Good afternoon, everyone, welcome to Tesla's second quarter 2023 Q&A webcast. My name is Martin Viecha, VP of Investor Relations, I'm joined today by Elon Musk, Zachary Kirkhorn, and a number of other executives. Our Q2 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. During the question and answer portion of today's call, please limit yourself to 1 question and 1 follow-up. Please use the Raise Hand button to join the question queue. Before we jump into the Q&A, Elon has some opening remarks. Elon? Thank you, Martin. Just a Q2 recap. In Q2, we achieved record vehicle production and deliveries, and record revenue of about $25 billion in a single quarter. Model Y became the best-selling vehicle of any kind, globally in Q1, surpassing the likes of Corolla and Golf. It was the number one vehicle of any kind, including vehicles that are sell at a far lower price. This is, I think, an incredible achievement by the Tesla team, and just a huge thank you to our customers for their support. This came in spite of high interest rates and a lot of macro uncertainty, and nonetheless, we managed to achieve operating margin of about 10%. We continue to target 1.8 million vehicle deliveries this year, although we expect that Q3 production will be a little bit down because we've got summer shutdowns for a lot of factory upgrades. Just probably a slight decrease in production in Q3 for sort of global factory upgrades. In the long term, autonomy, we think is gonna just drive volume through the ceiling next level. Our sort of future Robotaxi products, the dedicated Robotaxi products, we think have, like, quasi-infinite demand. We're the way we're gonna manufacture the Robotaxi is also itself a revolution. It's revolutionary design made in a revolutionary way. It'll be by far the highest units per hour of any vehicle production ever. We're very excited about that. With respect to Autopilot and Dojo, in order to build autonomy, we also need to train our neural net with data from millions of vehicles. The more I mean, this has been proven over and over again, the more training data you have, the better the results. I mean, there are times where we see basically in a neural net, basically, it sort of at 1 million training examples, it barely works. At 2 million, it slightly works. At 3 million, it's like, "Wow, okay, we're seeing something," you get to, like, 10 million training examples, it's like it becomes incredible. You just, there's just no substitute for a massive amount of data. Obviously, Tesla has more vehicles on the road, that are collecting this data than all other companies combined by, I think, maybe even an order of magnitude. I think we might have 90% of all, or a very big number. You know, the success in AI endeavors is a function of talent, sort of unique data, and computing resources. We, have outstanding capabilities in all three arenas. I really just don't know how anyone could do what we're doing, even if they had our software and had our computer, if they did not have the training data. Speaking of which, our Dojo training computer is designed to significantly reduce the cost of neural net training. It's sort of optimized for the kind of training that we need, which is video training. You know, we just see that the need for neural net training, again, talking of, you know, quasi-infinite things, is just enormous. I think we expect to use both NVIDIA and Dojo, to be clear. We just see a demand for really vast training resources. We think we may reach in-house neural net training capability of 100 exaflops by the end of next year. To date, over 300 million miles have been driven using FSD Beta. That 300 million mile number is gonna seem very small very quickly. It'll soon be billions of miles, then tens of billions of miles. The FSD will go from being as good as a human to then being vastly better than a human. We see a clear path to Full Self-Driving being 10 times safer than the average human driver. Between Autopilot, our Dojo computer, our inference hardware in the car, which we call sort of Hardware 3, 4, you know, but it's really dedicated. It's a high-efficiency inference computer that's in the car and our Optimus robot. Tesla is clearly at the cutting edge of AI development. With regard to our Cybertruck, we continue to build release candidates of the Cybertruck on our final production line in Austin. I'm actually here in Austin at the Gigafactory. This is the first truck that we're aware of that will have four doors, over a six-foot bed, and will fit into a 20-foot garage. It's sort of biggish on the outside, but it's even bigger on the inside. I think that's one of the elements of good design, is it should feel bigger on the inside than it looks on the outside. This is no small car, we really cared about the exterior dimensions of the Cybertruck down to the last millimeter. It's just we try to get right in the middle of the Goldilocks zone: not too big, not too small, then really maximize the utility of the volume. We can't wait to start delivering it later this year. Some other highlights. Our global Supercharging network now stands at over 50,000 connectors and over 5,000 locations. As I think a lot of people are aware, the Tesla charging standard, which we made open source, and it's now called the North American Charging Standard. We're deeply honored that Ford, General MotorsM, Mercedes, and many other OEMs have signed up to use our connector and gain access to our charging network. We strongly believe in helping other car companies to accelerate the EV revolution and just trying to do the right thing in general. That's our goal there. Something I think I want to emphasize, like, very, very strongly, this is a very important point, is that Tesla, just as with the North American Charging Standard, although we're not licensing, in that case, not licensing, we're just making it available. We are very open to licensing our Full Self-Driving software and hardware to other car companies. We are already in discussions with early discussions with a major OEM about using the Tesla FSD. We're not trying to keep this to ourselves. We're more than happy to license it to others. Lastly, our new lithium refinery and cathode facility are progressing well. In conclusion, we continue to focus on making as many cars as we can while maintaining healthy financials. Our artificial intelligence development is obviously entering a new era, and we're incredibly excited about what's to come. Our other businesses, such as Megapack, Supercharging, service, and whatnot, all started to become a meaningful contributor to overall profitability this quarter. Lastly, I'd just like to profusely thank all of our employees who are making a lot of extra effort during uncertain times. Thank you very much for your hard work and the impact you're making. Thank you very much, Elon. I think Zach has some opening remarks as well. Yeah, thanks, Martin. As Elon mentioned, Q2 was another record quarter of production and deliveries, as well as records and profit for our energy and services and other businesses. Congratulations again to the Tesla team on the continued progress. As we navigate through a period of economic uncertainty, rising interest rates, volatility in consumer confidence, and regulatory change, I want to comment on our financial approach. First, the single most important priority is to ensure we are continuing to invest heavily in the core technologies that will drive the long-term value of the business. This include increasing spending on AI-related technologies such as Full Self-Driving, Optimus, and Dojo, as well as new products such as Cybertruck, our next-generation platform, and the Semi, as evidenced by the continued growth in our R&D spend. This also includes continuing our investments in capacity expansion, not only in our vehicle factories, but also our Supercharger network, service, internal applications, and battery processes, as we continue with meaningful capital expenditures to lay this foundation for the future. We continue to work towards our goals of maximizing volumes on both our vehicle and energy business, but most importantly, doing so in a way that generates the capital to continue our pace of R&D and capital investments. This requires a strong focus on per-unit COGS reductions in each of our key businesses, as well as working capital improvements on raw materials, work-in-process inventory, and customer AR, all of which progressed appropriately in Q2. If we look specifically at our automotive business, our gross margin showed a modest reduction and remained healthy, despite action taken to further improve vehicle affordability early in the quarter. We realized per-unit cost improvements in nearly every category, including material cost and commodities, manufacturing costs, and logistics, while also continuing to rapidly increase the build rate in our Austin and Berlin factories. For our energy business, we improved margins and gross profit, driven by cost reductions and deal economics, particularly with Megapack. As a reminder, storage volumes are typically volatile sequentially based on the types of projects and their specific revenue recognition milestones. As we look forward to the rest of the year, I want to reiterate Elon's comments on Q3 volumes, driven by planned downtimes for factory upgrades. These upgrades will also carry some amount of factory idle cost. However, we are working to minimize as much as possible. It's also important to keep in mind the uncertainty in the macro environment, which can impact our execution positively or negatively in the near term. Regardless, we continue to remain dynamic, with a focus on fundamental efficiency and a long-term outlook. Congratulations again to everybody on a great quarter. Thank you very much, Zach, let's go to investor questions. Now, the first question on licensing FSD, we've already answered, so let's go to the second one. The second question is: What is the status of 4680 cells? How far are you from the specs you laid out on Battery Day? When do you expect to achieve what you laid out on Battery Day? First, I'll just start with a little bit of a production update. In Texas, 4680 cell production increased 80% Q2-over-Q1, and the team surpassed 10 million production cells produced here in Texas, congrats to the team for that. Their focus on yield reduced our scrap bill by 40% quarter-over-quarter, and that resulted in a 25% reduction in cell COGS. Here in Texas, we're preparing to launch our Cybertruck cell, which is 10% higher energy density than current production. That was accomplished through process and mechanical design optimization. As we scale Cybercell production through the end of the year and early next, we should be in a comfortable place on cost per cell. Against our battery energy density targets, the Cybercell is at our expectations on a like for like electrochemistry basis. We're yet to integrate silicon or in-house cathode production, both reviewed on Battery Day, which do bring significant further energy density and cost improvements, but that is a topic for another day. Lastly, it is important to remember that most of what we focused on at Battery Day was the Tesla-engineered 4680 production system and the improvements we strove to achieve on equipment, factory density, capital cost, and utility cost reduction, all of which we are realizing in our Texas scale-up to date. Thank you very much. The next question is: Can you talk more to the upcoming Tesla Energy products and how your thinking has evolved on the revenue model? Given Tesla's AI capabilities, how do you see the long-term mix between hardware margin and recurring software margin from Autobidder as this segment accelerates? We can't comment on future product roadmap, but I can provide a quick energy Q2 update. Megapack continues to show strong demand globally, with Lathrop ramping successfully to meet our contracted projects in 2023. As stated last quarter, Megapack margins are in a reasonable place, in line with our target market, vehicle target margins. The second final assembly line at Lathrop is progressing on schedule, eventually doubling Lathrop capacity ahead of our full factory ramp in 2024. We have several exciting large projects in construction or nearing completion, including the KES project in Hawaii, the Riverina project in Australia, several projects in California, and one here at Gigafactory Texas that I toured today, actually. We want to thank our customers, utilities, and grid operators for trusting us with these projects. On the Autobidder question, we continue to grow Autobidder contracts in wholesale markets like Australia, Texas, U.K., and California, with over 6 gigawatt hours under Tesla's dispatch next year. In the U.K., our project performed best in the industry in Q2. Autobidder does have software margins and is an enabler for hardware sales, but it's a relatively small contributor to revenues, given how much deployment growth on the Megapack hardware side is occurring. It's important to remember that these large capital projects have lifetimes of 20 years, so recurring revenues on an annualized basis, relative to upfront CapEx, are small. On the residential side, we have some fun things happening. We recently surpassed a half million Powerwalls installed. Just this week, we are launching Charge on Solar, which allows Tesla Powerwall and vehicle customers to charge their vehicles using their excess solar and drive only on the sunshine that hits their roof. Yesterday, we began paying customers in Texas for participating in our virtual power plant to provide grid support to ERCOT. We expect these credits to lower our median customer's annual bill by a third and to increase these credits over time as ERCOT expands market access. Today, we are expanding Tesla Electric enrollment to new Model 3 owners in Texas, followed by all Texas vehicle customers over the rest of the quarter. Unfortunately, somewhat similar to Tesla Insurance, bringing Tesla Electric and VPP capabilities to our customers requires working through a fractured regulatory environment on a jurisdiction-by-jurisdiction basis. In the long run, the value of residential energy, software, and hardware will be driven by the level of market access that utilities, market operators, and regulators permit. For Powerwall's eligible to provide the full stack of energy services, like peaker capacity and system buffering, such as in Australia, we can more than double the value of ownership relative to a typical system today. Thank you very much. The next question is: Could you quantify the benefits to COGS per unit from the IRA battery manufacturing incentives, and secondly, battery raw material declines year to date? All right, I can take that. On the first part of the question for IRA manufacturing incentives, we provided previous guidance that we expect these to be, for the course of this year, in the range of $150 million-$250 million per quarter. We are staying within that boundary as we guided previously, so that was the case in Q2 as well. I will note, and I think we've mentioned this before, that this includes a 50/50 sharing of credits for qualified cells from our long-term battery partner, Panasonic. On the commodity side, we are continuing to see improvements there, as we've discussed previously. Lithium is the most notable improvement so far. I think I commented on this on the last call, 'cause typically we see this coming about a quarter before it actually is realized in our financials. Also, just as a reminder, we're not fully exposed to the price of lithium. Our supply chain team has done a terrific job in partnership with a bunch of other companies, to put in place some long-term agreements here, but we do have some exposure that moves up and down. We're also seeing benefits in aluminum and steel, which I think is great, not as large as the lithium impacts, but they contribute nonetheless. If we add up the total impact of this in Q2 relative to prior quarter, it's about the same size and magnitude as the IRA benefits that we also received. You know, just to put this in context, you know, as you look at COGS per unit sequentially from Q1 to Q2, I think there's two things to keep in mind there. The first is that our SX mix for deliveries increased quite a bit from Q1 to Q2, so as you think about fundamental cost reductions, it's important to adjust for that. Secondly, you know, as we continue to work on reducing our Austin and Berlin costs, which we did quite a bit of that from Q1 to Q2, you know, these factories are still slightly above Model Y production costs elsewhere. In the quarter, our mix of Austin and Berlin-related builds increased. That's something to consider as you model out the impact on, from Q1 to Q2 in terms of COGS per unit. I do want to ask Karn if there's anything else on the commodity side or just more generally you want to add here? As you mentioned, Zach, we've naturally been a little bit hedged from the lithium position because the long-term contracts we have in place. We have seen reduction in pricing across the board for all commodities that specifically go into batteries, such as nickel, cobalt, and graphite. The reductions in pricing translate into thousands of dollars when you look at it from a per-vehicle impact. We're taking advantage of the historically low commodity pricing in certain areas to kind of extend some of those fixed price contracts through the end of the decade. It's a playbook that we'll continue to kind of go back to as we look to the future. Thank you. The next question on FSD. Have you considered allowing FSD transferability as a lever to allow existing customers to upgrade to a new Tesla, instead of being locked into an existing car due to the price of FSD? Yeah, this is a question we get asked a lot. we're excited to announce that for Q3, we will be allowing transfer of FSD. This is a one-time amnesty. it needs to be you need to take advantage of it in Q3, but or at least place the order in Q3 within reasonable delivery time frames. Yeah, you. Yeah, I hope this makes people happy. we're not gonna do it, this is a one-time thing. We're not doing it again. All right, the next question: When will you give more information about the Cybertruck orders, estimated delivery schedules, pricing, and specifications? Demand is so far off the hook, you can't even see the hook. That's really not an issue. I do want to emphasize that the Cybertruck has a lot of new technology in it, like, a lot. It doesn't look like, it doesn't look like, you know, any other vehicle because it is not like any other vehicle. The production ramp will move as fast as the slowest and least lucky element of the entire supply chain and internal production. You know, I, I wouldn't expect, you know, it. I hope it's smooth. You know, we're certainly better at production ramps than we, you know, we've got a lot of experience with production ramps. You know, it, a first order to first-order approximation is there's, like, 10,000 unique parts and processes in, you know, in the Cybertruck, and if any one of them, it'll go as fast as the least lucky, you know, least well-executed element of the 10,000. Always very difficult to predict the ramp initially, but, I think we'll be making them in high volume, next year. We will be delivering the car this year. Thank you. The next question is: Critics of gigacasting contended that process makes vehicles harder and more costly to repair, essentially pushing cost onto the customer. Can you share some details about the initial repair experience with gigacast vehicles? That must be why everyone's copying us. Yeah. Thanks, Milan. This is Lars. Martin, that's, like, simply not true. There's a misconception that traditional bodies are easy to repair. They are made of multiple materials and multiple joining methods. Spot welds and rivets have to be drilled out, panels and structural adhesive have to be chiseled out, dried adhesive has to be removed. Yeah ... stampings cut, blah, blah. It's a crazy patchwork quilt. Yeah. Putting that back together means time and money. Using an example of replacing a rear cast rail on a Model Y, to do that, versus, like, what we replaced it with from the Model 3, it's 10 times cheaper and 3 times faster to do it with a cast rail. My design team works with our collision repair team, since we're closed loop on this, with insurance, and we design specific parts that will make it easier and faster to repair. We have an incentive to do that because we have our own insurance and our own body shops. We expect that we'll continue to do this, and collision repair will continue to become cheaper and faster over time, and we already make this available to all body shops through our Tesla-approved body shop training. Closing the loop on collision repair, factoring that into design is a big deal. It's crucial. Uh- I don't think anyone else can do it with that ecosystem that we have, so. Yeah. We are actually able to change the details of the casting with inserts. We actually do that all the time. 'Cause the inserts actually wear out and need to be replaced anyway. We can actually make design changes to the inserts and tweak the castings to. The cast, you know, basically, cast the rear body or front body is lighter, cheaper, better for noise, vibration, and harshness, much easier to manufacture, and it's better in every way. That's why so many other car companies are copying us. Probably. They learn that Well, they certainly put out a lot of press releases about it. Mm-hmm. Mm-hmm. I think it's basically gonna be how all cars are made in the future. Thank you. Next question: How many Optimus bots have been made, and when will they be able to start performing useful tasks? $10 million. Yeah, I think we're around 5 or 6 bots, like, you know, we're like 10, I guess. Yeah. It depends on how many are working and what phase. It's a, it's sort of, yeah, there's more every month. There are some, a lot of interesting things about the Optimus bot. We found that there are actually no suppliers that can produce the actuators. There are no off-the-shelf actuators that work well for a humanoid robot, at any price. Certainly not compelling humanoid robot. Yes. Not, not a so not a humanoid robot that can do stuff that, you know, the things that a human can do. We've actually had to design our own actuators that integrate the motor, the power electronics, the controller, the sensors, and really, every one of them is custom-designed. Of course, we'll be using the same inference hardware as the car. You know, we are in designing these actuators, are designing them for volume production. They're not just lighter, tighter, and more capable than any other actuators we're aware of that exist in the world. It's also actually manufacturable. We should be able to make them in volume. The first Optimus that will have all of the Tesla-designed actuators, sort of production candidate actuators, integrated and working, should be around November-ish. Then we'll start ramping up after that. You know, in terms of when we'll be able to do some useful things, like, we'll first be trying this out in our own factories and just proving out its utility, but I think we'll be able to have it do something useful in our factories sometime next year. Yeah, I'm pretty confident of that. It's going well. I should say, another cool thing about Optimus is that, you know, there's just in the U.S. alone, there are 2 million amputees. I was just talking to the Neuralink team, by combining a Neuralink implant and a robotic arm or leg for someone that has had their arms, arm or leg, or all arms and legs amputated, we believe we can give basically a cyborg body that is incredibly capable. Six Million Dollar Man in real life. It won't cost $6 million. $60,000 man. Still sounds impressive, but it'll actually, you know... That actually could be I think would be incredible to, you know, to potentially help millions of people around the world, and give them, you know, a robot arm or leg that is as good, maybe long-term better than a biological one. Thank you. The next question is: How has the order intake trended relatively to production levels during Q2, and how has it trended in the quarter-to-date period? Conceptually, how does Tesla decide when is it appropriate to reduce prices or add other sales incentives to increase demand? Yeah, I guess demand has roughly tracked production. Which is what we aim for. You know, something that we have that really, I think, no other car maker has, is that we have real-time demand and real-time production. seven days a week, you know, I get an order-generated email. It shows output from all factories and orders globally. It's like a real-time finger on the pulse of Earth, basically. We, you know, we adjust course according to what the mood of the public is. You know, buying a new car is a big decision for vast majority of people. You know, anytime there's economic uncertainty, people will generally pause on new car buying, at least to see what happens. You know, then obviously another challenge is the interest rate environment. As the interest rates rise, the affordability of anything bought with debt decreases. Effectively increasing the price of the car. When interest rates rise dramatically, we actually have to reduce the price of the car because the interest payments increase the price of the car. This is the, at least up until recently, it was the, I believe, the sharpest interest rate rise in history. We had to do something about that. If somebody's got a crystal ball for the global economy, I would really appreciate it if I could borrow that crystal ball. DM us. Yeah, exactly. DM me on Twitter. It should be not on Twitter. I mean, one day it seems like the world economy is falling apart, and the next day, everything's fine. I don't know what the hell is going on, to be totally frank. I wish I did. I mean, that's why I, that's why I say, like, I always, you know, I, on Twitter, I posted like, you know, just really advising because I, you know, I care a lot about the sort of, the small shareholders, especially ones that have stuck with us through thick and thin. I love you guys. The. We can't control these macro shocks, you know, or the sort of the manic depressive nature of the stock market. That's why I recommend against margin loans in times that are turbulent. You know, if times are not that turbulent, actually, a margin loan can be a smart move within reason. We're in, I would call it turbulent times. I, like, I have very high confidence in the long-term value of Tesla. Like, I see a really, you know, see a path to attainment. The old adage of buy and hold is right, you know. For investment advice, I say, like, identify a great future pipeline. It's common sense, actually. Then generally, if you, provided you're confident about what that company's products or services are, when the market panics, buy, and when the market is, you know, overly exuberant, you know, you can sell. I'm not recommending you sell Tesla, but yeah, buy low, sell high. You know, Warren Buffett actually, I think, has a saying, I'm paraphrasing him, but, you know, a publicly traded company is like, it's like imagining living in your house, and some, like, crazy, manic depressive guy comes and stands at the outside your house and yells property prices at you. You know, yeah, so it's. It's a different price every day, but the house is still the same house. This is the stock market. You know, you credit that to Warren Buffett. Thank you. Let's go to the next question. With the emphasis of price cuts to drive volume growth eating into automotive gross margin, can investors expect to see automotive gross margin stabilize or even rise due to efficiencies outpacing the cuts? If so, when? Oh, man. Where's that crystal ball again? If, if I may, look, it's like, look, the short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy, it will make all of these numbers look silly. I'd recommend looking at ARK Invest. I think their analysis is very good. It's the best I, you know. I mean, it, and generally, FinTwit or, like, if the finance, the smart finance people on Twitter, follow their accounts. They're great. That's in my opinion, where you'll get the best info. You know, I strongly believe Tesla is an epic long-term investment, and don't sweat it when, you know, things go up and down. In fact, if the market panics, buy. If the market's a little too exuberant, sell at the time. Just generally, like, I feel confident, you know, we'll deliver over long term but can't control the short term, so. These, the, autonomy is really where it's at. I mean, Zach, what do you think? I fully agree with you. I mean, I think the only thing in the short term that matters is what I said in my opening remarks, which is, you know, are we generating enough money to continue to invest? You know, the portfolio of products and technologies that the technical teams are investing in right now, this is intense. It's intense in terms of investment, it's intense in terms of potential. I frankly think it's ridiculous that we have positive free cash flow, in a capital-intensive business while investing massive amounts of money in new technology. That is super hard. vertical integration. It's not even just, like, new products, but also- Yeah, we actually make our. Yeah. As others, but. Sorry, Kirsten. Worry, it's cool. At least from my perspective, what matters is continuing to generate the cash to invest. You know, that means continuing to be hyper-focused on near-term cost reduction, because everything we do in near-term cost reduction provides capital to reinvest. Hyper-focused on working capital management, of which, we've made quite a bit of progress there, on the raw materials and WIP. Aside of that, we've been very focused on accounts receivables as well, to ensure that we can continue to reinvest the cash. You know, this is what we're focused on. Yeah. You know, there's, you know, a set of this that we control. You know, we have a pipeline of cost reductions, we are getting tailwinds in the commodity space right now, as Karn mentioned, that's helpful. Variability around average selling prices, you know, goes back to Elon's point. We don't control interest rates, we don't control macro consumer sentiment, but we have an obligation to be responsive to that, to ensure that we're matching supply and demand and keeping things balanced. This is how we're managing the next handful of quarters. You know, soon enough, these quarters will be behind us. They won't be part of the present value of future cash flows of the business. We wanna make sure we keep that view, and make sure that the long term of the business is exactly the way that we want it to be. Well said. Yeah. All right. Thank you very much. Now let's go to analyst questions. The first question comes from Dan Levy, from Barclays. Dan, feel free to unmute yourself. Great. Good evening. Thank you. Wanted to start first with a question about your efforts in AI and Dojo. It's pretty clear, it sounds like you're accelerating your focus. Can you maybe provide us with a sense of what the process is of refining a product? Is it more machines? Maybe you could give us a sense of, you know, when you start to see the payout and what the resource outlay is, you know, what should we expect on the OpEx front as a result of this? Sorry, are you saying how much are we gonna spend on Dojo, or? Yeah. The R&D of Dojo. Yes. Well, we're not going to be open loop on our Dojo expenditures, so. I mean, I think we will be spending, you know, certainly north of $1 billion over the next year on, you know, through the end of next year, it's well over $1 billion in Dojo. Yeah, so I mean, we've got a truly staggering amount of video data to do training on. This is another thing, like, in order to copy us, you'd also need to spend billions of dollars on training compute. I mean, it's like, and it's also hard to, you know, you need the data, and you need the training compute. It's like, think of all the things needed to actually achieve this at scale to a generalized solution for autonomy, this is one of the hardest problems ever. You know, you see a lot of AI companies doing, you know, LLMs and whatnot. I'm saying, "If they're so great, why can't they make a self-driving car?" Because it's harder, that's why. But I do think there's, let's say I think there's some, you know, great AI companies out there, but just fundamentally, the staggering amount of data we've got to process, we've got to reprocess somehow, and custom silicon is the best way to do that. That's what Dojo is designed to do, yeah, optimize for video training. It's not optimized for LLMs, it's optimized for video training. With video training, you have a much higher ratio of compute to memory bandwidth. You know, whereas LLMs are tend to be memory bandwidth choked. That's it. I mean, but like I said, we're using a lot of NVIDIA hardware. You know, we'll actually take the NVIDIA hardware as fast as NVIDIA will deliver it to us. Tremendous respect for Jensen and NVIDIA. They've done an incredible job. If they could deliver us enough GPUs, we might not need Dojo, but they can't. They got so many customers. They've been kind enough to, you know, nonetheless, prioritize some of our GPU orders. The sheer magnitude of video training. Because, like I said, we're not trying to just get as good as human, we wanna get to, you know, 10 times better than human, maybe 100 times better than human. Right now, I believe there's something on the order of 1 million automotive deaths per year. If you say permanent, serious injuries, I think it's probably closer to 10 million per year. You know, it matters if you're, you know, twice as good as human, ten times, you know, if. Like, ten times better than human would still mean 100,000 deaths, and 1 million severe permanent injuries. It's like, okay, well, we'd rather be 100 times better. There's really, you know, it's a march of nines, and we wanna achieve as perfect safety as possible. That's truly mind-boggling amounts of video and computer are needed for that. I do, you know, think there's other applications for Dojo, but we just desperately need it for video training. Great- Just to add to what Elon mentioned. You know, the numbers that he mentioned are, you know, between R&D spend and capital spend. Yeah. You know, this is moving quickly. You know, we provide a three-year outlook on our CapEx. We are considering these expenses in that outlook. As that moves up and down, we'll continue to update our guidance in the Q. Yeah. I wanna say that the fundamental rate limiter on the progress of Full Self-Driving is training. If we had more training compute, we would get it done faster. That's it, that's it. It's just difficult to predict. Yeah we can execute on it. Great. Thank you. Just as a follow-up, I recognize, you know, there's some incredible macro uncertainty right now, but you're sticking with your near term, your volume target of 50% CAGR. As we just think about sort of in the year ahead, you know, Cybertruck is gonna be some contribution. You know, there's gonna be some help from further EV penetration growth, but to what extent are you willing to sacrifice on pricing to keep that 50% volume CAGR intact? Or, you know, are you thinking differently about margins versus your prior commentary of willing to sacrifice on margins to get more share? It's not about getting more share, it's just that, you can think of every car that we sell or produce that has a full autonomy capability, actually something that in the future may be worth as much as five times what it is today. You know, your average passenger vehicle is doing, like, maybe 10 hours of driving a week. You know, if let's say it's 1.5 hours a day on average, that's 10 hours a week, ish. If you've got an autonomous... If that vehicle is able to operate autonomously and be used in some either dedicated autonomous or partially autonomous, like Airbnb, like maybe sometimes you allow your car to be used by others, sometimes you want to use it exclusively, just like, you know, Airbnb. You know, doing Airbnb with a room in your house. You know, the value is just tremendous. I think it does make sense to sacrifice margins in favor of making more vehicles because we think in the not-too-distant future, they will have a dramatic valuation increase. I think the Tesla fleet value increase to the point at which we can upload Full Self-Driving, and it's approved by regulators, will be the single biggest step change in asset value, maybe in history. Thank you. Let's go to the next analyst. The question comes from an Emmanuel Rosner from Deutsche Bank. Thank you very much. Two questions from me as well. First, following up on the autonomy. You know, before you start launching these dedicated Robotaxi vehicles on existing vehicles, you're improving FSD, you know, incrementally. What is your latest targeted timing to essentially release a non-beta version or an eyes-off version that would trigger much higher take rates? Would Tesla benefit from lowering the price of FSD? Well, obviously, I, you know, you know, I've as people have sort of made fun of me, and perhaps, you know, quite fairly have made fun of me, my predictions about achieving, Full Self-Driving, have been optimistic in the past. The reason I've been optimistic is what it tends to look like is the, we'll make rapid progress with a new version of FSD, but then, it will curve over logarithmically. At first, like a logarithmic curve looks like you know, just sort of fairly straight upward line, diagonally up. If you extrapolate that, then you have a great thing, but then 'cause it's actually logarithmic, it curves over, and then there've been a series of stacked logarithmic curves. Now, I know I'm the boy who cried FSD. I think we'll be better than human by the end of this year. That's not to say we're approved by regulators, and I'm saying that, and that would be in the U.S., 'cause we've got to focus on one market first. I think we'll be better than human by the end of this year. I've been wrong in the past. I may be wrong this time. The weird thing is the price of FSD is actually very low, it's not high. If we go back to what I was saying earlier, the value of the car increases dramatically, if it is actually autonomous. you know, $15,000 is actually a low price, not a high price. Now we will offer, and you know, I think we do sort of offer FSD as a sort of monthly subscription, although, like, most people don't know that. I'd recommend, like, maybe trying it out as a monthly subscription, so you don't have to go with the $15,000 thing. I think, yeah, the obviously, if a car is worth several times its original price, then $15,000 is actually a low price for FSD. Thank you. The next question comes from William Stein from Truist. William, go ahead and unmute. Great. Thank you very much for taking my question. I'd like to ask about to stick on this AI topic. We've read, you know, with great interest, the developments in Dojo today, and you've spoken about FSD. You've also, Elon, you've started this xAI company, and, you know, for investors that think that there might be quite a bit of value in the AI features and products of Tesla, it might be concerning to see you know, pursuing another endeavor where AI is the focus. Can you talk about how xAI might overlap, might perhaps compete with Tesla, or in other ways, perhaps it enhances the value of what Tesla does? Thanks very much. I think we'll actually enhance the value of Tesla. There really were just some of the world's best AI engineers and scientists that were willing to join a startup, but they were not willing to join a large, sort of relatively established company like Tesla. I was like. That's actually how it got started. I was interviewing a few people, and they're like, "No, we want to do a startup." I was like, "That's all?" I couldn't convince them to join Tesla. So I was like, "Okay, well, you know, better it's a startup that I run than they go work somewhere else." That's kind of the genesis of xAI. xAI is focused on sort of AGI. Yeah. I'd like to say, I think there will be some value that xAI brings to Tesla. You know, also, for the very best people in the world, they really just want to work on interesting problems. If you take, say, you know, our material science group, you know, really what convinced Charles Kuehmann to leave Apple, where he was very happy and well compensated, and both, you know, what we think is the best material science group in the world, was that he got to work at both Tesla and SpaceX. He wasn't willing to leave Apple if it was just Tesla, but he was willing to do it if it was Tesla and SpaceX. sometimes you get the best talent in the world, that's the kind of thing, you know, you need to do. That actually has been very beneficial to Tesla. Yeah. If, you know, if I could squeeze one more mundane question in, I wonder if you think you can hit the 1.8 million unit number with current pricing, or do you anticipate needing to continue to lower prices? It seems like they've stabilized, the trends have stabilized in the last maybe month and a half. Should we expect sort of continued decreases or more stabilization for the rest of the year? Sure. You know, we have really sort of restarted the referral program, which I think will be quite effective. You know, as Zach was saying earlier, we don't control the macroeconomic conditions, so if interest rates continue to rise, that reduces the affordability of cars. You know, and for a lot of people, they're really trying to balance just, you know, barely breaking even every month. In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month. Like, credit card debt is looking scary. You know, we, like, we just don't control the macro conditions. If macro conditions are stable, I think prices will be stable, and if they're not stable, then, you know, we would have to lower prices. Yeah. Thank you. Let's go to Colin Rusch from Oppenheimer. Thanks so much, guys. You know, as you're building out Dojo and implementing what truly is gonna be a highly complex set of software, can you speak to the maturity of the operating system and how much outsourced software you're expecting to use in that system? This is a custom software stack, it is designed such that you can run at a high level PyTorch and JAX. You know, we have to customize it to actually run on our custom silicon. The software stack is a combination of open source software and then Tesla software, all the way to the bare silicon, which is the case for the inference computer in the car. Okay, thanks so much. That's super helpful. Can you speak to how you're managing some of the geopolitical risks relative to your capacity expansion? You know, obviously, as you guys continue to grow at this rate, you're gonna be putting some folks out of business. Mm-hmm ... you know, there's going to be some impacts around regional economies. just want to understand how you're thinking about that in terms of some of your CapEx plans and how you're managing some of those relationships with different countries and regions. Well, we, you know, the, this is a period of unusual geopolitical risk. I think the best we can do is, you know, have factories in many parts of the world, such that if things get difficult in one part of the world, we, you know, we can still keep things going in the rest of the world. Thank you. The next question comes from Mark Delaney from Goldman Sachs. Thank you very much for taking the question. Tesla has been making progress reducing cost, and did so again last quarter. Can you give an update on when you think automotive COGS per vehicle could be under the historical $36,000 per vehicle level? What are the key puts and takes to get there? I think I was asked this in the past. This is very difficult to forecast. You know, there's a series of costs that we manage, there's a series of costs in which we don't control. You know, particularly on the commodity side, where labor costs go, et cetera, it's just hard to say. Yeah. I mean. We saw very inflationary like, strong inflationary pressures for a while last year. Now we're, which obviously makes it very difficult to reduce COGS. You know, now we're seeing what seem to be deflationary pressures, certainly deflationary, but if deflation is a pressure. We're seeing, you know, commodity prices dropped, dropping as was mentioned, you know, as Karen mentioned a moment ago. I think. I mean, what do you think? I mean, the basically, the trends seem to be deflationary at the commodity level. Definitely. Yeah. There's that, and then there's also the unit economics improve as volumes grow. That's the other thing we're seeing. As we're becoming a bigger and bigger part of a lot of suppliers, economies of scale come into play. There's equipment depreciation that comes into play, equipment that was commissioned 5 to 7 years ago, that used to be a part of the piece price that's completely amortized. We'll see situations where piece price comes down because that equipment contribution has gone away. Just we continue to have this mentality of continuous improvement in terms of labor, reducing labor, improving automation, and just continuing to get better at what we do. We have seen I think every quarter we have seen an improvement. Of course, the commodity spiked up and down- Yeah Just in general, the trend is towards being more efficient. Yeah, totally agree. Yeah, lithium prices went absolutely insane there for a while. Yeah, they're recovering now. Cobalt's, like, a third of what it used to be. Yeah. Yeah, you know, we're still early in the ramps. Well, not early in the ramp, but early in the cost down curve of Austin and Berlin. Yeah. It takes time to work the cost out. At first, it's focused on ramp. Ramp brings cost down. Ramp quality, and then, yeah. And then- Ramp quality costs. Yeah, once that stabilizes, we can divert bandwidth, to cost reduction. Austin and Berlin saw quite a decent amount of cost reduction on a fundamental basis from Q1 to Q2. We'll continue to do that work. That will be helpful. We're just gonna keep chipping away at it. Yeah, packaging is a big element to that. Yeah, logistics too. Logistics is normalizing, which is great. Q-Bot, you know, utilization, something that, you know, the team has been very focused on. Every bit of it. Yeah. It's. Logistics is underappreciated. It's the old saying goes like, "Battle is won with tactics, wars are won with logistics. Yeah, we made tremendous improvements in cost and on fronts on, you know, OpEx costs. We are down to pre-pandemic expect cost levels now, our goal is to go further down. When we look at our progress from Q1 to Q2 on cost, the way that we look at internally, and normalized for the impacts of mix shift, with Austin and Berlin being a higher% of our mix, normalized for S and X being a higher% of our mix in Q2 versus Q1, the sequential cost reduction, it might be the largest we've had in a while. I think it's great work on behalf of the Tesla team, and we just got to keep it up. It's a game of pennies. It's like Game of Thrones, but pennies. Mark, do you have a follow-up question? I think you're muted. Yep. Yeah, thank you very much for all the details on that. You know, maybe you could put a finer point on the downtime impact that you spoke about in your prepared comments, in terms of production impact, and then also, to what extent there's a margin impact, from those factory upgrades that you're planning this quarter. Thank you. The downtime, you know, we don't know exactly the number of cars impacted because, you know, kind of the way that we go into downtime windows for upgrades is, you know, we set aside a period of time, but then the team is challenged to go as quickly as possible, so that we can get the factories up and running again and minimize that. It's not a profound reduction, you know, hopefully. Yeah ... it's quite small. I think we're getting too much into the weeds here. I mean, like, we're asking for a level of precision that is not possible to answer. Let's move on. Yep. I think this is unfortunately all the time we have for today. Okay. We'll speak to you all in the next 3 months. Great. Thank you very much. Thank you.