Tesla, Inc. (TSLA) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Tesla's 2020 Annual Meeting of Stockholders. We're really excited that you could be here with us today. My name is Al Prescott. I'm Tesla's Vice President of Legal. There'll be 2 parts in today's meeting. First, the formal part of the meeting, we'll get out of the way, which will cover the 7 items that stockholders have been asked to vote on. After the voting, I'll introduce Tesla's Co-Founder and CEO, Elon Musk, who will give a presentation about the company update and year-end review. And then following the conclusion of the stockholder meeting, we'll start our separate Battery Day event. At this time, I'd like to thank the members of the Tesla team and our Board, especially those who were able to make it out here in person today as well as to our representative from PricewaterhouseCoopers, Tesla's independent auditor, who's also here. But before we begin, I'd like to introduce you to Robyn Denholm, the Chairwoman of Tesla, who would like to say a few words remotely.

Thank you, Al. Hello, everyone, and welcome to the 2020 Tesla Shareholder Meeting. A special welcome to the many Tesla shareholders that have joined us today in person as well as online from across the country and around the globe. I wanted to start today's proceedings by thanking you, our shareholders, for your tremendous support over the last year and especially to those of you who have been with us through our journey over the past 10 years since the company's IPO in 2010. While we have stayed true to our mission of accelerating the world's transition to sustainable energy, in many ways, our company has evolved beyond recognition over the past decade, and that is a great thing. In fact, the pace of developments and the evolution of Tesla has further accelerated over the past 15 months since I last addressed you in June of 2019. You'll hear more about many of the specific achievements from Elon later in the agenda, but I would like to take this opportunity to thank all of our Tesla employees across the globe who have done a tremendous job of executing and staying focused on delivering for our customers and shareholders as the world has gone through one of the most challenging periods in our lifetimes. As a Board, we have always taken a long-term view. We have made decisions and supported decisions made by the management team that may not have seemed obvious at the time but are delivering and will continue to deliver breakthrough results. But it's also important to remember why we do this. As a company, we are focused on addressing one of the biggest environmental challenges of our generation, how to accelerate the world's transition to sustainable energy. The last year, in particular, seen a tremendous increase in momentum in the movement to sustainable energy from both shareholders and the general public. So in addition to developing amazing clean transportation and energy products, we are doing our part by contributing the right facts and information to this important issue, and we released an extended version of our impact report in April of 2020. In this year's version, we have covered in great detail many areas that are important to our shareholders and our customers alike, such as our environmental impact, greenhouse and other noxious gas elimination, our supply chain efforts, especially in cobalt, and our culture and people focus. We hope that by continuing to put this data out there, we will underscore to the world the importance and impact that we are having as a company. Lastly, continuous feedback and input from our shareholders is essential for us to do our jobs. And I would like to thank you for your support in this regard. Many of you have provided me and the team with ideas and insights that we as a Board take into consideration as we evolve our governance and company practices. It's especially crucial to the Board members as we pride ourselves in adaptability and the diversity of thought and experience that we collectively represent on the Board. This brings me to my final 2 things today. As today's his last shareholder meeting, on behalf of the Board, I would like to sincerely thank Steve Jurvetson for over a decade of service to Tesla, the Board and our shareholders. You will be missed. Finally, I would like to introduce to you our newest member of the Board, Hiro Mizuno, who, until recently, led the largest pension fund in the world. He brings a wealth of experience to the Board, but let me hand over to Hiro to say a few words. Hiro?

Thank you, Robyn. Ladies and gentlemen, welcome to Tesla Annual Shareholders Meeting. It is my real pleasure to virtually meet you, Tesla shareholders, people who believe in Tesla's mission and its growth opportunities. I spent all my career in finance and asset management in Tokyo, New York, London and the Silicon Valley. Until recently, I was a Chief Investment Officer of GPIF, $1.5 trillion Japanese public pension fund. And one of my priorities as an investment chief was to promote responsible investments, which aim to make financial returns while pursuing ESG agenda, such as environment and social issues. I believe in the market where ESG is becoming mainstream, purpose- or mission-driven businesses will gain long-term investor support. This is why I was interested in Tesla where our mission is to accelerate the world transition to sustainable energy. I'm very excited to join the Tesla team on that journey and hope to assist Tesla deliver what investors expect by further enhancing its environmental and social impact. Once again, Tesla shareholders, thanks for your support. I'm looking forward to seeing you in person next year. Thank you.

Thanks, Robyn and Hiro. I will now call the meeting to order. Please refer to the meeting agenda that has been provided to you and posted also to our virtual meeting site. The time is now 1:49 p.m. Pacific Time, and I declare that the polls are now open. We've already received voting proxies from stockholders over the past few weeks, meaning that almost all of the votes that will be counted were already submitted before the meeting. However, if you wish to vote now or to change your prior vote, you may do so through the virtual meeting site. For those that are here in person today, ballots and ballot boxes were available to you at check-in. Tesla's Board of Directors has appointed Computershare Trust Company to serve as inspector of elections for the meeting. Computershare has taken and signed an oath as inspector of election and has certified that starting on August 13, 2020, the proxy material or a notice of Internet availability of the proxy material were mailed or provided to all Tesla stockholders of record as of July 31, 2020. We have a majority of the outstanding shares represented at the meeting. So I declare that there is now a quorum present and that we may proceed with the meeting. The items on the agenda are as follows: the election of 3 Class 1 Directors: Elon Musk; Robyn Denholm; and Hiromichi Mizuno, to each serve for a term of 3 years; two, to approve Tesla's executive compensation on an advisory basis; and three, to ratify the appointment of PricewaterhouseCoopers LLP as Tesla's independent registered public accounting firm for the fiscal year of 2020. Tesla's Board has recommended that our stockholders vote for each of the director nominees and for each of those proposals. In addition, we have also received 4 stockholder proposals as described in the proxy statement. I would like to remind our stockholders that Tesla's Board has prepared a statement and opposition to each of these proposals, which appear in the proxy. The first stockholder proposal is an advisory vote regarding paid advertising. Our Board has recommended that our stockholders vote against this stockholder proposal. This stockholder proposal comes to us from James Danforth. However, Mr. Danforth has notified us that neither he nor his representative will be presenting the proposal at the meeting today. So we will continue. The second stockholder proposal is an advisory vote regarding simple majority voting and our governing documents. Our Board has recommended that our stockholders vote against this stockholder proposal. The proposal comes from James McRitchie, who is on the line to present the proposal today. Mr. McRitchie, I would like to invite you now to present. You'll have 3 minutes.

I'd like to thank the Board for holding such an innovative hybrid meeting during these difficult times. Proposal #5 basically asks for a majority voting standard to amend bylaws. I first introduced a proposal on this subject at the 2014 Tesla meeting. Supermajority provisions are generally used to entrench incumbent directors and managers. Academic research finds that reducing such devices is associated with higher returns. The Board's opposition statement argues they tried to adopt a majority standard last year, but shareholders rejected it. However, 99.6% of shares voted for the proposal. Only 0.4% voted against it. The problem was that a little more than 35% of shares went unvoted. The vast majority of retail shareholders often don't bother to vote. Since only 65% of shares were voted, we didn't achieve the 66.67% necessary to overturn the current supermajority bylaw. It appears the proposal failed primarily for 3 reasons: one, the Board put forth less than robust arguments in favor; two, they added confusion with another proposal to reclassify the Board, not into a single class, that's the norm, but into 2 classes, elected in alternating years; third, the Board also failed to make a substantial effort to solicit votes in favor. Also, please consider this proposal in context with other poor corporate governance provisions at Tesla. First, shareholders can only remove directors for cause. What that basically means is the director has to be caught in criminal activity for shareholders to remove them. Second, because the Board is divided into 3 classes, shares -- shareholders can only hold individual directors accountable every 3 years. And third, shareholders cannot call a special meeting nor can act by written consent. I hope you will agree, corporations should not be democratic-free zones. Vote for proposal #5 so that 33% of shares cannot overrule the wishes of 67%. Thank you.

Thank you, Mr. McRitchie. We'll now move on to our third stockholder proposal, which is an advisory vote regarding reporting on employee arbitrations. Our Board has recommended that our stockholders vote against this stockholder proposal. This proposal comes from Nia Impact Capital, whose representative, Kelly Hall, is on the line to present the proposal today. Ms. Hall, I'd like to invite you to go ahead and present. You'll have 3 minutes.

Hello. My name is Dr. Kristin Hull, and I'm the Founder and CEO of Nia Impact Capital. I formally move proposal 6. This resolution requests that Tesla's Board of Directors overseeing the preparation of a report on the impact of the use of mandatory arbitration on top of employees and on its workplace culture. The report will evaluate the association of Tesla's current use of arbitration with the prevalence of both harassment and discrimination in its workplace and on employees' ability to seek redress should harassment or discrimination occur. This proposal speaks to the widespread experience of discrimination in the workplace by black, Latinx and female employees despite this discrimination being unlawful under the Civil Rights Act of 1964. Tesla has faced a number of serious allegations of racism and sexism at its Buffalo and Fremont plants. Companies that allow bias, discrimination and harassment in their workplaces are at risk for unnecessary legal, brand, financial and human-capital issues. Support for this resolution is warranted for the following 5 reasons: one, research shows that companies benefit from diverse and inclusive workplaces; two, corporate policies that allow harassment and discrimination risk investors' capital; three, the use of arbitration exposes investors to an unknown level of risk; fourth, broad concerns exist with respect to fair treatment in Tesla workplace; and Tesla employees have alleged both harassment and discrimination on the basis of both race and gender. We think Tesla, a company investors love for its innovation, leadership and wide moat, is increasingly lagging behind its peers in its disclosure related to workplace diversity, equity and inclusion. Unlike the forward-thinking and innovation in its extraordinary product line, Tesla has not shown proactive leadership in building a positive company culture or in addressing concerns about its workplace practices. In these material issues, Tesla lags behind its technology and automotive competitors. The use of arbitration limits employees' remedies for wrongdoing, precludes employees from suing in court and often keeps underlying facts, misconduct or case outcomes secret and, therefore, preventing employees from learning about and acting on shared concerns. Simply stated, arbitration allows bad corporate behavior like bias, harassment and discrimination to continue, hidden from employees and investors. To maintain Tesla's wide moat, it is essential that the Board seriously assess the implications of the use of arbitration and that Tesla begin to seriously -- take seriously the need to ensure a fair, equitable, positive and inclusive workplace. Thank you.

Thank you, Ms. Hull. Our fourth and final proposal is an advisory vote regarding reporting on human rights. Our Board has recommended that stockholders vote against this proposal. This proposal comes to us from the Sisters of Good Shepherd New York Province, whose representative, Terrence Collingsworth, is on the line to present today. Mr. Collingsworth, I would like to invite you to speak now. You have 3 minutes for your proposal.

Thank you. I'm Terry Collingsworth, Executive Director of the International Rights Advocates. I'm here representing the Sisters of Good Shepherd New York Province to present Item 7 on human rights disclosure, which calls upon Tesla to issue a report to describe Board oversight of human rights and its human rights due diligence process, including systems to provide meaningful remedies when human rights impacts occur. Tesla faces serious human rights issues, and failure to establish a culture of respect for human rights will expose Tesla to new liability issues and significant reputational injury, all of which will have a material impact on the company and its shareholders. The need to set a new course for human rights compliance at Tesla is glaring. Here are 5 examples of human rights violations occurring now in Tesla's operations: racism, sexual harassment and disregard for human safety and dignity harm workers at the Gigafactory 2 in Buffalo, New York every single day, and those workers urge you to remember their experiences in your vote. Tesla has experienced serious labor-relations issues at its production facilities and is actively discouraging union organizing. Workers are being exposed to COVID-19 and then are facing retaliation when they ask for greater protections. There are numerous worker health and safety violations as well as wage and hour issues. And finally, there are serious, even deadly, human rights violations occurring in Tesla's global supply chains. On this last issue, my organization brought the pending suit against Tesla for using cobalt mined in the Democratic Republic of Congo by young children. I personally met young boys who lost limbs or were paralyzed in cobalt-tunnel collapses. Tesla sources cobalt from these very mines, and its claim to have "zero tolerance" for child labor in its supplier code of conduct is simply not true. Tesla is not only tolerating child labor in its cobalt supply chain. It is tolerating the death and maiming of young child miners. This demonstrates why the company must circle back and begin a process to report on its treatment of human rights issues as requested in this proposal. I think consumers will have zero tolerance for a company that is exposed as being indifferent to killing and maiming child miners. We are hopeful that Tesla's innovative spirit can be brought to bear on making human rights a priority at the company. For example, if Elon Musk cared about implementing a zero-tolerance child labor policy, instead of having a useless paper policy, Tesla could employ satellites or drones at every mine it sources from, to actually monitor child labor. I encourage all Tesla shareholders to vote for Item 7, human rights disclosure. Thank you for your attention.

Thank you, Mr. Collingsworth. At this time, I'd like to thank our stockholders for all their active participation in today's meeting and for those who are just presented on the line. I'd also like to read some of the comments that have been submitted by you over the course of the meeting. First comment comes from [ Michael Overbaugh ]. "I take great pride in the fact that we haven't had to stoop to the level of what advertising represents to get where we are today. I'd hate to give in to that kind of temptation now when we're so close to becoming a household name that's based solely on our merit alone. But if assets do end up having to be set aside for marketing, I'd like to suggest that rather than shoving ads down the customers' throats, we establish some sort of hard-core nationwide campaign and event, with the goal of getting as many people as possible behind the wheel of a Tesla for an introduction drive. It's well-known how far just doing that alone goes to converting people into fans. A line I recently ran across says, 'You can talk all about the specs as much as you want. But when it comes to buying a car, what ultimately puts butts in seats is the feeling that the vehicle gives you.' By demonstrating that Tesla clearly has both the specs and the feeling, what more needs saying?" Our second comment comes from the United Steelworkers, on behalf of the Clean Air Now Coalition of Western New York (sic) [ Clean Air Coalition of Western New York ] by [ Sabrina Lou ], proposal -- and it reads as follows: Proposals 6 and 7 up for vote this year are the results of widespread concern about mistreatment of Tesla workers at U.S. factories and across the supply chain. It's clear that Tesla is not interested in addressing the harm they have caused to their workers as their Board is advising shareholders to vote against the proposal. We're urging all shareholders to vote in favor of Proposals 6 and 7. And on behalf of our workers at the United Steelworkers here in Western New York and for Tesla employees across the country and across the global supply chain, while this doesn't repair the harm that's already been caused to countless employees nor repair harm to children and communities forced into slave labor in the DRC, they represent steps towards a more just workplace at Tesla." This concludes all of the comments. Thank you all for your participation in the comments. We'll now have a final opportunity for any of you to submit proxies in order for them to be counted. So I'll pause and wait for a moment for you to do that. [Voting]

Okay. I declare that the polls are now closed. So based on the proxies that we have previously received, I'd like to announce on a preliminary basis that our stockholders have approved the recommendations of Tesla's Board on all agenda items, other than the stockholder proposal for an advisory vote regarding simple majority voting in our governing documents. After the final tabulation is completed, we'll formally announce the results of the voting by filing a Form 8-K with the SEC within 4 business days of today. This now concludes the official business of Tesla's 2020 Annual Stockholders Meeting, which is now adjourned. Next, we will have a company update and a year-end review presented by Elon, and then we will start our Battery Day event. During the course of those following sessions, we may discuss our business outlook and make forward-looking statements. Such statements are predictions based on our current expectations. Actual events or results could materially differ due to a number of risks and uncertainties, including those disclosed in our most recent 10-Q filed with the SEC. These forward-looking statements represent our views as of today. They shouldn't be relied on after today, and we disclaim any obligation to update them after today as well. We will now continue with the company update and year-end review. And it's my pleasure to introduce Tesla Co-Founder and CEO, Mr. Elon Musk.

Hi, everyone. Well, I mean, this is definitely a new approach. We've got the Tesla drive-in movie theater, basically. It's good to see everyone. It's a little hard to read the room with everyone being in cars, but it's the only way we can do it. So hopefully, it's cool. And hopefully, you can hear me. Can you guys hear me? Okay. All right. Great. All right. Well, thanks for coming. I think it's been an incredible year, and I'd like to thank you for your support through tough times, good times. It's been great. I really appreciate everyone who's put their hard-earned money into Tesla. And I think it's worked out pretty well. This has been a good year, and I think there's many good years to come. So I'll go through the sort of the shareholder presentation, I think, fairly quickly because the sort of real main event here is Battery Day. So -- and really, I'm just going through a recap of what's happened over the past year or so. I think starting from -- in terms of our ability to create a factory, the -- huge kudos to the Tesla Shanghai team for being able to go from literally a dirt pile to volume production in 15 months. It's like -- yes. So -- and I think something that's really quite noteworthy here is Tesla is the only foreign manufacturer to have 100%-owned factory in China. So this is often not well understood or not appreciated. But to have -- the only 100%-owned foreign factory in China is a really big deal, and it's paying huge dividends here. So we really wouldn't have the results that we have had this year without the great efforts of the Tesla China team. So I'm super appreciative of that. And we'll see the Shanghai factory continue to scale quite a bit from where it is right now. I think we really could expect that to be, over time, a factory that produces over 1 million vehicles a year. Yes. It's cool. Yes. So let's see. So volume -- we also reached, in the past year, volume production of the Model Y, and this was the smoothest launch that we've ever had. So I think we're definitely getting better at new vehicle launches and building factories and scaling production. As you've heard me say before, it's -- the hardest thing is scaling production, especially of a new technology. It's insanely difficult. Making a prototype is relatively easy. And if I think of like what is the real achievement of Tesla in sort of car company terms, it's like -- it wasn't making sort of exciting prototypes. It was that Tesla was really the first company in about a century in the U.S., the first U.S. company in the U.S. to reach volume production and be sustainably profitable. Like those crazy things, this has really not happened in 100 years. That's the actual super hard part. And we now have 4 vehicles in volume production, S3XY. So also the toughest joke I think maybe ever -- it was a very difficult joke to make. So we also introduced the lowest-cost solar in the U.S. It's only $1.49 a watt. And we really just simplified the whole chain of -- the whole value chain, so reduced sales and advertising. We got rid of a bunch of unnecessary costs and, really, are just relying upon the fact that it's just the lowest cost, most efficient solar in the U.S., providing both retrofit and the solar glass roof, which I think is a really great product. A hard product to make work, but it will be a major product line in the future. And we also got 4 consecutive quarters of GAAP profitability, which is -- was very difficult. Yes. So -- and certainly, a testament to the hard work of people at Tesla. I mean to do this in extremely difficult times against a wide range of adverse circumstances was insanely hard, but we got it done. So -- and I think we've -- the future is looking like, I think, very promising from a sort of an annual profitability standpoint. So in order to achieve -- in order to sort of do well financially, you really need economies of scale, and you need ideally the best technology. And I think we had the best technology for a while, but now we are also achieving economies of scale. So -- and we're also rapidly improving autonomy, which is a massive value-add to each car. So I think the value of Tesla is going to be like total -- just on the vehicle side, total vehicles produced, times the value of autonomy. That's a way to think about the future value of Tesla. We also have consistent free cash flow generation. This is really important for growth, and a key element here is tightening up the time from when a car is ordered to when it is built and delivered. So for a company that's growing rapidly, it's extremely important to tighten the supply chain and to have -- from when parts arrive, put it into a car very quickly and deliver the car very quickly to the customer. And if you can do that inside the sort of your kind of payables time line, then the faster you grow, the more cash you have. Or conversely, if you're unable to do it within your payables time line, the faster you grow, the less money you will have, which is obviously bad. It's for capital-intensive situation. So just tightening up and having the parts move very quickly to the factory, put it in a car, get it to a customer makes a massive difference to cash flow generation. And I mean that's why it's extremely important to have a factory in each continent because if you don't at least have a factory in the continent, it is impossible to achieve this. So having a factory in China that's able to serve China and then, soon, many other countries in the region will be key to us tightening that total sort of chain of cash flow and getting -- essentially, the faster we grow, the more cash. This is really important. That's also why it's important to have Giga Berlin complete because then we'll have a factory in China, a factory in the U.S. -- and soon, a second factory in the U.S. in Austin and a factory in Europe. And I mean even if you -- for Giga, Texas, in Austin, even if we had exactly the same cost as in California, it would still be advantageous to do it there because it's roughly 2/3 away across the U.S. So in terms of delivering cars to the Central U.S. and to the East Coast, it's just faster and costs less. And it fundamentally improves our economics. So I think this is also maybe something that's not fully appreciated of just how important it is to have a factory at least on the continent or reasonably close to where the end customers is. So you can tighten that whole chain. Industry performance. While the rest of the industry has gone down, Tesla has gone up. I think this speaks to -- thanks. And so I'd like to thank all the customers for taking a chance on Tesla and buying our product and really hope you're enjoying it. This is really -- our sales, as Al was saying, really grow by word of mouth. So this is really, I think, a very pure -- it's very pure in the sense that it's like it's growing on the basis of existing owners recommending it to new customers. This is really, I think, a good way to grow. So -- and then in 2019, we had 50% growth. And I think we'll do really pretty well in 2020, probably somewhere between 30% to 40% growth, despite a lot of very difficult circumstances. I mean there's so many -- pandemic, wildfires, like a whole bunch of difficult production issues. But thanks to the hard work of the Tesla team and a lot of innovative approaches to overcoming issues, we're able to still see significant growth in one of the most difficult -- in fact, I'd say probably the most difficult year of Tesla's existence. So -- and we also published our extended impact report. At Tesla, we try very hard to do the right thing. If the right thing does not happen, it's just because we may be made a mistake or weren't aware of it. But we always try to do the right thing as -- to the best of our ability. And then we published the extended impact report to show just a sort of a self-examination of, okay, what are we doing right? What are we doing wrong? What can we do better in the future? We're definitely trying to accomplish the most good. And so if we occasionally make a mistake, we work quickly to fix it and do the right thing. So it's worth looking at like the average life-cycle emissions in the U.S. and just how much better a Tesla is than -- or an electric car than any other -- any kind of gasoline car. And what we'll talk about in the Battery Day is also just how much the grids around the world and actually, especially in the U.S., are greening. It's actually much faster than I think people realize. The U.S. is moving towards sustainable energy. And so as we move more and more to sustainable energy, then effectively, you end up building the solar factories and the car factories themselves with solar. Over time, you do -- or with sustainable energy. Over time, you'll even mine with sustainable energy, and eventually, it will get to an effective emissions of 0. So that's where things will end up. Yes. So we also have safety at the core of our design. The Tesla cars are the safest cars ever designed. We have the lowest probability of injury of any cars ever tested by the U.S. government, and that's just passive safety. When you add active safety into that, it's even better. So it's really -- if you -- if safety is important to you, which obviously it is, the safest car you could drive is a Tesla. So I think people are sort of unaware of this, but it's really safety is paramount. It is actually the #1 design objective when we build a Tesla is safety. Our factories are also becoming safer. And if you look at the sort of accidents per vehicle -- total vehicle made, it's dramatically better than in the past, and it's already better than industry average. And we're confident we can get it to the best in the auto industry. Autopilot functionality continues to improve. And you can see it in the safety report that we publish every quarter. It's just getting better and better. The U.S. average for collisions is roughly 2.1 per million miles. And with Autopilot engaged, it's 0.3. I mean this is a profound difference, really massive. And this will get even better. So we're confident that over time, we can get the probability of an accident, especially the probability of injury, to 10x better than the industry average, like an order of magnitude better. So that's just a lot of lives saved and a lot of injuries avoided. So that's a huge priority for us. And on Autopilot front, I think it's kind of hard for people to judge the progress of Autopilot. I'm driving -- as a matter of course, I've always done this, I drive the bleeding edge alpha build of Autopilot. And so I sort of have insight into what is going on. And previously, about a couple of years ago, we're kind of stuck in a local maximum. So we're improving, but like the improvements kind of started tailing off and just not getting where they needed to be. We're quite -- of course, also getting trapped in a local maximum. And so we had to do a fundamental rewrite of the entire Autopilot software stack and all of the labeling software as well. So we're now labeling in 3D video. So this is hugely different from the previously where we were labeling essentially a bunch of single images from the 8 cameras, and they'll be labeled at different times by different people. And some of the labels, you literally can't tell what it is you're labeling. So it basically made it sort of, in some cases, impossible to label, and the labels had a lot of errors. Now with our new labeling tools, we label it in video. So we actually label entire video segments, and the system -- so you get basically a surround video thing to label and -- with surround video and with time. So it's now taking all cameras simultaneously and looking at how the images change over time and labeling that. And then the sophistication of the neural nets in the car and the overall logic in the car has improved dramatically. I think we'll hopefully release a private beta of Autopilot -- of the full self-driving version of Autopilot in, I think, a month or so, and then people will really understand just the magnitude of the change. It's profound. So yes. Anyway, so you'll see it. It's just like a hell of a step change. But because we had to rewrite everything, labeling software, just the entire code base, it took us quite a while. And the sort of new sort of, I call it like 4D in the sense that it's 3 dimensions plus time. It's just taken us a while to rewrite everything. And so you'll see what it's like. It's going to be -- it's amazing. Yes. It's just -- it's clearly going to work. In Tesla, the core competencies, we've got engineering obviously. We're also manufacturing. I think manufacturing is underappreciated in general. And the difficulty of designing the machine that makes the machine is vastly harder than the machine itself. So the designing -- like making a Model 3 or Model Y or a Cybertruck prototype is really quite trivial compared to designing the factory that makes it, especially if it's a new technology and you want to use new manufacturing methods. It's just at least 10 to 100x harder to do the factory than the prototype. And that's why you see a lot of companies out there or start-ups, they'll bring out a prototype, but they just can't get it over the hump for manufacturing because manufacturing of new technology, especially, is the hardest thing by far. Like basically, the prototype is somewhere -- is at best 10% of the difficulty and probably closer to 1%. And then software. Tesla is both a hardware and a software company. So a huge percentage of our engineers are actually software engineers. And you can think of our car as kind of like a laptop on wheels. And so software is incredibly important. And so -- and not just actually -- not just in the car, but also in the factory. So the factory software is extremely important. Just software in general. I mean these are fundamental. These are the 3 critical areas that are needed to make for an awesome company. So yes. So we have -- now we'll soon have 3 new factories, incremental, on -- well, we have 1 already on 3 different continents. Shanghai, we're expanding the Shanghai with a second phase. Berlin is making rapid progress. And Texas is making even faster progress. So yes. With each factory, what we're trying to do is also improve the manufacturing technology. So it's -- in some cases, like the Model Y made in Berlin might look the same, but it actually is made in a much more efficient way. And yes, we'll talk about that later in the battery presentation. Yes, launched Megapack, it's 3-megawatt hours, all-in-one energy storage solution. So it's been great overall. Yes. All right. And I think that's basically it, right? All right. Thank you. Okay. All right. Well, thanks, everyone, for coming, and we'll be back in a little bit to go through the battery stuff. And there's a little bit more -- in addition to the battery stuff, we've got a little few extras as well. So I think you'll really like what we have to say on batteries. The battery stuff we're going to talk about is truly revolutionary and essential to Tesla's goal. The fundamental good of Tesla is like, if you look back in history and say, what good do Tesla do? The good will be to what -- by how many years did we accelerate sustainable energy. That's like the true metric of success. It matters if sustainable energy happens faster or slower. And so that's really like how I think about Tesla and how we should sort of assess our progress, by how many years did we accelerate sustainable energy? And what we're going to talk about with batteries and a few other things will really explain how we're going to make a step-change improvement in the acceleration of sustainable energy. Thank you.

Hi, folks, that was great. We're going to take a short break before we begin the Battery Day event. So stay tuned. If you're local and here in the audience today, you can feel free to get out of the cars and stretch your legs, but try to stay near the cars because we're going to begin promptly in a little bit. See you soon. [Break]

All right. So…

Hello, everyone.

Great. Should we start?

Sure. Thanks, Elon. Hi. I'm Drew Baglino, SVP of Powertrain and Energy Engineering at Tesla, and I'm incredibly excited to talk about what we've been doing with batteries here at Tesla.

Great. So let's see, you've got the clicker?

Yes. I've got the clicker, yes.

Okay. Let's -- yes. I'll take it first, perhaps.

Sure.

So obviously, the issues we're facing are very serious with the climate change, and we're experiencing these issues on a day-to-day basis. It's incredibly important we accelerate the advent of sustainable energy. Time really matters. This presentation is about accelerating the time to sustainable energy. So the past 5 years were the hottest on record. We have what looks like a wall for CO2 ppm. It's obviously -- this time is not like the past. It's really important that we take action. Running this climate experiment is insane. So…

Especially when it's just a transitory one, anyway.

Yes.

We're going to run out of these fossil fuels. Let's just move to the future and not run this experiment any longer.

Yes. Talk a bit louder.

You got it.

Okay. So anyway, the -- so there is a lot of good news, though. The -- what -- a lot of people may not be aware, that wind and solar comprise 75% of new electricity capacity in the U.S. this year. So this is a really major -- so the grid is going sustainable very quickly. Now it's also worth noting that the length of time that power plants last is on the order of 25 years. So even if 100% of energy generation was sustainable, it would still take 25 years to convert the grid. And it's also worth noting that in the past 10 years, power production from coal has dropped in half. So it went from 46% of electricity in 2010 to 23% in 2020. So this is a massive improvement. So good things are happening on a lot of levels. We just need to go faster. So in terms of Tesla's contribution, we've delivered over 1 million electric vehicles, 26 billion electric miles driven, and many gigawatt hours of stationary batteries, 17 terawatt hours of solar generated. So I think solar's sometimes underweighted at Tesla, but it is a massive part of our future. The 3 parts of a sustainable energy future are sustainable energy generation, storage and electric vehicles. So we intend to play a significant role in all 3. So to accelerate the transition to sustainable energy, we must produce more EVs, they need to be affordable, and a lot more energy storage, while building factories faster and with flawless investment. So goal #1 is a terawatt-hour-scale battery production. So tera is the new giga. And a terawatt is 1,000x more than a gigawatt. So we used to talk in terms of gigawatts. In the future, we'll be talking in terms of terawatt hours. So this is what's needed in order to transition the world to sustainability.

Yes. And you can see it's -- we're talking about 100x growth in batteries for electric vehicles to achieve this mission. And we are going to get there. It's just a matter of how fast. And our intention is to accelerate it.

Yes. You basically need on the order of roughly 10 terawatt hours a year of battery production to transition the global fleet of vehicles to electric.

And the average vehicle lasts 15 years. So we're talking about 150 terawatt hours, give or take, to try and transition the whole electric -- all vehicles of all types to electric.

Yes. So it's a lot of batteries, basically. And -- yes. So…

And then on the grid side, we have a similar mountain to climb, 1,600x growth from today's grid batteries to go 100% renewable on the grid and to take all of the existing heating fossil fuel uses in homes and businesses 100% electric.

Yes. And this number, I think, might grow even more. As the world economy matures and as countries with high populations industrialize, we could see this number be even more. But let's say it's like roughly 20 to 25 terawatt hours per year sustained for 15 to 25 years to transition the world to renewable. This is a lot.

Yes.

So today's batteries can't scale fast enough. They're just too small. For Giga Nevada, 150 gigawatt hours per year is like what we probably expect to make out of there, but this is really pretty small in the grand scheme of things. That's only 0.15 terawatt hours. And they cost too much. So…

We would need 135 fully built out Nevada Gigafactories to achieve 20 terawatt hours a year. It's not scalable enough of a solution. We need a dramatic rethink of the cell manufacturing system to scale as fast as we can and should.

Yes. And I think we should view this as more than just a question of money. Money is sort of like a material thing, but it's really the amount of effort. You have a certain amount of effort in terms of people and machines. And depending on how efficient that effort is, for a given amount of effort, you want the most amount of batteries. So it's not just a question of like, well, if we had $2 trillion, tomorrow, you could make this. It's not that easy. You actually need to organize a massive number of people, build a lot of machines, build the machines that make the machines. And so it's incredibly important to have that effort yield the most number of batteries. So -- and then goal 2, obviously we need to make more affordable cars. The -- I think one of the things that troubles me most is that we don't yet have a truly affordable car, and that is something that we will make in the future. But in order to do that, we've got to get the cost of batteries down. We've got to make -- and we've got to be better at manufacturing, and we need to do something about this curve. The curve of the cost per kilowatt-hour of batteries is not improving fast enough. So we've given this a lot of thought over many years to say, okay, how can we radically improve the cost per kilowatt-hour curve? It's been somewhat flattening out actually in the years. So as…

Yes. I mean early growth was promising, but you can see we're kind of plateauing. So that's what's motivating us to rethink how cells are produced and designed.

Yes. Exactly. So yes -- and EV market share is growing, but EV is, yes, are -- still aren't accessible to all. It's -- and you can see, as Drew was saying, so it's starting to flatten out a little bit because the rate of improvement of the affordability of cars is just not fast enough. So that's why we've got Battery Day.

Yes. To make the best cars in the world, we design vehicles and factories from the ground up.

Next?

Yes. And now we do this for batteries as well. It's weird though. The slides don't show up quite right in here.

This -- what shows up in the screen is not quite what shows up there.

Okay.

It's different.

Yes. I think it's because that's…

That one is current -- supposed to be current. All right.

So let's get started. We have a plan to have the cost per kilowatt-hour.

Yes.

And it's not a plan that rests on a single innovation, some research project that will never see the light of day. It's a plan that has taken creative engineering and industrialization across every facet of what makes a cell into a battery pack from raw material to the finished thing. And we're going to go through that plan with you today step-by-step and build up how we get to these goals and how we accelerate this transition and make our vehicles and our grid batteries more affordable.

Yes. I mean we basically thought through every element of the battery -- almost every element. There are a few more elements that we won't get to today, but we will get to in the future.

Yes. So first, before we get too far into it, let's talk about what is in a battery cell. We've got the cap and the can, negative and positive terminals of the cell. When you open that cell, you've got a tab connected to those terminals, what we call the jelly roll, which is the wound electrodes on the inside. You can actually see what this looks like as you unwind it. This is over a meter long in a typical 2170 cell. So it's quite a long winding process. And you can see the tab's still there. And then to explain what's actually going on here, we've identified -- we've got anode, cathode, separator, positive and negative terminal. Watch what happens as we -- there we go, discharge the cell, got lithium moving from anode to cathode. And then the reverse when we charge the cell, anode moving from -- lithium moving from cathode to anode across the separator. This is the basic of what makes all lithium-ion batteries, whether they're -- no matter what the form factor is. And when we look at what -- what's happened today, at least in our products, we move from 18650 form factor to the 2170 form factor through great collaboration with our partners, Panasonic, new partners like LG and CATL and probably others in the future.

Yes. Actually, so a slight note on why is the one called the 18650, although not on the slide, versus the 2170 is that the first 2 digits refer to the diameter and the second 2 digits refer to the length. So that helps explain why are these weird -- what's up with these weird numbers. But like nobody could explain to me why there was extra 0. So I said like, hey, we're deleting the 0 that nobody can explain in future form factors. So that's why it's technically it's like the 18650, bizarrely, but going forward, it's the 2170 because we just got rid of the extra 0 because it's pointless.

And this was a evolutionary step going from 1865 to 2170, bringing 50% more energy into the cell. But when we look to the ideal cell design, if we were to do it ourselves, we need to go beyond just what we're looking at us in front of us and study the full spectrum of options. So as you can see, we kind of swept the key figures of merit, how much we can reduce the cost and how much vehicle range increases as we change the outer diameter of the cell. We found a sweet spot somewhere around 46 meters -- millimeters. But it's not just about a bigger form factor, like anybody can make a bigger form factor.

Any fool. Any fool could make a bigger form factor. Though we're not any fool.

Yes. Exactly. There are problems as you make cells larger. In fact, supercharging and thermals in general become really challenging as you make bigger cells. And this was the challenge that our team set our sights on to overcome. And we did. We came up with this tabless architecture that maybe you've heard about that basically removes the thermal problem from the equation. It allows us to go to the absolute lowest-cost form factor and the simplest manufacturing process. And this is what we mean when we talk about tabless. It's kind of a beautiful thing.

Yes. So that's what these T-shirts mean, but it's very esoteric. I think nobody could figure it out. But…

Yes. We basically took the existing foils, laser patterned them and enabled dozens of connections into the active material through the shingled spiral you can see with simpler manufacturing, fewer parts, 50-millimeter versus 250-millimeter electrical path length, which is how we get all the thermal benefits.

Yes. This is important to appreciate. Like basically, the distance that, that electron has to travel is just much less. So you actually have a shorter path length in a large tabless cell than you have in the smaller cell with tabs. This is a big deal. So even though the cell is bigger, it actually has more power. The power-to-weight ratio is actually better than the smaller cell with tabs. This is -- again, like this is quite hard to do. So it's -- nobody's done it before. So -- and it really took a tremendous amount of effort within Tesla engineering to figure out how do we make a freaking tabless cell and have it actually work and to connect that to the top cap, and it's -- there's a whole bunch of things that we're keeping a little secret sauce here that we're not telling everything. But…

Sometimes, what's elegant and simple is still hard. And we -- it took us a lot of trials, but we're happy where we ended up.

Yes. I mean everything's simple in recollection, after you -- everything -- it's hard until it's discovered, and then it's simple. So anyway, there's a lot of really cool things going on that enable tabless. And that's really due to a really great engineering team, Drew, and the rest of the team have done amazing work in achieving this tabless construction. And it sounds -- I think it may sort of sound a bit silly to some people, but this was -- this is like if you like really know cells, this is a massive breakthrough.

For cylindricals, to be able to get rid of the tabs dramatically simplifies winding and coding and has an awesome thermal and performance benefit.

Yes. Just to elaborate on that a bit. It's like when the cell is going through the system, it has to keep stopping where all the tabs are. So you can't do continuous motion production if you have tabs. You have to keep stopping. And then there's a rate at which you can start and stop and accelerate again, and it really slows down the rate of production. And then sometimes you get the tabs wrong, and you also get -- lose a little bit of active area. It's really a huge pain in the a** to have tabs from a production standpoint.

Yes. And so when we put it all together and go to our new 80-millimeter length, 4680 we call this new cell design, we get 5x the energy with 6x the power and enable 16% range increase just form factor alone.

Yes. So the -- yes. It's pretty great. And just to clarify that when we say these plus 16% or whatever the percent of range increases, these are the amounts due just to that particular innovation.

Yes.

So we'll list a whole bunch of innovations. And then when you add them up, you get a total improvement in energy density and cost. But these numbers are what refer to just this thing.

Yes. And I want to stress, this is not just a concept or a rendering. We are starting to ramp up manufacturing of these cells at our pilot 10-gigawatt-hour production facility just around the corner.

Yes. So video of some of what's going on in the plant. Now I mean to be clear, it will take about a year to reach the 10-gigawatt-hour capacity. So this is important to appreciate. Like when you build a factory, there's a certain capacity that you design to, and then it takes some period of time to actually achieve that capacity. So I would say it's probably about a year before we get to the 10-gigawatt-hour annualized rate with the pilot plant. And this is just a pilot plant, but the actual production plants will be more on the order of maybe 200 gigawatt hours, maybe more over time.

And thank you. But let's stack up everything we just saw at the cell level. So just the cell form factor change enables a 14% dollar per kilowatt-hour reduction, just that cell form factor change. And now that you've been teased on this factory, we're going to go on and walk step by step through that factory and discuss a series of innovations there. When thinking about the ideal cell factory, we have inspirations behind us in the paper and bottling industry, where, from humble beginnings, over a century of innovation has enabled mass scale, continuous motion, unbelievably low manufacturing cost. And when we think about the lithium-ion industry, which is really only in its third decade of high-volume production, it has so far to go to achieve similar scale and simplicity. And that was the inspiration that we set out to the team as we thought about how to marry cell design and manufacturing in the best possible factory. And let's talk a little bit about what's in a cell factory. First, there's an electrode process where the active materials are coated into films, onto foils. Then those coated foils are wound in the winding process we just talked about, where if you do have tabs, you have to start and stop a lot. Then the jelly roll is assembled into the can, sealed, filled with electrolyte and then sent to formation where the cell is charged for the first time and where the sort of the electrochemistry is set and the quality of the cell is verified. And we set out, at every step of this process, to try to take that inspiration we just showed and think about how we make those processes fundamentally better and more scalable. And one of the most important processes is where it all begins, the wet process of the electrode coating. And just to give you all a sense of scale, I'm going to walk through what's in that wet process. You've got mixing where the powders are mixed with either a water or a solvent -- solvents for the cathode. That mix then goes into a large coat-and-dry oven where the slurry is coated onto the foil, huge ovens, tens of meters long, dried and that solvent then has to be recovered. You can see the solvent recovery system. And then finally, the coated foil is compressed to the final density. And when you're looking at this, you're like, wow, that's a lot of equipment for one step, especially when you consider that little spec next to the coating oven is a person. This is serious, serious iron involved in making batteries. Wouldn't it be great if we could skip that solvent step, which is one of those dig a ditch and then fill it kind of things where you put the solvent in and then take it out and recycle it, and just go straight to dry mix to coat. And that's what the dry process really is about. And in the most basic form, you can see it here on a benchtop, literally, powder into film, as simple as that.

I mean it's hard, actually, just to be clear. So if this was easy, everyone would do it. So it's not like dry coating electrode is actually easy. It's actually very hard to do what appears to be a simple thing. And it's worth noting like we did acquire Maxwell. It was like a little over a year ago, I guess, and it's certainly a good company and everything, but the dry coating they had was like -- it's like sort of, I would call, proof of concept. Since the acquisition, we have actually ramped the machine that does dry coating 4x, so when -- revision 4 post-acquisition of the machine. And there's still a lot of work to do. So I would not say this is like completely in the bag. There's still a lot of work to do. And as you scale, go from like benchtop to lab to pilot to volume production, there are actually major issues that you encounter at every level. It's not like you make something -- work on your bench and bingo, now you can make a bazillion of it.

Absolutely.

It's insanely difficult to scale up. Yes.

Yes. But if you do scale it up, what you saw before becomes this. So you could see the motivation, a 10x reduction in footprint, a 10x reduction in energy and a massive reduction in investment. But as Elon was saying, simple is hard.

Yes. I mean to be clear, I would like to not say that right now it's just totally working. It's close to working, but it's not -- even now, at the pilot-plant level, it is close to working. All I say -- okay, it's fair to say probably it does work but with not a good -- with not a high yield. So…

Yes. We're still ironing out the kinks, but we've made tens of thousands of cells, thousands of kilometers of electrode. I mean we are on the fourth generation of the equipment, so we've learned a lot along the way. I mean it is super demanding because every atom has its place if you want to deliver the energy density and the cycle life and the supercharging. But we're confident that we will get there, but it will be a lot of work along that.

There's a clear path to success but a ton of work between here and there.

Yes.

So -- but this is a really profound improvement. Again, for people that know battery manufacturing, this is gigantic. We'll probably be on machine revision 6 or 7 by the time we do large-scale production. The rate at which the machines are being improved is extremely rapid. Like literally every 3 or 4 months is a new rev.

Yes. And beyond the electrode, we continue to innovate on every other process step. So let's talk a little bit about assembly, which is next. The key to a high-performing assembly line is accomplishing processes while in motion, continuous motion. And thinking of the line as a highway, max velocity down the highway, no start and stop, no city driving.

Yes. Definitely. No stoplights and traffic lights or anything. You want the highway.

You want the highway.

Yes.

And together with our internal design team that makes this equipment and designs this equipment, we coupled thinking about how to make the best cell. We're thinking about how to make the best equipment so that we could accomplish the fastest parts-per-minute rates on all of these tools. And through all of that development, we were able to get to the point where we can implement assembly lines, 1 line, 20 gigawatt hours, 7x increase in output per line. And when you're thinking about scalability and pure effort, having 1 line be 7x the capability is just effort multiplying.

Yes. You can sort of think about like the sort of the fundamental physics of a factory or something like -- I think it's actually quite a lot like the rocket equation, where you've got -- basically in the rocket equation, you've got your exhaust velocity and then the log of the start to end masses. So it's basically saying how fast are things going and what percentage of your -- the factory volume is doing useful work. And conveyance does not count as useful work. So…

Only the value-added steps.

Yes. If you break the factory down into cubic meter sections, and say -- or small, it could be like 1-liter sections, and say, "Is a majority of this volume doing useful work?" You'd be astounded at how bad most factories are. They're like maybe 2% or 3%, including our factory in Fremont. So I think it's possible to get to at least 10x that of volumetric efficiency. So more like 30 percent-ish, maybe more and be 10x better, which means the factory can be 10x smaller. And then the other thing is how fast are things going through the factory. It's like speed and density. The faster you go -- like a factory that's moving, let's say, twice the speed of another factory is equivalent to 2 factories, basically, and the company that will be successful is a company that with 1 factory can accomplish what other companies take 2 or 3 or 4 factories to do. So this is what we're trying to do here, is say, okay, how do we, with 1 factory, achieve what maybe 5 or even 10 factories would normally be required to achieve.

And the vertical integration with the machine design teams at Grohmann and Hibar and others allows us to really accomplish that because we don't have all these edge conditions between one piece of equipment and another. We can design the entire machine to be one machine and remove all of these unnecessary steps.

Yes. I mean basically, Tesla is aiming to be the best at manufacturing of any company on earth. This is the thing that's actually most important in the long run. I think just from a company standpoint and from basically achieving sustainability as fast as possible, but I think also for long-term competitiveness, eventually, every car company will have long-range electric cars. Eventually, every company will have autonomy, I think, but not every company will be great at manufacturing. Tesla will be absolutely head and shoulders above anyone else in manufacturing. That is our goal.

Manufacturing is hard, and hard problems are fun to solve.

Yes.

Okay. Now let's talk about formation. In a typical cell factory, formation represents 25% of the investment. And what is formation? It's charging and discharging cells and verifying the quality of the cell. Turns out, we've charged and discharged billions and billions of cells in our vehicles. So we know a thing or 2 about that. The typical formation setup is you charge and discharge each cell individually. In our car, we charge thousands of cells at once. And we took our principle and our power electronics leveraging Powerwall vehicle battery management systems and others to dramatically improve the formation equipment cost-effectiveness and density. 86% reduction in formation investment, 75% reduction in footprint. Do you want to take this one?

Sure. So essentially, what this translates to, based on what we know today, is about a 75% reduction in the investment per kilowatt-hour or gigawatt hour. It's just basically 4x better than the current state of the art to the best of our knowledge. And I think there's probably room to improve even beyond that.

Definitely.

Definitely, yes. So we're able to, from a volume standpoint, actually get what -- in a smaller form factor than Giga Nevada, we were able to get many times the cell output. So you can see like, basically, we can get a terawatt hour in less space than it took to make a gigawatt hour, 150 gigawatt hours. So this is pretty profound. Like I would actually not have thought this was possible several years ago that we could actually get to terawatt-hour scale in less space than what we currently envisioned for doing 150 gigawatt hours.

Yes. Simpler accelerates terawatt-hour scale, and that's what we need to do to accelerate our mission. And as Elon said, we're going to try to even improve on this as we push towards our goals, which are…

Yes. So this is just for -- just talking about Tesla internal cell production. As I tweeted out earlier, we will continue to use our cell suppliers, Panasonic and LG and CATL. And so this is 100 gigawatt hours supplemental to what we buy from suppliers. And yes, essentially this does like reduce our weighted average cost of a cell because of -- but it does -- it allows us to make a lot more cars and a lot more stationary storage. And then long term, we're expecting to make on the order of 3,000 gigawatt hours or 3 terawatt hours per year. I think we can -- I think we've got a good chance of achieving this actually before 2030, but I'm highly confident that we could do it by 2030.

When you look at the size of that factory on the previous page, it really shows how enabling all these advancements are in achieving a 3-terawatt-hour goal by 2030. And not only is all of that manufacturing innovation fantastic for enabling scale, it's also an additional 18% reduction in dollar per kilowatt-hour at the battery-pack level.

But wait, there's more.

But wait, there's more.

Yes.

So we have a manufacturing system. We've got a cell design. What are the active materials we're going to put in that cell design? Let's talk about the anode first. Let's talk about silicon. Why is silicon awesome? It's awesome because it's the most abundant element in the earth's crust after oxygen, which means it's everywhere. It's sand.

Yes. Sand is silicon dioxide.

Yes. And it happens to store 9x more lithium than graphite, which is the typical anode material in lithium-ion batteries today. So why isn't everybody using it? The main reason is because the challenge with silicon is that it expands 4x when fully charged with lithium. And basically, all of that expansion stress on the particle, the particles start cracking. They start electrically isolating. You lose capacity. The energy retention of the battery starts to fade, and it also gums up with a passivation layer that has to keep reforming as the particles expand.

Yes. Basically, with silicon, the cookie crumbles and gets gooey. That's basically what happens.

Good analogy. And current approaches to solve this, which exist, I mean we have silicon in the cars that you're all in right now, are -- involves highly engineered expensive materials, in the scheme of things. Now they're still great, and they enable some of the benefits of silicon. They just don't enable all of it, and they're not scalable enough. And you can see some of the things that maybe you've heard of, SiO, silicon with carbon or silicon nanowires. That's kind of the space right now. What we're proposing is a step change in capability and a step change in cost. And what that really is, is to just go to the raw metallurgical silicon itself. Don't engineer the base metal. Just start with that and design for it to expand in how you think of the particle and the electrode design and how you coat it.

Yes. I'm not sure if you saw this, basically $1 per kilowatt-hours. Basically, if you can use simple silicon, it's dramatically less than even the silicon that is currently used in the batteries that are made today. And you can use a lot more of it.

The anode would cost -- yes, with the silicon, the anode costs $1.20 a kilowatt-hour.

Yes.

And how does it work? Start with raw metallurgical silicon. Stabilize the surface with an elastic ion-conducting polymer coating that is applied through a very scalable approach, no like chemical vapor deposition and no highly engineered, high CapEx solutions. And then integrate it into electrode through a robust network formed out of a highly elastic binder. And in the end, by leveraging this silicon to its potential, we can increase the range of our vehicles by an additional 20%, just this improvement.

Yes, it gets cheaper and longer range.

Yes. And when we take that anode cost reduction, we're looking at another 5% dollar per kilowatt-hour reduction at the battery pack level. And there's more. Let's talk about cathodes. What is a battery cathode? Cathodes are like bookshelves, where the metal, the nickel, the cobalt, the manganese or aluminum is like the shelf, and the lithium is the book. And really what sets apart these different metals is how many books of lithium they can fit on the shelves and how sturdy the shelves are. Cobalt is a…

Sorry, I was going to say, like, it's tough to exactly figure out what the right analogy is to explain cathode and anode. But a bookshelf is probably a pretty good one in the sense that you need a stable structure to contain the ions. So you want a structure that does not crumble or get gooey or basically that holds its shape, both the cathode and the anode. As you're moving these ions back and forth, it needs to retain its structure. So if it doesn't retain its structure, then you lose cycle life and your battery capacity drops very quickly.

Absolutely. Yes. I totally agree. And I think people are always talking about, like, oh, what's the cathode going to be? Is it NCA or whatever? The thing to consider is just fundamentally what the nickel -- the metals are capable of, and that's what we have on the chart here. Dollar per kilowatt-hour cathode of just metal, using just LME, London Metal Exchange, prices versus the energy density of just the cathode. And you can see, nickel is the cheapest and the highest energy density. And that's why increasing nickel is a goal of ours and really everybody's in the energy and the battery industry. But one of the reasons why cobalt is even used at all is because it is a very stable bookshelf. And the challenge with going to pure nickel is stabilizing that bookshelf with only nickel. And that's what we've been working on with our high-nickel cathode development, which has 0 cobalt in it, leveraging novel coatings and dopants, we can get a 15% reduction in cathode dollar per kilowatt-hour.

Yes. Thank you.

But it's not just about nickel. You want to?

Yes, sure. So in order to scale, we really need to make sure that we're not constrained by total nickel availability. I actually spoke with the CEOs of the biggest mining companies in the world and said, "Please make more nickel. It's very important." And so I think they are going to make more nickel. But there's also -- I think we need to have a kind of a 3-tiered approach to batteries. So starting with iron. That's kind of like a medium range and then nickel manganese as sort of a medium-plus intermediate and then a high nickel for long-range applications like Cybertruck and the Semi. Yes, something like a Semi truck, it's extremely important to have high energy density in order to get long range. So -- and just to give sort of iron a bit more time, like the -- although the -- if you look at the watt-hours per kilogram at the cathode level of iron, it looks like nickel is twice as good. But when you fully considered at the pack level, everything else taken into account, nickel was about maybe 50% or 60% better than iron. So iron is not -- is a little better than it would seem when you look at it at the pack level fully considered. It's not as good nickel. Nickel is like 50% to 60% better, but it's still -- it's actually pretty good. And so good for stationary storage and for medium-range applications where energy density is not paramount. And then like I said, for intermediate, it's kind of a nickel manganese, and it's relatively straightforward to do a cathode that's 2/3 nickel, 1/3 manganese, which would then allow us to make 50% more cell volume with the same amount of nickel.

And with very little energy trade-off. I mean just enough to have you still want to use 100% nickel for something like a Semi truck but really not much of a sacrifice.

Yes.

And beyond the metals, because a lot of people spend time talking about the metals, actually, the cathode process itself is a big target. 35% of the cathode dollar per kilowatt-hour is just in transferring it into its final form. And so we see that as a big target, and we decided to take that on. Here's a view of the traditional cathode process. Effectively, if you start at the left and you have the metal from the mine, the first thing that happens is the metal from the mine has changed into an intermediate thing called a metal sulfate because that's just happened to be what chemists wanted a long time ago. And then when you're making the cathode, you have to take this intermediate thing called metal sulfate, add chemicals, add a whole bunch of water. A whole bunch of stuff happens in the middle, and at the end, you get that little bit of cathode and a whole bunch of wastewater and byproducts.

Yes. It's insanely complicated. If you look at the total -- like if you're just like -- it's a small world journey of, "I am a nickel atom. What happens to me?" And it's like it's crazy. Like you're going around the world 3 times, there's like the moral equivalent of like digging the ditch, filling the ditch and digging the ditch again. It's total madness, basically. And these things just grew up as -- just -- they're just kind of like legacy things that -- it's like how it was done before. And then they connected the dots, but really didn't think of the whole thing from like a first principle standpoint, saying, how do we get from the nickel ore in the ground to the finished nickel product for a battery. And so we've looked at the entire value chain and said how can we make this as simple as possible.

And that's what we're proposing here with our process. As you can see, a whole less -- a whole lot less is going on here. We get rid of the intermediate, metal, water, final product cathode, recirculate the water, no wastewater at all. And when you summarize all of that, it's the 66% reduction in CapEx investment, a 76% reduction in process cost and 0 wastewater. Much more scalable solution.

Yes.

And then when you think about the fact that now we're actually just directly consuming the raw metal nickel powder, it dramatically simplifies the metal-refining part of the whole process. So we can eliminate billions in battery-grade nickel intermediate production. It's not needed at all. And we can also use that same process we showed on the previous page to directly consume the metal powder coming out of recycled electric vehicle and grid storage batteries. So this process enables both simpler mining and simpler recycling. And now that we have this process, obviously we're going to go and start building our own cathode facility in North America and leveraging all of the North American resource that exist for nickel and lithium. And just doing that, just localizing our cathode supply chain and production, we can reduce miles traveled by all the materials that end up in the cathode by 80%, which is huge for cost.

Yes. I mean to be clear, cathode production would be part of our -- the Tesla cell production plant. So it would just be basically raw materials coming from the mine. And from raw materials in the mine, out comes the battery.

And on that note, the way the lithium ends up in the cell is through the cathode, so then we should obviously on-site lithium conversion as well, which is what we will do using a new process that we're going to pioneer. That's a sulfate-free process again, skip the intermediate, 33% reduction in lithium cost, 100% electric facility co-located with the cathode plant.

Yes. So it's important to note that there is a massive amount of lithium on earth. So lithium is not like oil. There's a massive amount of it pretty much everywhere. So in fact, there's enough lithium in the United States to convert the entire United States fleet to electric. Like all the cars in the United States, all like 300 million or something like that, every vehicle in the United States can be converted to electric using only lithium that is available in the United States.

Discovered today.

Yes, what we already know is good.

People really haven't even been looking.

Yes, people haven't been trying because it's just like widely available. So -- but it is important to say like, okay, what is the smartest way to take the ore and extract the lithium and do so in an environmentally friendly way. And we actually discovered a -- again, looking at sort of first principles basic standpoint, instead of just the way it's always been done, is we found that we can actually use table salt, sodium chloride, to basically extract the lithium from the ore. And this is -- nobody's done this before. To the best of my knowledge, nobody's done this. And it's sort of all the elements are reusable. It's a very sustainable way of obtaining lithium. And we actually got rights to a lithium clay deposit in Nevada.

Over 10,000 acres.

Over 10,000 acres. And then the nature of the mining is actually, I think, also very environmentally sensitive in that we sort of take a chunk of dirt out of the ground or remove the lithium and then put the chunk of dirt back where it was. So it will look pretty much the same as before. It will not look like terrible, and yes, it will be nice. Nice. So…

Simply mix clay with salt. Put it in water. Salt comes out with the lithium. Done.

Yes. It's pretty crazy.

Yes. So we're really excited about this, and there really is enough lithium in Nevada alone to electrify the entire U.S. fleet.

Yes. I think that's true. Actually, just what's in Nevada. That's basically so much damn lithium on Earth, it's crazy. It's one of the most common elements on the planet.

And eventually, as we said at the beginning, when we get to the steady-state 20 terawatt hours per year of production, we will transfer the entire nonrenewable fleet of both power plants, home heating and industry heating and vehicles to electric. And at that point, we have an awesome resource in those batteries to recycle to make new batteries. So we don't need to do any more mining at that point. And you can see why. The difference in the value of the material coming back from the vehicle versus the ground, you'd always go to the vehicle. And we recycle 100% of our vehicle batteries today. And actually, we are starting our pilot full-scale recycling production at Gigafactory Reno next quarter to continue to develop this process as our recycling returns grow.

Yes. I mean to date, it's been done by third parties, but we think we can recycle the batteries more effectively, especially since we -- our batteries, we're making the same battery as the thing we're recycling. So whereas like third-party recyclers have to consider batteries of all kinds.

Yes. And just to think about what this actually means, the recycling resource is always 10 or greater years delayed because batteries last a really long time. But eventually, it is the way that all resources will be made available, and that's why we're investing in this recycling facility in Nevada.

Yes. Long term, new batteries will come from old batteries once the fleet reaches steady state.

Right. Okay. So we just talked about scaling cathode and recycling. All of the benefits that you just saw are added to this benefit of a 12% reduction in dollars per kilowatt-hour at the battery pack level. Almost at our half the cost goal, but there's one more section. Take it away, Elon.