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

Good afternoon, everyone, and welcome to Tesla's Third Quarter 2024 Q&A Webcast. My name is Travis Axelrod, Head of Investor Relations and I'm joined today by Elon Musk, Vaibhav Taneja and a number of other executives. Our Q3 results were announced at about 3:00 p.m. Central Time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties including those mentioned in our most recent filings with the SEC. [Operator Instructions] Before we jump into Q&A, Elon has some opening remarks. Elon?

Thank you. So to recap, as the automotive industry is seeing year-over-year declines in order volumes in Q3, Tesla at the same time has achieved record deliveries. In fact, I think if you look at EV companies worldwide, to the best of my knowledge, no EV company is even profitable. And to the best of my knowledge, there was no EV division of any company, of any existing auto company, that is profitable. So it is notable that Tesla is profitable despite a very challenging automotive environment, and this quarter actually is a record Q3 for us. So we produced our seventh million vehicle actually just yesterday, so congratulations to the teams that made it happen in Tesla. That's a staggeringly immense amount of work to make 7 million cars. So let's see, we also have the energy storage business growing like wildfire with strong demand for both Megapack and Powerwall. And as you well know, on October 10, we laid out a vision for an autonomous and electric future that I think is very compelling that the Tesla team did a phenomenal job there with actually giving people an option to experience the future where you have humanoid robots working among the crowd, not with a canned video and a presentation or anything, but actually walking among crowd, serving drinks and whatnot. And we had 50 autonomous vehicles. There were 20 Cybercabs but there were an additional 30 Model Ys operating fully autonomously the entire night, carrying thousands of people straight with no incidents the entire night. And all those who went there, I think it's worth emphasizing that the Cybercab had no steering wheel or brake or accelerator pedals, meaning there was no way for anyone to intervene manually even if they wanted to, and the whole night went very smoothly. So regarding the vehicle business, we are still on track to deliver our more affordable models starting in the first half of 2025. I think probably people are wondering, "Well, what should they assume for vehicle sales growth next year?" And at the risk of -- to take a bit of risk here, I do want to give some rough estimate, which I think it's 20% to 30% vehicle growth next year, notwithstanding negative external events, like if there's some force majeure events, some big war breaks out or interest rates go sky high or something like that. We can't overcome massive force majeure events, but I think, with our lower-cost vehicles, with the advent of autonomy, something like a 20% to 30% growth next year is my best guess. And then Cybercab reaching volume production in '26, I do feel confident of Cybercab reaching volume production in '26, not just starting production but reaching volume production in '26. And that should be substantial. But we're aiming for at least 2 million units a year of Cybercab. That will be in more than 1 factory. But I think it's at least 2 million units a year, maybe 4 million ultimately. So yes, these are just my best guesses. If you ask me my best guesses, those are my best guesses. The cell 4680 lines, the team is actually doing great work there. The 4680 is rapidly approaching the point where it is the most competitive cell. So when you consider the fully landed -- the cost of a battery pack fully landed in the U.S., net of incentives and duties, the 4680 is tracking to be the most competitive, maybe lower cost per kilowatt hour fully considered, than any other alternative. We're not quite there yet but we're close to being there, which I think is extremely exciting. And we've got a lot of ideas to go well beyond that. So I think if we execute well with 4680, the Tesla internally produced cell will be the most cost competitive cell in North America, a testament to the tremendous amount of hard work there done by the team. So that said, we'll continue to buy a lot of cells from our competitors. I don't intend for that to mean make cells just internally, so I don't want to set off any alarm bells here. We're obviously increasing substantially our vehicle output and our stationary storage output, so we need a lot of cells. And most of them will still come from suppliers. But I think it is some good news that the Tesla internal cell is tracking to be the most competitive in the U.S. So with respect to autonomy, as people are experiencing in the cars really from week to week, there are significant improvements in the miles between interventions. So with the new version 12.5 release of full self-driving in Cybertruck, combining the code into a single stack so that the city driving and the engine and highway driving are one stack, which is a big improvement for the highway driving, so it's just all neural nets, and the release of actually Smart Summon, we try to have a sense of humor here. So that's 12.5. Version 13 of FSD is going out soon. I'm sure we'll elaborate more on that later in the call. We expect to see roughly a five or sixfold improvement in miles between interventions compared to 12.5. And actually, looking at the year as a whole, the improvement in miles between interventions, we think, will be at least 3 orders of magnitude. So that's a very dramatic improvement in the course of the year, and we expect that trend to continue next year. So the current internal expectation, internal expectation, for the Tesla FSD having longer miles between interventions and human is the second quarter of next year. It may end up being in the third quarter, but it seems extremely likely to be next year. Ashok, do you want to maybe elaborate?

Yes. Miles between critical interventions, like you mentioned, Elon, we already made 100x improvement with 12.5 from the start of this year. And then with v13 release, we expect to be 1,000x from January of this year on the production release software. And this came in because of technology improvements, going to end-to-end, having higher frame rate, partly also helped by Hardware 4, more capabilities, and so on. And we hope that we continue to scale the neural network, the data, the training compute, et cetera. By Q2 next year, we should cross over the average, even in miles per critical intervention, probably collision, in that case.

I mean, that is just unvarnished, our internal estimate.

Yes.

So that's not sandbagging or anything else. Our internal estimate is Q2 of next year to be safer than human and then to continue with rapid improvements thereafter. A vast majority of humanity has no idea that Tesla cars drive themselves. So especially for something like a Model 3 or Model Y, it looks like a normal car. So you don't expect a normal car to be able to be intelligent enough to drive itself. A Cybercab looks different. A Cybertruck looks different. But Model Y and Model 3, look, they're good-looking cars but they look fairly normal. You don't expect a fairly normal-looking car to have the intelligence, enough AI to be able to drive itself, but it does. So we do want to expose that to more people. And so we're doing -- every time we have a significant improvement in the software, we'll roll out another sort of 30-day trial so to encourage people to try it again. And we are seeing a significant improvement in adoption. So the take rate for FSD has improved substantially, especially after the 10/10 event. Yes. So there's no need to wait for a robotaxi or a Cybercab to experience full autonomy. We expect to achieve that next year with our existing vehicle line.

Actually, Smart Summon gives a small taste of what it's going to look like, the car able to drive itself to the user within private parking lots. Currently, it's speed-limited but then it's going to quickly be increased. We already had more than 1 billion usage in terms of Smart Summon.

Yes. And actually, for Tesla employees in the Bay Area, we already are offering ride-hailing capabilities. So actually, with the development app, you can request a ride and it will take you anywhere in the Bay Area. We do have a safety driver for now but the software required to do that, we've developed. David, do you want to elaborate on that?

Yes. Sure. It's David. We showed some screenshots of this in the Q1 shareholder deck. And this is real. We've been testing it for the better part of the year. And the building blocks that we needed in order to build this functionality and deliver it to production, we've been thinking about and working on for years. It just so happens that we've used those building blocks to deliver great features for our customers in the meantime, such as sharing your profile, synchronizing it across cars, so that every single car that you jump into, whether it's another car that you own or a car that somebody has loaned to you or a rental car that you jump into, it looks exactly like yours: everything synchronized, seat and mirror positions, media, navigation, everything is the same, just what you would expect from one of our robotaxis. But we gave that functionality to our customers right now because we've built it intending for it to be used in the future, so we're releasing that functionality now. All the end-to-end cybersecurity that we knew we were going to need to deliver that functionality, sending a navigation destination from your phone to the vehicle, and so we're doing that now with the ride-hailing app, but it's something that we've made available to customers for years. Seeing the progress on a route in the mobile app, that's something you'll need for the ride-hailing app, but again, we released it in the meantime. So it's not like we're just starting to think about this stuff right now while we're building out the early stages of our ride-hailing network. We've been thinking about this for quite a long time, and we're excited to get the functionality out there.

Yes. And we do expect to roll out ride-hailing in California and Texas next year to the public. Now in California, there's quite a long regulatory approval process. I think we should get approval next year, but it's contingent upon regulatory approval. Texas is a lot faster, so we'll definitely have it available in Texas and probably have it available in California, subject to regulatory approval, and maybe some other states actually next year as well, but at least in California and Texas. So I think that would be very exciting. That's really a profound change. Tesla becomes more than a sort of vehicle and a battery manufacturing company at that point. So we published our Q3 vehicle safety report, which shows 1 crash for every 7 million miles of autopilot. That compares to the U.S. average of 1 crash for roughly every 700,000 miles. So it's currently showing a 10x safety improvement relative to the U.S. average. And we continue to expand our AI training capacity to accommodate the needs of both FSD and Optimus. We are currently not training compute constraint. Probably the biggest limiting factor is that the FSD is actually getting so good that it takes us a while to actually find mistakes. And when you start getting to where it can take 10,000 miles to find a mistake, it takes a while to actually figure out which it is. Is software ver A better than software ver B? It actually takes a while to figure it out because neither one of them makes the mistakes. They would take a long time to make mistakes. So it's actually the single biggest limiting factor is how long does it take us to figure out which version is better. That's sort of a high-class problem. Obviously, having a giant fleet is very helpful for breaking this out. And then with Optimus, we showed a massive improvement in Optimus' dexterity movement on October 10. And our next-gen hand and forearm, which is 22 degrees freedom, which is double the prior hand and forearm. It's extremely human-like, and so it's much better at tactile sensing. I feel confident in saying that we have the most advanced humanoid robot by a long shot. And we're moreover the only company that really has all of the ingredients necessary to scale humanoid robots. Because the things that -- what other companies are missing is that they're missing the AI brain. They're missing the ability to really scale to very high-volume production. So you've seen some impressive video demos, but they like the localized AI and the ability to scale volume to very high numbers. As I've said on a few occasions before, I think Optimus will ultimately be the most valuable product. So I think it has a good chance of being the most valuable product ever made. For the energy business, that's doing extremely well. And the opportunity ahead is gigantic. The Lathrop Megapack factory reached 200 Megapacks a week, which is now a 40 gigawatt hour a year run rate. And we have a second factory in Shanghai that will begin with the 20 gigawatt hour year run rate in Q1 next year, so next quarter. And that will also scale up. It won't be long before we're shipping 100 gigawatt hours a year stationary storage at Tesla. And that will ultimately grow, I think, to multiple terawatt hours per year. It has to actually in order to have a sustainable energy future. If you're not at the terawatt scale, you're not really moving the needle. So if you look at our admittedly very complicated last master plan, which I think actually is too much detail, I'll maybe ask Gaurav to analyze it and give us the TLDR on the last master plan. But we showed in that master plan that it is possible to take all of earth to a fully sustainable energy situation using sustainable energy, power generation and batteries and electric transport. And there are no fundamental material limitations, like there's not some very rare material that we don't have enough of. We actually have enough of raw materials to take all of human civilization, make it fully sustainable. And even if civilization dramatically increase its electricity usage, it would still be fully sustainable. One way to think of the progress of a civilization, this may sound a little esoteric but it is percentage completion of Kardashev scale. So in Kardashev scale, 1 would be using all the power of a planet. We're currently less than 1% on Kardashev Level 1. Level 2 would be using all the power of the sun. And Level 3, all the power of the galaxy. So we have a long way to go, a long way to go. When you think in Kardashev terms, it becomes obvious that, by far, the biggest source of energy is the sun. Everything else is in the noise. So in concluding, Tesla is focused on building the future of energy, transport, robotics and AI. And this is a time when others are just focused on managing around near-term trends. We think what we're doing is the right approach. And if we execute on our objectives, and I think we will, my prediction is Tesla will become the most valuable company in the world and probably by a long shot. I want to thank the Tesla team once again for the strong execution in a tough operating environment, and we're looking forward to building an incredibly exciting future. Thank you.

Great. Thank you very much, Elon. And Vaibhav has some opening remarks as well.

Yes. Thanks. Our Q3 results were positive and once again demonstrated the scale to which the business has evolved over the years with the generation of record operating cash flows of $6.3 billion. Our automotive revenues grew both quarter-on-quarter and year-on-year. While we had unit volume growth, we did experience a reduction in ASPs primarily due to the impact of financing incentives. As a reminder, we are providing these incentives primarily using third-party banks and financial institution and recognize the cost of these incentives as an upfront reduction to revenue. We released FSD for Cybertruck and other features like actually Smart Summon, like Elon talked about, in North America, which contributed $326 million of revenues in the quarter. We continue to see elevated levels of regulatory credit sales with over $2 billion of revenues so far this year. To expand on this, at an industry level, China continues to outperform U.S. and Europe by a factor of 3. And if there is something to be learned from that, this gives a signal of what is to come in other regions as customers' acceptance of EV grows. And we feel that is the right strategy to build affordable and more compelling leads. Our focus remains on growing unit volume while avoiding a buildup of inventory. To support this strategy, we're continuing to offer extremely compelling vehicle financing options in every market. When you compare any vehicle in our lineup with other OEMs, we believe our vehicles provide much better value, particularly when you consider the safety features, performance and unparalleled software functionalities, like David also talked about, include also what Ashok had talked about around autonomy, music options, parental controls, and much more. While every vehicle in our lineup comes up with these capabilities, there is an awareness gap not just with buyers but at times even with existing owners. We plan on making these more visible in our interactions with both existing and future customers. Automotive margins improved quarter-over-quarter as a result of the FSD feature release discussed before, increase in our overall production and delivery volume, continued benefit from commodity pricing and more localized deliveries in region, which resulted in lower freight and duties. Sustaining these margins in Q4, however, will be challenging, given the current economic environment. Note that we are focused on the cost per vehicle, and there are numerous work streams within the company to squeeze out cost without compromising on customer experience.

Yes. And something that's hopefully a helpful macro trend is, if there's a decline in the interest rates, this has a massive effect on the automotive demand. For the vast majority of people, the demand is driven by the monthly payment. Can they afford monthly payment? So I think most likely, we'll see a continued decline in interest rates, which helps with the affordability of vehicles.

Yes. I mean that is one trend which we observed in the industry that, because of the affordability being impacted because of interest rates, people are holding on to the cars longer, especially in the U.S. And that is actually having an impact on the overall industry, too. As we discussed earlier, as we discussed in prior quarters, energy deployments fluctuate quarter-on-quarter due to customer readiness, location of orders being fulfilled and not necessarily an indicator of demand or production within the quarter. While we did see a decline in Q3, we expect to grow deployment sequentially in Q4 to end the year more than double of last year. Energy margins in Q3 were a record at more than 30%. This is a function of mix of projects being deployed in the quarter. Note that there will be fluctuation in margins as we manage through deployments and our inventory. Our pipeline and backlog continue to grow quarter-over-quarter as we fill our 2025 production slots, and we are doing our level best to keep up with the demand. Just coming back on automotive margins. I talked about what is happening. One other thing which I want to also share is that we will continue to keep whatever we can, like I said before, while squeezing out the cost. But this is something which we also are very capable of. I mean, just in Q3, we reached our lowest cost per vehicle, and that is a trend which we want to keep focused on. Then going on to service and other. We continue to show improvements in Q3. This was a result of better performance, both in our service business which includes collision, part sales and merchandise, and continued growth in supercharging. These fleet-based revenues will continue to grow as the overall fleet size increases. Our operating expenses declined quarter-over-quarter and on a year-on-year basis. This is partially due to the restructuring we undertook in Q2. Cost savings from these initiatives were partially offset by increase in costs related to our AI efforts. We've started using the GPU cluster based out of our factory house ahead of schedule and are on track to get 50,000 GPUs deployed in Texas by the end of this month. One thing which I'd like to elaborate is that we're being really judicious on our AI compute spend too and thinking how best we can utilize the existing infrastructure before making further investments. On the CapEx front, we had over $3.5 billion in the quarter. This was a sequential increase largely because of investments in AI compute. We now expect our CapEx for the year to be in excess of $11 billion. We shared our vision for the future at the We, Robot Event at the beginning of the month. The Tesla team is hyper-focused on delivering on that vision and all efforts are underway to make it a reality. While we've achieved significant progress this year, it will take time to get this as we pioneer new and incredibly complex technologies and navigate a fragmented regulatory landscape. The future is incredibly bright, and I want to thank the Tesla team once again for all their help.

Great. Thank you very much, Vaibhav. Now we'll go to investor questions. The first one is, is Tesla still on track to deliver the more affordable model next year as mentioned by Elon earlier? And how does it align with your AI and product road map?

Sure. I mean, as Elon and Vaibhav both said, we are on plan to meet that in the first half of next year. Ambition has always been to lower the cost of our vehicles, to increase the adoption of sustainable energy in transport. Part of that is lowering the cost of our current vehicles, which is where all of the personally-owned vehicles that we sell today come in. But the next stage in that really, as it fits into the AI road map, is when we bring in robotaxis, which lowers the initial cost of getting into an EV. And that's really where we see the marriage of EV road map and the AI road map.

Yes. It will be like with incentive of sub-$30,000 car, which is kind of a key threshold.

Great. Thank you very much. Similar question next, when can we expect Tesla to give us the $25,000 non-robotaxi regular car model?

We're not making a non-robo.

Yes, all our vehicles today are robotaxis.

So I think we've made it very clear that the future is autonomous. I mean it's going to be -- I've actually said this many years ago, but that my strong belief and I believe that is panning out to be true, certainly, it'd be very obvious in retrospect, is that the future is autonomous electric vehicles. And nonautonomous gasoline vehicles in the future will be like riding a horse and using a flip bone. It's not that there are no horses, yes, there are some horses, but they're unusual. They're niche. And so everything is going to be electric autonomous. I think that it should be, frankly, blindingly obvious at this point that, that is the future. So a lot of automotive companies or most of the automotive companies have not internalized this, which is surprising, because we've been shouting it from the rooftops for such a long time. And it will accrue to their detriments in the future. But all of our vehicles in the future will be autonomous. All the vehicles that we've really made, almost 7 million vehicles, the vast majority, are capable of autonomy. And we're currently making on the order of 35,000 autonomous vehicles a week. Compare that to, say, Waymo's entire fleet, they've less than 1,000 cars. We're making 35,000 a week.

Yes. And our cars look normal.

Yes, they mostly look normal. The Cybertruck looks, thankfully, abnormal. And then the Cybercab/robotaxi, we wanted to have something futuristic-looking, and I think it does look futuristic. And it's worth noting with respect to the Cybercab, it's especially not just a revolutionary vehicle design but a revolution in vehicle manufacturing that is also coming with the Cybercab. The cycle times, like the units per hour of the Cybercab line, like this is just really something special. I mean this will be a half order of magnitude better than other car manufacturing lines, like not even the same league is what I'm saying, not in the same league. And I said like several years ago that maybe the hottest Tesla product probably will be the battery, just like a biofactory.

Yes. I can't reverse-engineer a factory.

Yes. And we're rapidly evolving our manufacturing technology. So anyway, basically, I think having a regular $25,000 model is pointless. It would be silly, like it will be completely at odds with what we believe.

In an autonomous world, what matters is the lowest cost per mile of efficiency of that vehicle. And that's what we've done with the robotaxi.

Yes. Exactly. Autonomous, it's fully considered cost per mile is what matters. And if you try to make a car that is essentially a hybrid, manual/automatic car, it's not going to be as good as a dedicated autonomous car. So yes, Cybercab is just not going to have steering wheels and pedals, it will be designed and optimized for autonomy. It will cost roughly $25,000, so it is a $25,000 car. And you will be able to buy one already exclusively if you want. So it just won't have a steering wheel. You don't need it.

Great. Thank you very much. The next question is, what is Tesla doing to alleviate long wait times at service centers?

So we aim on solving problems at the source, so at the factory, before they can even affect our customers. We believe the best service is no service.

The car doesn't break. That's the best thing.

I don't see anyone with a test. You either fix the issue upstream or do it remotely, do it through software, maybe at work or at home, in a car, and we've addressed and fixed the issue and we've partnered the field with service to make sure we're looking at the same issues. And additionally, just in Q3 and Q4 of this year alone, we have opened and will open in total of nearly 70 locations. And in North America, we significantly expanded the size of each location and have doubled the size last year compared to this year.

Yes. I think there's like actually a lot of merit to having large service centers because you can have specialization of labor. You can start your approach. Yes, it should be more factory-like where you can have dedicated lanes for particular types of service. And it's way easier for somebody to become expert in a few different types of repairs than in every repair.

Exactly. This has helped us with the base of these heavy repairs, like, plugging up a lane. They have dedicated lanes for different type of repairs. And so it's throughput largely, treating it like a factory.

Yes. This is where a Tesla structure -- I think Tesla has a structural advantage relative to the rest of the auto industry because we make the cars and we service the cars. Whereas I think there's a bit of a conflict of interest with the dealer model, the traditional OEM and dealer model, where the dealerships make most of their money on service. And so they obviously aren't incented to reduce the servicing cost whereas, in our case, we are incented to reduce the servicing cost because we carry that servicing cost. And we've got a good feedback with our cars.

I think with the factory, the service leaders together who send people from the factories to the field and field to the factory see it firsthand, provide suggestions for manufacturing as well as for engineering on design.

Yes. So I view this as a fundamental structural advantage of Tesla versus the rest of the auto industry.

We also do a bunch of work on the software side not only to automate diagnostics, so identifying what needs to be done to a car before it comes into service, but also automating all of the preparation work and aligning all the resources that are necessary in order for the car to be very efficiently worked on once it arrives. So the parts are there, like the lift is scheduled, the technician schedule.

Yes. Like the car will tell you this is what's wrong with me and tells the service center.

Get everything ready in a minute.

Please fix me and this is what's wrong.

Instead of a customer trying to translate, the car is telling us directly, and we're pulling that.

Yes, most the time, you don't need to diagnose the car when it arrives. This is like, again, a fundamental technology advantage and structural advantage compared to the rest of the auto industry.

I think it's underappreciated as to what all we are able to do. Because like I said before, most of our cars, except for Cybertruck, look the same, right? So people don't realize that it has so much capability.

Yes. Better than other cars. But they're not like obviously super futuristic.

Great. Thanks very much. The next question is, please provide an update on the semi. What will the next stage growth look like and when will FSD be ready?

Sure. We posted an earnings deck. We're progressing something on the build of the semi factory in our gigafactory in Reno. We've released all our major capital expenditures for that program, and we're on track to start pilot builds in the second half of next year, with production starting in the first half of 2026 and ramping really throughout the year to full production. Semi growth will largely depend on our customers' adoption of the product.

Well, I don't think we're going to be limited, honestly.

Yes, which is like a no-brainer for the semi because it's really a commodity of total cost of ownership.

Yes. Exactly. We have kind of ridiculous demand for the semi.

In that world where it's about how much do I spend to [ lower ] cost per mile, it's a no-brainer.

Yes. Fundamentally, if you've got a semi, the fully considered cost per mile per ton of transport is better than, say, a diesel truck. Any company that doesn't adopt an electric semi will lose. It's not a subjective thing.

It's competitive.

We want the stat and we want to have a beautiful semi truck. But frankly, if we made an ugly semi truck, would it matter?

And this is proving so in our fleets and in Pepsi as a partner. In fact, Pepsi actually said last week that their drivers don't want to go back.

As soon as we give anyone the electric semi, that's like the choice.

It's what they want to drive.

Yes. So the most senior, their top drivers, well, they get to drive a Tesla semi. It's the thing they want to drive. It's super fun to drive.