Good afternoon, everyone, and welcome to Tesla second quarter 2023 Q&A webcast. My name is Martin Vieca, VP 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, Martin. So just a 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, surpassing the lights of likes of Corolla and Golf. So it was the number one vehicle of any kind, including vehicles that are at a seller far lower
price. This is I think an incredible achievement by the Tesla team and just a huge thank you to our customers 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 summer
shutdowns to for. A lot of factory upgrades, so just probably a slight decrease in production Q3 for sort of global factory upgrades in the long term autonomy, we think it's gonna just drive volume through the ceiling next level and our future Robotaxi products, dedicated Robotaxi products. We think have like quasi infinite demand so and we're the way we're gonna manufacture the robot taxi is is also itself a revolution and 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, 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 in a 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 but then you 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 of 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 AI and dev is is a function of talent sort of unique data and computer resources and and we have outstanding capabilities in all three arenas. And I really just don't know how 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 training computer is designed to significantly reduce the cost of neural net training. It it is designed to it's 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 need for neural net training being a quasi 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 demand for really fast training resources. And we, we think we may reach in house your net, your net training capability of 100 exaflops by the end of next year. So to today over 300,000,000 miles have been driven using FSD beta. That 300,000,000 mile number is gonna seem very small very quickly. It'll soon be billions of miles,
then 10s of billions of miles. And that FSD will will go from being better, from 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 Georgia computer, our inference hardware in the car which we calls. Sort of hardware 3-4, you know, but it's really dedicated, it's it's, it's a high efficiency in front of computer that's in the car.
And our optimist robot translates clearly at the cutting edge of a ad development to with we continue to build release candidates of the cyber truck on our final production line in Austin. I'm actually here in Austin at the Giga factory, this is the first truck that we're aware of that will have 4 door. Was over 6 foot bed and 1 foot into a 20 foot garage. So it's it's a it's a biggest on the outside but it's even bigger on the inside.
So it's a I think that's 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 we really cared about the exterior dimensions of the side truck down to the last millimeter. So it's just we try to get right in the middle of the Goldilocks zone, not too big, not too small and and then really maximize 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 and it's now called the North American charging standard. We're we're deeply honored that Ford, GM, Mercedes and many other O M's have signed up to use our connector and gain
access to our charging network. Yeah we we we strongly believe in helping. Other car companies to accelerate the EV revolution and just trying to do the right thing in general. So that's a goal there. Then it's only I think I want to emphasize like very, very strongly. This is a very important point is that tells that just as with the.
North American charging standard, although we're not licensed in that case not licensing, we're just making it available, but but we are very open to licensing our full self driving software and hardware to other car companies and we are already in discussions with 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. Then in conclusion, we continue to focus on making as many causes 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 Megapack supercharging service. And what not all started to become a meaningful contributor to overall profitability this
quarter. And then lastly, I'd just like to profusely thank all of our employees who are making a lot of extra effort during uncertain times. Thank you very much for your hard work and impact you're making. Thank you very much, Elon. And I think Zach gets 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 long term value of the business.
This include increasing spending on a I related technologies such as full self driving Optimus and Dojo as well as new products such as Cybertruck, our next generation platform in 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 Megapack. 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 factory 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 long term outlook. Congratulations again to everybody on a great quarter. Thank you very much, Zach, and
let's go to investor questions. The first, 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? 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 reduced 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 cathode production, both reviewed on battery day, which do bring 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 was 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're thinking has evolved on the revenue model?
Given Tesla's AI capabilities, how do you see the long term mix between hardware margin and recurring softer margin from auto bidder as the segment accelerates? We can't comment on future product road map, but I can provide a quick energy Q2 update. Megapack continues to show strong demand globally with Lathrop ramping successfully to meet our contracted projects in 2023. As stated last quarter, Megapack 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 in 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 toward today actually. We want to thank our customers, utilities and grid operators for
trusting us with these projects. On the auto bidder question, we continue to grow auto bidder contracts in wholesale markets like Australia, Texas, UK and California with over 6 kwatt 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 Megapack hardware side is occurring.
It's important to remember that these large projects, these large capital projects have lifetimes of 20 years of recurring 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 test the 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 ERCOT. We expect these credits to lower our median customers annual bill by a third and to increase these credits over time as ERCOT expands market access. And today we are expanding Tesla electric enrollment to new Model 3 owners in Texas, fall by all Texas vehicle customers over the rest of the quarter unfortunately and somewhat
similar to Tesla insurance. Bringing Tesla Electric and VPP 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? All 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 sales from our long term battery partner Panasonic on the commodity side.
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 long term 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 but 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.
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 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.
These factories are still a slightly above Model Y 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. I do want to ask Karen 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 lithium position because the the long term contracts we have in place. But we have seen reduction in pricing across the board for all commodities that specifically go into batteries such as nickel, cobalt and graphite. And the reductions and pricing translate into thousands of dollars. When you look at it from a
purvedaical impact. We're taking advantage of the look historically low commodity pricing in certain areas to kind of extend some of those fixed price contracts. Through the end of the decade. So it's a playbook that will continue to kind of go back to as we 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 for Q3 we will be allowing transfer of FSD. This is a one time amnesty. So it needs to be 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 and the production ramp will move as fast as the slowest and least like the elements of the of the entire supply chain and an internal production. So you know, I wouldn't expect you know it.
I I hope it's smooth. You know we're certainly better at production ramps than than you know we've got a lot of experience with production ramps.
But you know first order to 1st order approximation is there's like 10,000 unique parts and processes in in a you know in the Cybertruck and if any one of it'll go as fast as the least lucky, you know least well executed element of the 10,000 so. Always very difficult to predict 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, thanks you. On. This is Lars 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 welds and rivets have to be drilled out. Panels and structural adhesive have to be chiseled out, dry adhesive has to be removed, stampings cut, blah, blah, blah. It's a crazy patchwork quilt. Yeah. And so putting that back together means time and money.
Using an example of replacing a rear cast rail on a 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 cash rail. My design team works with our collision repair team since we're closed loop on this with insurance and we design 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 made this available to all body shops or our tests are approved 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 the answer is actually wear out and. Need to be replaced anyway, so we can actually make design changes to the inserts and tweak the castings, but the the cast 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 know. They certainly put out a lot of fresh releases about it. I think it's basically going to be how 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 an
we're. Like 10 I guess yeah it depends on what how many are working and what phase. But it's it's sort of yeah, like there's there's more more every month the there's a lot of interesting things a lot of interesting things about the option spot. We found that there are actually no suppliers that can produce the actuators. There are no off the shelf actuators that work well for Human 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 could do. So we've actually had to design our own actuators that integrate the motor of the power electronics, the controller. The sensors and really everyone of them is custom design. So and then of course we'll be using the same inference hardware as the car. So you know and 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 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 integrated and and walking should be. Around 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 it's going well, I should say. Another cool thing about optimists 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 armor leg. For someone that has has had their arms, armor leg or all arms and legs amputated, we believe we can give you basically a cyber body that is incredibly capable $6 million man in real life before. Don't worry it cost $6,000,000 sixty $1000 man.
Since I was impressive but it's it'll actually you know so that that that actually could be a really I think would be incredible to you know potentially help police people around the world and and give them you know Obama like that is as good maybe a long term 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 decide when is it appropriate to reduce prices or add other sales incentives to increase demand? Yeah. I guess demand is roughly track production. So which is what we aim for is is. But we look at you know something that 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 all 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're just we're just course according to what the mood 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 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 the interest rate environment as interest rates rise. The affordability of anything bought with debt 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, 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. So we had to do something about that. And if somebody's got a crystal ball for the global economy, I really appreciate it. If I got borrow that crystal ball.
Yeah, exactly. Damn. Yeah, it should be. Not on Twitter. So, I mean, one day it seems like the world economy is falling apart and the next day everything's fine. I I don't know what the hell is going on. It'd be totally frank. I wish I did.
So I I mean that that's why that's why I say like I always you know you know I on Twitter I posted like you know just really advising because I, you know 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 times are not that turbulent actually a margin loan can be a smart move within reason but but we're in I would call it turbulent times. I like I have very high confidence, confidence in the long term value of Tesla.
Like I I see it really, you know, see a path to a 10X these days, like 5X increase in the value of the company, maybe a 10X and where things go along the way that the trials and tribulations and the mood of the mood of the markets 1 cannot predict. And so you know. The the, the old adage of buy and hold is 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 hold it, that's it. But you will win. 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 I should buy a software company that makes me likeson 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. Buy and when the market is, you know, overly exuberant, you can sell. I'm not recommending yourself as a bit, but yeah, I love sell high. You know, Warren Buffett actually I think has saying I'm paraphrasing him. But, you know, publicly traded companies like it's like imagine you're living in your house and
some. A crazy manic depressive guy comes and stands at the outside your house and yells property prices at you. You know, and it's a different price every day. The house is still the same house, so this is the stock market, you know, Credit that door about it. 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 due to efficiencies outpacing the cuts? And if so, when? Where's that crystal ball again if if, I mean it's like look the, the, the short term variances in in. Gross margin and 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. It's the best you know I mean and generally fin Twit or like if the finance. There's the smart fans, people on Twitter follow their accounts. They're great. So that that's what that that's that's in my view where you'll get the best, best info. So you know, I strongly believe Tesla is epic long term investment and don't swear when you know things go up and down. In fact, if the market panics, buy.
If the market's a little too exuberant sell at the time but but just generally like like I feel I I confident you know we we will deliver a long term but can't control short term so and and these the the autonomy is 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 regenerating enough money to continue to invest and you know, the portfolio of products and technologies that the technical teams are investing in right now. 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 vertical integration, it's not even just like new products, but also. Yeah, we actually make our shit, yeah. And so. Others but. And so, at least from my perspective, what matters is continuing to generate the cash to invest. You know that means continuing to be hyper focused on near term cost reduction because everything we do in near term cost reduction provides capital to reinvest, hyper focused on working Capital Management of which we've made quite a bit of progress there.
On the raw materials and whip side of that, we've been 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 on. Yeah. And you know, so there's you know a set of this that we control. You know, we have a pipeline of cost reductions. We are getting tailwinds in the commodity space right now. As Karen mentioned, that's helpful variability around
average selling prices. You know, goes back to Elon's point, 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. You know 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 want to 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. Alright, thank you very much. And now let's go to analyst questions. The first question comes from Dan Levi from Barclays. Then feel free to unmute yourself. Great. Good evening. Thank you. Wanted to start first with the with a question about your efforts in 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 Georgia or? Yeah, it. Warranty of Georgia. 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 the north of a billion over the next year on on through the end of next year, it's well over a billion dollars in Dojo. And yeah, so I mean we've got a truly staggering amount of of video data. To do training on and this is another thing I don't like into in order to copy us you you also need to spend billions of dollars on on training compute.
I mean it's like and it's it's also hard to you know you need the data you need the training computer it's like think think all things needed to actually achieve this at scale toward a generalized solution for autonomy is it's this is this is one of the hottest problems ever. You know you see a lot of AI companies doing you know Llms and and and and whatnot and I'm saying if they're 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 that's that's I think there's some you know great great AI companies out there but but but just fundamentally the the the staggering amount of data we've got to process recovery 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 yeah optimized for for video training it's it's not optimized for LMS it's optimized for video
training. With the with with video training you have 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 but like so we're also we have some we're using a lot of NVIDIA hardware and continue to you know we'll actually take NVIDIA hardware as fast as NVIDIA will deliver it to us. Tremendous respect for Jensen and NVIDIA they've done an
incredible job. And and frankly, I don't know if they could deliver us enough GPUs, we we we might not need your Dojo, but they can't. So they got so many customers, they've been kind enough to you know nonetheless prioritize some 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 then 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 if you're, you know. Twice as good as as human 10 times. You know like 10 times better than human would still mean 100,000 deaths and a million severe permanent injuries. So it's like OK, well we'd
probably be 100 times better. So there's this really you know it's a March of 9th and and we want to achieve as perfect safety as possible and it's fast truly mind boggling amounts of video and and and computer needed for that. So and then I just, you know, I do think there's there's other applications for for Dojo but we just desperately needed for video training. Right.
Just to just to add to what Ilan 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 these 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 that the the the fundamental rate limiter on the progress of full self
driving is training. But that's if if we had more training compute we would get it done faster. So that's it, that's it. And and it's just difficult to predict how quickly, yeah, we can execute on it. Great, thank you. Just as as a follow up, I recognize you know there 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 from further EV penetration growth but. But to to what extent are you willing to sacrifice on pricing to keep that 50% volume cager 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 more fair, it's just that you can think of every car that we that we sell
or produce that that that has. 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 passenger 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 a day, on average that's 10 hours a week. Ish if you've got.
An autonomous if that that vehicle's able to operate autonomously and and and use be used in some either either dedicated autonomous or partially autonomous like like Airbnb. Like some maybe sometimes you allow your your card to be used by others sometimes you want to use it exclusively. Just like you know Airbnb, you know doing Airbnb with a room in your house. You know that the the, the value is just tremendous.
So I think it's sort of it would be I I think it makes it does make sense to sacrifice margins in favor of making more vehicles because we think in the not too distant future they will have have a dramatic valuation increase. I think the Tesla fleet value increase at the point 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, on existing 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 I you know. As people have sort of made fun of me and perhaps the, you know, quite fairly have made fun of me, my predictions about achieving full self driving have been optimistic in the past.
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 at first logarithmic curve looks like you know just sort of fairly straight upward line diagonal and up. And so if you extrapolate that it then you you have a great thing but then because it's actually logarithmic, it curves over and then there's been a series of stacked logarithmic curves now.
I know, I don't know the the, the, the boy who cried FSD, but I I man, I I think I think we'll be better than human by the end of this year. That's not to say we're approved by regulators and and I'm saying that that would be in the US because we got to focus on one market 1st. But I I think we'll be better than human by the end of this year. I've been wrong in the past. I may be wrong this time and that the the price of FSD. So the 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 the the value of the car increases dramatically if it is actually autonomous. You know $15,000 is is actually a low price not a high price and. Now we will offer you know and we have, I think I think we do sort of offer FSD as a sort of monthly subscription although like most people don't know that. So I'd 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 if the car is worth several times it's original price. $13,000 is actually a low price for FSD. 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 to stick
on this AI 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've started this X dot AI 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 what Tesla does? Thanks very much. Yeah, I think we'll actually enhance the 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 sort of 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 couldn't, I couldn't convince them to join Tesla. So, So I was 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 and Xai is is focused on a sort of AGI. Yeah so it's but I I'd like so I think there will be some value that Xai brings to Tesla you
know also some of the best. For the very best people in the world they they really just want to work on interesting problems. If you take say you know our material science group you know really what convinced the Charlie Coleman to leave Apple we was very happy and well compensated and both at and both you know the the the where we think is 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 Tesla, but he was willing to do it, it was Tesla and SpaceX. So sometimes you get the best talent 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 I wonder if you think you can hit the 1.8 million unit number with current pricing or do you
anticipate? Needing to continue to lower prices because it seems like they've stabilized, the trends have stabilized in the last maybe a month and a half. Should we expect a sort of continued decreases or or more stabilization for the rest of the year? Sure. You know we have, we have a really sort of we started the referral program which I think will be quite effective. So you know, as as Zach was saying earlier, we 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 just 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 like credit card debt is, is looking scary so. You know, we just don't control the micro conditions. If American conditions are stable, I think prices will be stable.
And 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 your. Building out Dojo, implementing what really is gonna 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 designed such that you can run at the high at a
high level pie torch. And jacks, so but then you know 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 inference computer in the car so. Okay, thanks so much. That's super powerful. 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 gonna 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? You know, 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 in 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 cost and did so again last quarter.
Can you give an update on when you think automotive COGS per vehicle could be under the historical $36,000 per vehicle level? And what are? The key puts and takes to get there. This is, I think it was asked this in the past. This is very difficult to forecast. You know there's a series of costs that we manage. This here is a cost in which we don't control and so you know particularly on the commodity side where labor, Costco
etcetera, it's just hard to say. Yeah, we saw very inflationary like strong inflationary pressures for a while last year and and now we're 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 you know as car mentioned a moment ago and.
I think, I mean what do you think it basically the trends should be deflationary at the commodity level? Definitely there's that. And then there's also the the unit economics improve 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 appreciation that comes into play, equipment that was commissioned five to seven years ago that used to be a part of the peace price that's completely amortized. So we'll see situations where
peace price comes down. Because that equipment contribution has gone away and then just we continued 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 improvement, of course, the commodity spiked up and down. Yeah, just in. General the trend is towards being more efficient. Yeah, and and totally agree.
Yeah, but lithium prices weren't absolutely insane there for a while. Yeah, yeah. And they're recovering now. About like 1/3 of what it used to be. Yeah. Yeah. And you know, we're still early in the ramps. Well, not early in the ramp, but early in the cost down curve of Austin and Berlin. Yeah. So it takes time to work the cost out at first it's a focused on ramp, ramp it brings cost. Down quality and then yeah. 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 cost reduction on a fundamental basis from Q1 to Q2. We'll continue to do that work. That will be helpful. And so we're just gonna keep shipping away at it, yeah. Package is a big, big element to logistics too. Logistics is normalizing, which is great. QQ Bot utilization. Something that your team has been very focused on, so every bit of it. Yeah. It's hard.
Logistics is under appreciated. Yeah, the whole thing is like that was one with tactics, wasn't one with logistics. Yeah. And we've made tremendous improvements in cost and on fronts on you know express costs. We have down down Pre, Pandemic Express cost levels now. And our goal is to go further
down. So, yeah, so when we look at our progress from Q1 to Q2 on cost, 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 cost reduction, it might be the largest we've had in a while. So anything is it's great work on behalf of the Tesla team. And we just gotta keep it up.
To get game of pennies, it's like Game of Thrones with pennies. Mark, do you have a follow up question? I think you're muted. Yep. Yeah. Thank you very much for all the the details on that. Maybe you could put a finer point on the downtime impact that you 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 if? You have a phrase that you're planning this quarter. 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 to go 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, you know, hopefully it's quite small I think. We're getting too much into Louise here.
I mean, like we're asking for a level of precision that is not possible to answer. So let's move on. Yeah. I think this is unfortunately all the time we have for today. OK. So we'll speak to you all in the next three months. Thank. You very much thank you.