickly we can execute on it. Create. Thank you. Just as as a follow up, I recognize you know there's there's incredible macro uncertainty right now, but you're sticking with your near term your volume target 50% kegger. As we just think about sort of in the in the year ahead, you know cyber truck is going to be
some contribution. You know there's going to be some help for further EV penetration growth, but to to what extent are you willing to? Sacrifice on pricing to keep that 50% volume kegger intact. Or, you know, are you? Thinking differently about margins versus your prior commentary of willing to sacrifice on margins to get more
share. It's not like getting what share, it's just that you can think of every car that we that we sell or produce that that that has a full autonomy capability as. Actually, something that in the future may be worth as much as five times what it is today because, you know, average passion is big. Pastor Bickle is doing like maybe 10 hours of driving a week. You know, one if if it's sort of 1 if let's say it's 1 1/2 hours there, on average that's 10
hours a week. Ish if you've got an autonomous. If that that vehicle is able to operate autonomously and and and and use be used in some so we either either dedicated autonomous or partially autonomous like like Airbnb like maybe sometimes you allow your card to be used by others sometimes you want to use it exclusively just like you know Airbnb you know drink Airbnb with a room in your hands you know that the the value is just tremendous so. I think it's sort of it would be.
I think it makes it does make sense to sacrifice margins in favor of making more vehicles because we think in the not too busy future they will have have a dramatic valuation increase. I think the test of fleet value increase at the point of which we can upload full self, you know full self driving and it's approved by regulators will be the single biggest step change in asset value maybe in history. Thank you.
Let's go to the next analyst. The question comes from Emmanuel Rosner from Deutsche Bank. Thank you very much. Two questions for me as well. First, following up on on the autonomy, So you know before you start launching these dedicated Robo Taxi vehicles on unexisting vehicles, you're improving FSD. You know incrementally what is your latest targeted timing to? Essentially release a non beta version or an ISOF version that would trigger much higher take rates and would Tesla benefit
from lowering the price of FSD? Well, obviously as. People have sort of made fun of me, and perhaps the quite fairly have made fun of me, my predictions about. Achieving full sub driving have been optimistic in the past.
The the reason they've been optimistic is what it tends to look like is the we'll make rapid progress with the new version of of FSD but but then it will curve over logarithmically so. So first logarithmic curve looks like you know just fairly straight upward line diagonal up. And so if you extract like that it then you you have a great thing. But then it's actually logarithmic. It curves over. And then there's been a series of log that stacked logarithmic curves.
Now I don't. I don't. I'm the the, the, the boy who cried FSB. But I I I think I think we'll be better than human by the end of this year. That's not to say we're treated by regulators and and I'm saying that then that would be in the US because we got to focus on one market 1st. But I think we'll be better than here and by the end of this year. I've been wrong in the past, I may be wrong this time and that the from the price of FSD.
So the way thing is the price of FSD is actually very low. It's not high. When you go back to what I say earlier, the value of the car increases dramatically if it is actually autonomous. You know $58,000 is is actually a low price, not a high price. And that we will offer and you know and we do sort of offer FSD as a sort of monthly subscription, although like most people don't know that.
So I recommend like maybe trying it out as a monthly subscription so you don't have to go with the $15,000 thing. But I think yeah, yeah, the the obviously if the car is built several times it's original price, $15,000 is actually a low price for it. Thank you. And the next question comes from William Stein from Trust. William, go ahead and unmute. Great. Thank you very much for taking my question. I'd like to ask about the stick on this A I topic.
We've read you know with great interest the developments in Dojo today and you've spoken about FSD but you've also Elon you started this X dot a I company and you know for investors that think that. There might be quite a bit of value in the AI features and products of Tesla. It might be concerning to see you, you know, pursuing another
endeavor where AI is the focus. So can you talk about how X dot AI might overlap, might perhaps compete with Tesla or in other ways perhaps it it enhances the value of of what Tesla does? Thanks very much. Yeah, I I think we'll actually enhance the value of Tesla there.
There were just some some of the world's best AI engineers and scientists that were willing to join a startup, but they were not willing to join a large, relatively established company like like Tesla. So I was like that that's actually how it got started. I was interviewing a few people and they're like, no, we we want to do a startup. I was like and that's all I I I couldn't convince them to join.
Tesla so, so it's like OK well you know better to start up that that I run that's then then they go work somewhere else that's kind of the the genesis of of XAI&XAI is is focused on a sort of a GI. Yeah so it's but I'd like so I think there will be some. Value that XAI brings to Tesla. You know also for some of the best for the very best people in the world, they really just want to look at interesting problems.
If you take say you know amateur science group you know really what convinced the Charlie Coleman to leave Apple where it was very happy and well compensated and both at the. Where we think it's the best material science group in the world was that he got to work at both Tesla and SpaceX. He he wasn't willing to leave Apple if it was just how slow, but he was like to know it was Tesla and SpaceX. So sometimes you get the best out in the world.
That's the kind of thing you know you need to do. And that actually has been very beneficial to Tesla so. If you know if I can squeeze one more mundane question in, I wonder if you think you can hit. The 1.8 million unit number with current pricing or you anticipate needing to continue to lower prices because it seems like they've are stabilized, the trends are stabilized in the last maybe month and a half.
Should we expect a sort of continued decreases or or more stabilization for the rest of the year? You know, we have. We have a really. We started the referral program, which I think will be quite effective. You know, as as Zach was saying earlier, we don't control the macroeconomic conditions. So if interest rates continue to rise that reduces the affordability of cars, you know, and and for a lot of people they're really trying to balance that's, you know, barely
breaking even every month. In fact, if you look at the rise in credit card debt, they are in fact not breaking even every month. Credit card debt is this looking scary? So yeah, we're like, which is don't control the micro conditions. If micro conditions stable, I think prices will be stable. If they're not stable then we would have to lower prices, yeah. Thank you. Let's go to Colin Rush from Oppenheimer.
That's so much, guys. You know is you're building out Dojo and implementing what truly is going to be a highly complex set of software. Can you speak to the maturity of the operating system and how much software you're expecting to use in that? System This is a custom software stack so but it is design such that you can run at the high at a high level high torch. And JAX, so, but then yeah we have to customize it to actually run on a custom silicon.
So this the software stack is a combination of open source software and then and that tells the software all the way to the bear silicon, which is the case for the first computer in the car. OK. Thanks so much. That's super awful. And then can you speak to how you're managing some of the
geopolitical risks? Relative to your capacity expansion, you know, obviously as you guys continue to grow at this rate, you're going to be putting some folks out of business and you know there's going to be some impacts around regional economies. So just want to understand how you're thinking about that in terms of some of your CapEx plans and and how you're managing some of those relationships with with different countries and regions?
Well, we, yeah, this is a period of unusual geopolitical risk. So I think we're the best we can do is you know have factories and many parts of the world such that if things get difficult one part of the world we you know, we can still keep keep things going in the rest of the world. Thank you. The next question comes from Mark Delaney from Goldman Sachs. Thank you very much for taking that question. Tesla has been making progress reducing costs and did so again
last quarter. Can you give an update on when you think automotive clouds per vehicle could be under the historical $36,000 per vehicle level and what are the key puts and takes together? This is I think it was asked since in the past this is very difficult to forecast. You know there's a series of costs that we manage in series of costs in which we don't control. And so you know, particularly on the commodity side where labor, Costco, etc, it's just hard to say.
Yeah, We saw very inflationary, like strong inflationary pressures for a while last year and and now which obviously makes it very difficult to reduce COGS. You know, now we're seeing what seemed to be deflationary pressures. Certainly deflationary deflation is a pressure. But we're seeing, you know, commodity prices dropped, dropping as as was mentioned there, you know, as car mentioned a moment ago.
And I think what do you think basically the trend should be deflationary commodity low definitely. Is that and then? There's also the the unit economics improves as volumes grow. That's the other thing we're seeing as we're becoming a bigger and bigger part of a lot of suppliers, economies of scale come into play. There's equipment depreciation that comes into play, equipment Douglas Commission five to seven years ago that used to be a part of the peace price that's
completely amortized. So we'll see situations or peace price come down because that equipment contribution has gone away. And then just we continue to have this mentality of continuous improvement in terms of Labor, reducing labor, improving automation and and just continue to get better at what we do. So we have seen I think every quarter we have seen an approved. Of course, the commodities spiked up and down. Just in general, the trend is
towards being more efficient. Yeah, when and totally agreeing there. Unless the prices weren't absolutely insane there for a while. Yeah, and they're recovering now. But also don't know what used to. Be, Yeah. And you know we're still early in the ramps. Well, not early in the ramp, but early in the cost down curve. I lost an umbrella, yeah. So it takes time to work the cost out at first. It's a focused on ramp. Ramp. It brings cost. And well be and then your and
quality cost. Yeah. And then once that stabilizes, we can divert bandwidth to cost reduction. And so Austin Berlin saw quite a decent amount of cross reduction and a fundamental basis from Q1 to Q2. We'll continue to do that work. That will be helpful as though we're just gonna keep shipping away at it. Yeah, packaging is a big, big element to it just takes 2. Logistics is normalizing, which
is great. That Cuba legalization, something that team has been very focused on, So every bit of it. Yeah. It's hard. Logistics is under appreciated. Yeah. So saying goes like that was one of tactics was one of logistics, yeah. And we've made tremendous improvements in cost and all fronts you know express costs. We are down or down pre pandemic. Expect cost levels now and our goal is to go further down. Yeah.
So when we look at our progress from Q1 to Q2 on cost, know the way that we look at internally and normalize for the impacts of mix shift with Austin and Berlin being a higher percentage of our mix, normalize for S&X being a higher percentage of our mix in Q2 versus Q1, the sequential cross reduction, it might be the largest we've had in a while. Anything.
It's great work on behalf of the test, the team, and we just gotta keep it up. Yeah, it's a good game of pennies, but Game of Thrones is good pennies. Mark, do you have a follow up question? I think you're muted. Yep. Yeah. Thank you very much for all the. Details on that. Maybe you could put a finer point on the downtime impact that you spoke about in your prepared comments in terms of production impact.
And then also to what extent there's a margin impact from those that you're playing in the square? Thank you. Yeah, the, the downtime, you know, we don't know exactly the number of cars impacted because you know, kind of the way that we go into downtime windows for upgrades. Is you know, we set aside a period of time but then the team is challenged it as quickly as possible so that we can get the factories up and running again and minimize that. So it's not, it's not profound
reduction, quite small. Too much if the weeds here. I mean like we're asking for level of precision that is not possible to answer, so let's move on. Yep. I think this is unfortunately all the time we have for today, so we'll speak to you all in the next three months. Thank you very much. Thank you.