Tesla Q1 2018 Earnings Call 2. Mai 2018 Die berüchtigte Telefonkonferenz zum ersten Quartal 2018, in der Musk Analystenfragen als langweilig abtat und stattdessen Fragen von Kleinanlegern aus YouTube beantwortete.
Die berüchtigte Telefonkonferenz zum ersten Quartal 2018, in der Musk Analystenfragen als langweilig abtat und stattdessen Fragen von Kleinanlegern aus YouTube beantwortete.
Transkript Operator
Good day ladies and gentlemen and welcome to the Tesla Q1 2018 financial results and Q and A and webcast call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press Star then zero on your touchtone telephone. As a reminder, this conference may be recorded. I would now like to introduce your host for today's call, Mr. Martin Vieja, Senior Director of Investor Relations. Sir, you may begin.
Thank you Sheree and good afternoon everyone. Welcome to Tesla's first quarter 2018 Q&A webcast. I'm joined today by Elon Musk, JB Straubel, Deepak Ahuja and Doug Field. Our Q1 results were announced at about 1pm Pacific Time in the update letter 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 one question and one follow up. Please press star one now. If you would like to join the question queue. Before jumping into Q and A, Elon has some opening remarks. Elon,
I think our letter says most of it, but I think we're going to spend extra time on Q and A and try to answer as many questions as possible. I think we should be able to answer. So we're going to go as long as there are good questions to answer. The thing I'm most excited about is the rapid increase in output we've got just in the last 24 hours at Gigafactory, we managed to achieve a sustained rate of over 3000 packs per day. Sorry, per week and actually reach the peak hour. If extrapolated outward would be a rate of over 5000 cars per week. Obviously you can take a peak hour and assume every peak is every hour is as good as the peak. But if you can achieve it even once in an hour, then with continued refinement of the system and improved operational uptime of the machinery, it means that you can achieve that sustained rate with more refinement. So you spend essentially a month or two improving the operational uptime and the system as a whole will be able to do well over 5,000. I think. I mean, what's interesting is that at least in the case of pack production. We were able to do this with minimal capex. And I think in general, our understanding of production is improving dramatically, exponentially, in fact. And we are seeing ways to achieve improved volume with dramatically less capex by simplifying the production line, by really engaging all of our associates, no matter how junior, in improving the way that parts are made. It's amazing how everybody's got good ideas, just needs to solicit those ideas and implement them, And then making ongoing design improvements so that when we discover that something is not well designed for manufacturing, that we would very quickly change that part design and introduce that into the flow. One of the things we've also found is that there's some things that are very well suited to manual operation and some things that are very well suited to automated operation. And the two should not be confused. So I should be clear that the vast majority of the test production system is automated. However, as I mentioned in a tweet a few months ago, we did go too far on the automation front and automated some pretty silly things. One example would be we had this. This is sort of ironically foolish. We had these fiberglass mats on the top of the battery pack. They're basically like fiberglass. They're basically fluff. So we try to automate the placement and bonding of fluff to the top of the battery pack, which is ridiculous. So we had Flufferbot, which was really an incredibly difficult machine to make work. Machines are not good at picking up pieces of fluff. Human hands are way better at doing that. And so we had a super complicated
using a vision system to try to put a piece of fluff on the battery pack. Then one of the questions asked was, do we actually need that? So we tested a car with and without and found that there was no change in the noise volume in the cabin. So we actually had a part that was unnecessary, that was forced. Line kept breaking down because flufferbot would frequently just fail to pick up the fluff or put it in like a random location. So that was one of the silliest things I found. We were also, and this still remains to be fixed, but in a lot of cases. But we were over generalizing the design. So, for example, the current battery pack has a port for the front drive units, which we then put a blanking plate, a sealed blanking plate on. So essentially we punch a hole in it, then put a blanking plate over the hole and do that for all rear drive unit cars, which is kind of crazy. We've added cost, we've added A manufacturing step, we've added a failure mode
for something that is unnecessary. So that is something that's an example of something that's changed. So the result is we've had a radical improvement in production. Battery pack production went from taking seven hours to make a pack three weeks ago to under 70 minutes now. So just show that really radical improvements are indeed possible. We also saw enormous improvement in Zone 4 of module production. This I should point out, is a fully automated zone and we're able to also achieve a sustained rate of 3,000 vehicles a week. So we're actually slightly ahead in factory module and pack production than expected. And with some work at the Fremont vehicle plant, primarily in the general assembly area, I'm confident we will very soon exceed the 3,000 mark in pre mines. So we're already there in the body shop which is also almost entirely automated, where we weld up the body, they were already capable of over 3,000 cars a week. And then general assembly with some improvements which will include reduction, I should say temporary reduction in automation in a few places, then we should be over 3,000. So basically I'm feeling really good about the Tesla production ramp Model three and I'm very proud of the work the team has done. It's been an amazing amount of hard work and sacrifice by some very talented people to achieve this outcome. It's worth noting the you see a chart in the Model 3 market share versus competitors in Mid sized premium sedans. We are almost the best selling sedan in the United States in this category and as of April and we will certainly be there in May and that's something really odd. I mean be there in May and then, and then really be there later this year, like third in the third quarter. It will. I think there's a good chance Model three gets maybe close to majority market share of mid sized premium sedans. 30 to 40% seems likely and maybe a majority market share later this year. This is coming from a standing start against a lot of established brands who have far more sales outlets than we do. So this is very encouraging. Oh, and yeah, as the letter says, I'm feeling quite confident about achieving GAAP net income and positive cash flow in Q3. This is not, you know, obviously a certainty, but it does appear quite likely in my view. We are going to conduct sort of a reorganization, restructuring of the company this
and make sure we're well set up to achieve that goal. And in particular the number of sort of third party contracting companies that we're using has really gotten out of control. So we're going to scrub the barnacles on that front. It's pretty crazy. We've got barnacles on barnacles, so there's going to be a lot of barnacle removal. All right guys, want to make any comments?
Thank you. Elon Shuri. Let's go to the first question.
Operator
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then one key on your touchtone telephone. We ask that you please limit yourself to one question and one follow up question. You may then return to the queue. If your question has been answered or you wish to remove yourself from the queue, please press the pound key to prevent any background noise. We ask that you please place your line on mute once your question has been stated. Our first question comes from Brian Johnson with Barclays.
Analyst
Yes, good afternoon. Want to talk a little bit about some of the. First of all, if we talk about the 3,000 sort of all related to the production ramp, if we talk about the 5,000 per week run rate, is that assuming 724 or at what point do you think you've yet to sort of five day two shift operation?
Well, first of all, I think a five day two shift operation is a ridiculous way to operate because that would be a very poor use of capex. Nor is it the way that we have operated in for most of Tesla. So the module production, cell module and battery pack production and powertrain production have always operated on a 24, 7 basis. And the exception has been general assembly which is operated on typically two to three shifts, sort of a five to six day 20 hour shift and paint which is operated on kind of a six day basis.
I think it just makes sense to operate the whole company on the same basis. But a majority of Tesla's always operated. A majority of Tesla production has operated on 24, 7 basis since we started production.
Yeah, I mean this is JB. I can chime in. As Elon said, it really makes great use of the capex and the lines and that's why we did it starting way back with the baby beginning of S. But aligning everything to the same shift schedule makes it so much more efficient because we don't have the seesaw of inventory, interline inventory between the different shops.
One of the key things to improving capital efficiency of the system is reducing work in process. And if you don't have, if the ships are not aligned then you have to build up inventory in kind of a storage warehouse and then. Right, yeah. So it's pretty foolish to actually Operate on a five day, two shift thing anyway. Yeah, but it's. This is sort of the. We're using the chip fab approach to capital efficiency. So it's called aws. It's not out on web service. We're not sure what it's called. But like there's something called alternate work, whatever. Alternate work week. Yeah, I think we're cool. Like people work like three long days and then four long days alternately, something like that.
Other
So multiple crews rather than just using overtime on weekends.
Analyst
So it seems like just doing the
math, it's not like one person working 24 hours a day, seven days a week. There are like four or five shifts.
Analyst
Yeah. So if I just do the math, that would seem at 5,000 to get you to attack time of two minutes. And I go back to some of the prior conversations. I mean that's my understanding is best in class is sort of 50 seconds to a minute. And I thought the whole going faster than Grandma Walker was actually targeted at blowing past that. It sounds like you're sort of 2x the tak time of other factories.
The number you're referring to is actually the job vehicles per minute. Yeah, yeah, yeah. It's general assembly number, not other stuff. But
you may have also not taken into account, you know, so called OEE or the actual actual uptime of the line, which tends to make the TAK time a little faster than the perfect calculation.
If they say it takes a minute, they don't mean it's like over a seven day, 24 hour work week. We could also just say sure we did. Our peak pack production today was 32 packs in an hour. So we're under two minutes of packaging and rising from there.
And as Elon alluded, the numbers go up rapidly as we go to the sub assemblies that are in higher unit quantity per car.
So 4x per module. And then we have smaller sub assemblies still that are factors of 10 or 20 even higher than that.
Yeah. That said, I do believe that the path to manufacturing efficiency is velocity. Velocity and density. And that is absolutely what we'll be working on rather than just trying to spend billions of dollars on duplicating a factory. If two companies are competing and one has to double its capex in order to double production and the other one can with minor capex can just speed up the line by double. That's a game over.
Analyst
But in the meantime, the lines can. I think what you're saying some start some stops to get to the 5,000 per week.
Yeah. You can't, like, you can't have like zero maintenance time and zero, you know, like you have to do equipment upgrades, you have to do, you know, ongoing maintenance. So you can't just have it be upgraded. Be great 24 7. Okay, thanks.
Operator
Thank you. Our next question comes from Rod Laske with Deutsche Bank.
Analyst
Hi everybody. Just wanted to follow along on that line of questions. So to the extent that you're adding humans in certain automated processes, can you just help us interpret the extent to which these changes affect the economics on model 3? And to the extent that you've done some competitive analysis,
Analyst
in the Tesla production system, how do you stack up competitively against other OEMs in terms of labor hours per vehicle
or depreciation per vehicle? Well, I'll say a few things and then I have. Deepak can elaborate.
the thing that I've noticed is if you have a really complicated machine, like the Fluffbot that I was talking about earlier, in order to keep it operating, you have to have a ton of maintenance engineering. So you have like basically pretty expensive or maintenance engineers that have to maintain the thing and fix it like basically seven days a week, 24 hours a day. The cost of a maintenance engineer may not be incorporated directly into or fully incorporated directly into gross margin, but it is nonetheless a cost that far exceeds the labor cost of simply placing the fluff on the battery pack, which as it turns out was unnecessary. So I think actually I do not see this having a mature long term impact in our costs. I actually see most likely our costs will decrease. Fully considered costs of producing the vehicles will decrease by getting rid of production stations that are really poorly suited to robotics because of the very expensive cost of robot technicians.
Other
Ron, we are very capex efficient overall. Let me just start from that point. And if we look at our depreciation cost on a per unit basis at steady run rate of 5000 or so cars per week, we are in my mind, well below a lot of our, maybe most of our competitors. We're below $2,000 per unit depreciation cost. And then overall, clearly there is some impact, as we have indicated in the letter, from the additional labor we've added. But it's temporary and our expectation fully is a lot of this labor will come out once we stabilize production and then figure out smart ways of automating where it makes sense.
Analyst
Okay, thanks for that. And just secondly, your comments in your letter on the advances in batteries were interesting. Could you give us some insight into how we can translate that into cost per kilowatt hour or some metric in terms of the gains that you're making.
Other
That's something, I mean, every data, every data point, Rod, that we look at internally suggests that we are best in class, but we don't.
There's not a class. Yes, we're the best. Sorry, best in a class of one.
I think directionally, Rod, you know, it's helpful to understand the different commodities and the trends that we're pursuing in the batteries. You know, being on a path to reduce cobalt usage, for instance, has been something we've been working on for literally several years now. And this has been extremely helpful in the overall cost per kilowatt hour, you know, especially, you know, with recent commodity price movements. So I think, you know, we can't really be quantitative, but that directionally is a pretty good trend.
Yeah, we think we can get the cobalt almost nothing. Okay, great.
Thank you very much. Let's have the next question, please.
Operator
Thank you. Our next question comes from Adam Jonas with Morgan Stanley.
Analyst
Thanks, Elon. So you repeatedly said, I think in recent weeks that you do not need to issue equity capital at Tesla. And I think many investors on this call would say it's better to raise capital when you don't need to. So I guess.
Analyst
Yeah, you may not need to, but do you want to?
No, don't want to. I specifically don't want to.
Analyst
Perfect. Okay. My follow up, Elon, is your cars produce really a large amount of data and SpaceX gets into the satellite broadband business next year. Some are SpaceX,
Not next year, but it's probably three years.
Analyst
Okay, three years. Thank you for that. Some argue that SpaceX could offer Tesla a resilient cyber secure pipe for this precious vehicle data and a potential competitive advantage. So, Elon, isn't bandwidth an obvious domain for collaboration between Tesla and SpaceX one day?
I mean, it might be. There's lots of interesting things you could do. Car's got a lot of computing power and it's connected, you know, to cell networks and WI fi and everything. We could certainly connect it to a LEO Internet constellation. I haven't even thought about it, but probably there is.
Thank you. Let's go to the next question, please.
Operator
Thank you. Our next question comes from David Tamborino with Goldman Sachs.
Analyst
Great, thanks for taking our questions. Elon, you talked about the downtime on the Model 3. You're going to take two planned periods this quarter. One has already occurred, the other is going to occur later in the quarter. What specifically have you addressed in Fremont so far. And what are you planning to address
Analyst
And are those alone kind of remaining bottlenecks for you to get to the 5k within the Fremont plant?
the Tesla production system at this point is vast, so. And we literally have the two biggest factories on earth between the Gigafactory and Fremont. Gigasol, slightly smaller than Fremont, I think. Well, maybe just, yeah, slightly smaller footprint, but it'll soon be bigger than Fremont and Fremont's like the second biggest building of any kind by footprint. So it's just like this. It is a vast. The full answer to that question is a complex one. The I feel very confident about our ability to get to 5k very soon. Sustained rate at Giga getting to essentially getting to 5,000 battery packs and motors
power inverters and chargers and that kind of thing, which is all down to a Giga by the end of next month.
body production, no problem. General assembly is probably our biggest risk and I'm going to be focusing on that a lot in the next coming month. And then a paint shop is maybe the second biggest risk after General Assembly. These are all quite manageable. It's not like huge brain surgery to get these things right. It's a lot of work. Like I said, it's just a lot of time and hard work. But it's very doable. And yeah, it's really quite straightforward. It's not like a fundamental impediment here. In many cases, we've seen huge gains through software, software that's in the car, software that controls the automation and connects to our central system. So in many cases it's not even hardware upgrades that create substantial increases in velocity. Yeah, exactly. Doug makes a good point here,
I think that is that the product, the production, a really great production system is primarily a software problem. And there's no one in the order industry that is remotely as good as Tesla at software, as Tesla. I mean, Tesla is way better at software than any other car company. So if it is, what I'm saying is true that the biggest challenge in a production system is software in a good position.
Analyst
Okay, maybe taking my next question in a different direction. What is your timeline for launching the Model Y and have you begun to spend for this or that only begin to start hitting the P and L from an R and D and a capex perspective in 2019?
It will only start to become significant in 2019.
Analyst
Okay, so all of the CAPEX spend for this year is associated with Fremont Model 3 Gigafactory.
No, no, please take me literally. I said it only becomes significant next year. It's not zero right now, but it's not. It's not. It's not a big number, but it's not a big number relative to our revenue.
Other
And in the early days of product development anyway, there's not much capex. Capex comes much later as you have committed to equipment and equipment still starts to come in house.
Yeah. Although it is remarkable, although the amount of money spent in the beginning is really quite low at the beginning of the development program. Decisions made at the beginning of development program have massive implications for future capex. So it is better to spend a bit more time making the right design
and really thinking through the producibility of product before racing ahead with capex decisions. There's no question we could have made the Model 3 much easier to produce than we have Model Y. I think Model Y is going to be a manufacturing revolution. It will be, I think, incredible from a manufacturing standpoint because we do not want to go through this pain again.
Thank you very much. Let's go to the next question.
Operator
Thank you. Our next question comes from Romit Shah with Nomura Incident.
Analyst
Yeah, I just wanted to clarify the gross margin comments related to Model three that you put in the letter. You said a couple things. You said over the medium term, Model 3 gross margins would be below the target of 25%. You also said that in Q3, in Q4, that those gross margins would be highly positive. So I'm just trying to understand what's possible for Model 3 gross margins by the end of the year. Could we get to a number that's close to 20%?
Other
What I'd say is that progressively each quarter we will be getting better. And yes, the answer is yeah. And it will come down to what other economics come into play, from currencies to commodities and how much more cost we take out from labor. So I don't want to give you a specific number, but will be close to it.
It's like. Yeah, exactly. It's. Yeah, exactly. Very, very close to 20%. Could be slightly low, could be slightly above.
Analyst
Okay, fair enough. And then, Elon, can I just ask
you about going a little further forward than say, Q4? We're very confident of a 25% gross margin.
Other
I'm also clarifying that. Yeah, we feel very good about that for next year.
25% is definitely what we expect.
Analyst
So when you say medium term, you're talking 2018.
Yeah, exactly. That's why it's important to clarify what These things mean Q4 is when we expect to be on or about 20% then, but by the middle of next year, 25% gross margin should be where we are. And then we'll obviously try to get to the high twenties by the end of next year.
Analyst
Okay. As a follow up, could you just comment on Jim Keller's departure? Highly respected chip architect. What does it say, if anything, about the development of Tesla's custom silicon and autopilot? Thank you.
Well, Jim's a great guy and there's sort of a dream he wanted to pursue for a long time, which is to kind of redesign how server architecture works. It's not something that I find all that interesting, but it's something that Jim, it's been a sort of personal dream of Jim's to do, and that's why he went to Intel. The Tesla, the actual design of the Tesla hardware is primarily by Pete Bannon, though I should be clear. Like the lead designer of that is Pete Bannon, who is still with Tesla. And then of course, Andre Karpathy is head of our AI team. So we don't plan to hire a replacement for Jim's position.
Thank you very much. Let's go to the next question.
Operator
Thank you. Our next question comes from Tony Sakonagi with Bernstein.
Analyst
Yes, thank you. I just wanted to follow up on the previous question and the gross margin targets. I think you had said last quarter that once you got to 5,000 units, you felt that you could get to 25% gross margins on Model 3. So that feels like at least a six or nine month delay relative to what you thought a quarter ago. And I'm trying to understand what the key drivers are. Is it really the labor for capital substitution? I don't think currency sequentially has changed much. I understand it can be a headwind, but I think relative to when you made those statements, it hasn't changed. So perhaps you can help us understand what has changed in terms of the gross margin ramp for Model 3 relative to what you thought before. And I have a follow up, please.
Other
Yeah, it's along the lines of what we said in the letter. If we look at the combination of the recently imposed tariffs, Section 232 and countervailing duties, plus commodity price increases, as well as the weaker dollar, that is adding significant material cost. And then temporarily we're using more labor. So when you combine those two, that's what led to our guidance. And certainly the material, the labor cost piece we will address and that will come out.
Yeah, but I mean, we're talking about a 3 to 5% difference. So, like, and it's something that we'll solve like within three or six months later. It's not like, it's like some. Let me make a final case out of it.
Analyst
Okay. And then separately, what, if anything, are you taking out in terms of your lower capex projection for this year and specifically in spending less than 3 billion, where does that take you in terms of both battery and production capacity for the Model 3?
Other
Yeah, so we're just being much more smarter in many cases. As Elon said, we are not just spending money on automation. We are first looking at the problem, simplifying it, and that's helped us reduce our CapEx on Model 3. And then we are also being critical about how we grow our infrastructure
Other
line it up with our growth in our business. So we feel that these are the right decisions and there is still room for us to reduce it further if we wish to. So we are leaving ourselves some discretion here to go spend money where needed.
Analyst
And so where specifically will you be
in terms of capital requirements?
Bonehead questions are not cool. Next.
Operator
Thank you. Our next question comes from Joseph Spack with RBC Capital Markets.
Analyst
Thank you. The first question is related to the Model 3 reservations. And I was just wondering if you could give us a gauge as maybe some of the impact that the news has had, like, of the reservations that actually opened and made available to configure. Can you let us know, like, what percentage have actually taken a step to configure?
We're going to go to YouTube. Sorry, these questions are so dry, they're killing me.
Operator
Thank you. Our next question is from Galileo Russell with hyperchange.
Hey, great quarter. Thanks for having me on the call to represent retail investors. I was wondering, with Waymo's plans to launch an autonomous taxi service in limited markets this year, if you could give us an update on the Tesla network and any details surrounding the launch date or geographic rollout.
So, I mean, that's. Thank you for an interesting question. The launching goal, where things are obviously evolving towards, is a shared electric autonomy model. So in order for this to obviously for the whole sort of system to work, you know, you need all the pieces in place. You have full autonomy level four or five, whatever you want to call it,
a lot of cars on the road and then build the software infrastructure behind that to enable shared autonomy. So to enable people to share their cars and be able to offer their cars as effectively kind of a Robo Lyft or Robo Uber, you Know, sort of like combination of like, I guess, Uber Lyft and Airbnb type of thing where you can own your car and have 100% usage of autonomous electric car. You can say it's available generally to anyone who wants to use it. When you're not using it, you can recall it at will. You can restrict usage to only friends and family or only users who are five star. This is the obvious thing that's going to happen. In order for that to be in place, we have to obviously sell full autonomy. We're making really good progress on that front. I believe that the current production of the vehicles that we're currently producing are capable of full autonomy
The only thing that would really be like, might be needed or maybe is probably needed is a computer upgrade to have more processing power for the Vision neural net. But that's a plug in replacement thing that can be done quite easily. So I think we're really well positioned and building the foundation for a, you know, having millions, ultimately tens of millions of shared autonomous electric vehicles which you can, like I said, decide not to share if you don't want to. And then it plays.
And specifically on the timing, on the timing, though, do you have any details about or when we could even expect to learn more about the timing of this service?
the hardest thing to predict about the timing is regulatory approval. The thing that's tricky with autonomous vehicles is that autonomy doesn't reduce the accident rate or fatality rate to zero, it improves it substantially. But the, the reality is that even though we think autonomy, even the current autonomy, reduces the probability of a death by 50%, which would be incredible because it's like, if applied broadly, there's over a million, I think 1.2 million automotive deaths per year. And how many do you read about? Basically none of them, however. But if it's an autonomous situation, it's headline news. And the media fails to mention that actually they shouldn't really be writing the story. They should be writing a story about how autonomous cars are really safe. But that's not the story that people
So they write inflammatory headlines that are fundamentally misleading to the, to the readers. It's really outrageous. And this would be true even if electric cars were, sorry, autonomous cars were 10 times safer. So that instead of a million deaths, you had 100,000 deaths, there's still going to be people who will still sue and say, hey, you're responsible for the death here. It's like, well, the 90% of people who didn't die are not suing. You know, they're still alive, they just don't know it. So we got to deal with that. And then obviously regulators respond to public pressure and the press. So if the press is hounding the regulators and the public is laboring on the misapprehension that autonomy is less safe because of misleading press, then this is where I find things to the challenge of predicting it to be very difficult.
yeah, it's really incredibly irresponsible
any journalist with integrity to write an article that would lead people to believe that Tesla autonomy is less safe because people might actually turn it off and then die. So, anyway, I'm really upset by this.
Yeah, really interesting answer. Thank you.
I can say from a technical standpoint, I think we'll probably be ready by the end of next year.
Awesome. And then one more quick thing on production capacity and speed of the Fremont line, because this is something you mention a lot, it seems. And in the last quarterly conference call, you mentioned the max capacity with 700,000 cars for Fremont or somewhere around there. And that was SX and 3. And so we recently got a report from Reuters saying that Model Y production would start in November 2019 at Fremont. And so I'm just kind of curious with the semi and the Model Y launching next year, like, where are you actually planning on assembling these vehicles?
The Reuters report is based on nothing. Like, I didn't know where that came from. We will not be starting production model wide at the end of next year. I would say it's probably closer to 24 months from now. So 2020 is a more likely prospect for Model Y. Early 2020. And the production location for Model Y has not been decided. We're really crowded here at Fremont. I don't know where we put the Model Y production. So it's difficult to imagine that we could not fit the Model Y production at Fremont. We are jammed to the gills here. So one thing I know for sure is not here. It is crazy packed. And we're. Yeah. So. We're trying to figure out what the optimal location is for Model Y production, but it's not here.
And I'm not an expert in battery pack technology, but it seems that a lot of people are speculating that the specs for the semi truck, even I believe the CEO of Daimler said it breaks the laws of physics. So I'm wondering, is this just a linear?
I don't know much about physics. I know him.
I'd be happy to engage in a physics discussion with him, I actually studied physics in college.
My question is, is that just a linear improvement in your battery technology or is there some sort of new breakthrough or different platform that the semi and roadster are going to be built on?
Like even if we didn't, I mean, even if we didn't improve our battery technology at all, we could achieve a 500 mile range truck at all. We're going to do better than 500 miles.
Yeah. This is JB. I think the key point is it doesn't require some dramatic breakthrough. So there's a fundamental misunderstanding, I think, of what the, the current technology in our existing products can actually do. And maybe that's just the misunderstanding of the current status of the technology versus others in the industry. That could be where some of that's coming from. If they're benchmarking the best battery pack they can buy from a supplier and then mapping that what the semi could do, it doesn't solve. I think that that's maybe where some of it's coming from. But we basically have what we need in house and understand how to do those specs today. Or better, as Elam said, we could
do a 500 mile range semi today. I think the actual production unit will be above 600 mile range.
Great stuff. So I'm also wondering, are you guys going to let Porsche beat you to market with a 350 kilowatt hour supercharger?
Because I know you've mentioned V3 questions are not boring.
So this is way more interesting.
The 350 kilowatt charger from Porsche like they mentioned, they're rolling that out. On the last call. JB seemed to indicate that you guys were sort of going to keep the status quo with your supercharger technology. But Elon, I know you mentioned that there is a V3 supercharger. So I'm just trying to get some clarity on whether you will be improving your supercharger technology or not. And if there is a V3,
we're definitely going to be improving our supercharged technology. The thing about a 350 kilowatt charger is it doesn't actually make a ton of sense unless you've got a monster back to battery pack or have a crazy high C rate, in which case your energy density is going to be poor. So it's kind of cockamamie. Yeah, we think maybe 200 on a per cart.
Also, I don't know if they meant
350k kilowatts for a single car that's really pretty, you're going to frag the battery pack if you do that. You cannot charge a high energy battery pack at that rate, unless it's a very high kilowatt hour battery pack. So something along the. Yeah, I think, I don't know, JB, like couple hundred, 200, 250 maybe.
Yeah, I mean, that's definitely sort of power level that we've discussed and explored. And some of it also comes down to an optimization around utility versus cost and trade offs in the car itself. You kind of hinted at that, Elon, but there is a trade off fundamentally between charge speed and essentially range or cost of battery. Yeah, and we look at that pretty carefully. We understand the trade off and we could design cells in a pack that could charge at faster than 300, 400 kilowatts. But it's not a very useful trade off to the customer.
Most people don't understand the difference between energy and power even really. Energy is essentially range and then power is kind of like your peak acceleration, basically the rate at which you consume energy. So really it's more important to have. It's more important to have long range than it is to have a super fast charge time. And you can sort of think about this in the devices that you use. Like, would you rather have a cell phone that lasts two hours, but
could charge in five minutes or 10 minutes, let's say, but it only lasted two hours. Or you'd like a cell phone that lasts two days and maybe it takes an hour to charge.
We'll keep going until the questions on our slow. While they're interested.
Yeah, I have a. I have a couple more for the superchargers. I know you guys are not trying to profit off of Tesla owners with that infrastructure, but will you ever open that up to other automakers and try and generate revenue from that system?
We've always said that this is not intended to be a walled garden. And we're happy to support other automakers and let them use our supercharger stations. They would just need to pay the share the costs proportionate to their vehicle usage. And they would need to be able to accept our charge rate and our connector or at least have an adapter to our connector. So this is something we're very open to. But so far none of the other car makers have wanted to do this. But it's like not because of opposition from us. This is not a walled garden trying to make a moat. Bullshit.
Okay, and maybe could you clarify what's the strategy like? It seems like that would be a very strong moat to have this network you guys have been building globally for years. So you know, why open it up and why is that not a moat?
Sorry, can you repeat the question?
I'm just wondering why that isn't a moat. Because, you know, as a long term investor, I feel like the charging infrastructure you guys have built would take years and millions of dollars for another brand to replicate. So I'm just curious about the strategic thinking behind opening that up versus keeping it closed.
First of all, I think moats are lame. I mean they're like nice and sort of quaint vestigial way. But like if your only defense against like invading armies is a moat, you will not last long. What matters is the pace of innovation, that is the fundamental determination determinant of competitiveness. And for any given company, if the rate of innovation, let's say competitors, maybe they come up with something new every six years, we're maybe every two to three years. So if our innovation is, let's say twice that of any given competitor, then it is. So this is true generally of companies in any industry. Whichever company has the highest rate of innovation, unless that company is actively killed by its competitors in some way that's nefarious or shoots itself in the foot, it will at some point exceed those competitors. Like this is obvious that this would occur with Amazon or Walmart because Walmart's render rate of innovation was negligible and Amazon's was very high. The outcome was obvious a long time ago.
And in terms of the megacharger, I noticed you guys are going to be selling energy at a fixed price for those truck customers. So I'm wondering what the philosophy is there. Is it also you're going to operate that at cost and reduce that energy price, or are you thinking of that as a revenue stream for the company?
We haven't really talked about any of that and haven't finalized frankly any of that. We want to make sure that there's a very seamless and easy system to operate trucks wherever they need to go. And some customers may elect to work with us on the whole system or parts of it. But I think there's a lot of different ways that that can be solved.
Yeah, I mean for sure with commercial trucking, like a heavy duty semi economics are fundamental to that situation. They're not making decisions based on aesthetics or, you know, consumer related things. You know, like we made out, we try to make out semi kind of cool and sexy just because we think that that's a good thing to do, not because it affects the buying decision of our customers in a meaningful way. It doesn't really move the needle. I read this, like, laughable lawsuit recently from some company ironically called Nikola. It's like Nikola is suing Tesla. That's hilarious. Fate loves irony. But they're like suing us because. Because the way the trucks look, which is absurd. Nobody's buying a semi truck because of the way it looks or because it's got like a wraparound windshield or whatever. Please. So the economics are incredibly important. And so we have to make sure that the superchargers, or mega chargers, whatever we call them for the trucks are set up in a way that. That have very low cost electricity.
One maybe slightly related point to that that I think is super exciting about this is, you know, the potential to link up renewable energy generation at a very fixed and also very affordable cost to power future trucking fleets. Ultimately, that can give customers an incredibly deterministic cost per mile that will not change with the price of petroleum over decades. Which is really, really an interesting proposition for a trucking customer. And that's something that we're pretty excited about.
It's really worth emphasizing that if we're trucking companies, if the cost of Diesel goes up 50%, it just destroys their business. And we're with the sort of mega charger situation, combining, you know, basically having a solar battery powered mega charger. We have. They have constant costs and we know what they are. Baked them in. And it's predictable. Yeah, it's very predictable. And lower cost per mile than a diesel truck at the front. But fundamentally it's like, what is the cost per mile? A kilometer of cargo. And that drives the commercial trucking market. And you could have the ugliest truck in the world and still would be victorious.
Building on that, do you have any thoughts on how the trucking market could change or potentially grow? If you guys are actually able to deliver on dramatic cost reductions, especially with things like platooning,
I think it will take away quite a bit of revenue from railway because the reason rail is able to be competitive is that effectively just platooning with lots of rail cars and you need only a small crew to operate the train. However, trains don't go. Trains don't go everywhere. So you have to like, have a truck deliver things to the train rail spur and then picks up, pick it up, and then at the destination, a truck's going to pick it up from the rail spur over There. So you still have trucks plus train plus transfer. So I think platooning of trucks will quite dramatically affect the rail industry in a negative way.
On Tesla Energy, I assume that you guys are basically supply constrained, not demand constrained on that side of the business. So I'm wondering how you're prioritizing residential versus utility scale and in particular how is this successful project in South Australia sort of changed the industry's perception of what batteries can do.
Yeah, yeah, I think it's had quite a profound effect. South Australia took a chance on doing the world's biggest battery and it's worked out really well. If you read the articles, it's worked out far beyond their expectations because the battery's able to respond at the millisecond level far faster than any hydrocarbon plant. And so it's value in grid stabilization was much greater actually than even a gas turbine plant, which can only respond quite fast. So it's kind of like if you get on Tesla and you have that instant acceleration, it feels like you're like a mind meld with a car. It's just like the car is you. And that same rapid response is true of the battery pack. So the customers that the utilities that we've worked with thus far really love the battery pack and I feel confident that we'll be able to announce a deal at the gigawatt hour scale within a matter of months. So 1000 megawatt hours. 1000 megawatt hours for.
Yeah, maybe just the first part of your question. Also, it is absolutely accurate that we are still, there's more than enough demand and we are still building out of our demand backlog and actually increasing it slightly. And we're trying to do our best to prioritize customers between residential powerwall and utility and commercial. You know, I'd say our longer term strategy is to shift a little bit of our focus and really catch up on our powerwall demand backlog, which is quite. It's too long right now. We know people are waiting too long. So that's, I think that's generally the direction we're trying to take that. But you know, Model three has taken a lot of focus in the last few quarters and that trend is going to be reversing in the second half of the year. Awesome.
Thank you guys so much. Really appreciate the time. Keep up the awesome work.
Very welcome. Thanks for the great questions.
Let's go to the next question, please.
Operator
Thank you. Our next question comes from Phil LeBeau with CNBC.
Analyst
Question on The Tesla Semi. Can you give us some perspective in terms of how many reservations you guys have now and where you guys are in the plan for developing it and rolling out the first model?
My apologies, sorry, we're just discussing something internally. Could you repeat that question with the Tesla Semi?
Analyst
How many reservations do you guys now have approximately and where are you in the process as far as the development and the rollout of the first model in terms of timeline, when you guys expect that to happen, et cetera?
I actually don't know how many reservations we have for the semi. About 2000.
I mean we haven't really tried to sell the Semi. It's not like there's like an ongoing sales effort. So you know, sales orders are for the Semi are like opportunistic really, companies approaching us, you know, it's just not something we really think about much. Our focus is on the Model 3. We need to get that to about 5,000 a week at a good margin. We need to become profitable company. That is a good criticism that has been leveled at Tesla. An accurate one is high time we became profitable. And you know, and the truth is like you're not a real company until. Until you are, frankly. So that's our focus right now. And we've got an awesome product roadmap. The Tesla Semi is one of those things.
I think we've got a really good idea for the Model Y is going to be amazing, really excited about that. Tesla Pickup is going to be great. You know, so the product roadmap, I mean we have like way more cool things than we know what to do. Like the idea is idea generation far exceeds the ability to execute it. So we just need to stay focused and not divide our attention on too many problems products at one time.
Analyst
And a follow up when given the fact that you're already packed to the gills in Fremont. When will you make a decision regarding a second manufacturing facility?
So that's probably later this year. It has to be later this year. So I'm not sure of the exact time, but I don't know, maybe next
but not later than fourth quarter Model Y. And then we also expect to announce the location of a Tesla gigafactory in China soon.
Analyst
And will that second factory, when you announce it, will it be in North America or is that going to be in China?
Well, I just said it's in China.
Analyst
So the gigafactory is there, but the second manufacturing plant will be in China.
Oh, I mean, yeah. So sorry. In the future all gigafactories will include vehicle production. So right now we've got vehicle production and battery production. Like battery production and motor and power electronics and charger production are at Giga. And we've got our Fremont car factory. But future gigafactories will all incorporate vehicle production.
We're appreciative of the fact that the government of China has announced that they will be allowing full ownership of manufacturing facilities in China. Which lets express a word of appreciation the Chinese government in that regard. Robin, is there anything that you'd like to say or anything. We are in good discussion with the government, so announce something when we read.
so Robin Rain's here with me. Robin is managing worldwide sales for Tesla right now. He was born and raised in China when the Physics Olympiad.
Anyway, but we will talk more about, I think the next earnings call or next. We'll have a lot more to say about that in the future.
Operator
Our next question comes from James Albertine with Consumer Edge.
Other
And if I can be brief, I wanted to ask, you know, given the coverage that you've received, you know, as it relates to these high profile accidents, you know, one of the things we like most about your company is you have the most miles tested and continue to test daily. From an autopilot perspective, can you give us any color from what you're seeing in your data as it relates to the confidence that your consumers have in the autopilot functionality, whether they've used it more or less frequently in their existing vehicles or whether they've opted to purchase the functionality more or less in lieu of these accidents? Because we're really trying to get a sense of consumer sort of the ability, the likelihood of consumers to adopt this technology over time. So this would be very helpful.
We do see a steady increase in the number of percentage of miles driven with using autopilot. So as we roll out more functionality, as we make it better, we see a steady increase. You know, I think it's something for Carsquared with autopilot, something on the order
a third of highway miles, maybe closer, maybe a half in some cases are in some regions are on autopilot. But then of course when there's like negative news in the press, then that dips. And then I was like, okay, this is not good because people are reading things in the press that cause them to use autopilot less and then that makes it dangerous for our customers and that's not cool. That's why I get upset. And, and then we'd get accused of blaming the victim. I was like, look, we're not blaming the victim here, but it is important that people not be under the wrong impression. The statistics are unequivocal that autopilot improves safety. No question. In fact, one thing I was going to mention, almost forgot to mention, is that we'll be publishing our safety statistics on a quarterly basis.
So people know exactly what autopilot safety is. Is it getting better or is it getting worse? And it's like one of the common misimpressions is that when there is, say, a serious accident on autopilot, people for some reason think that, or some of the articles think that it's because. Because the driver thought the car was fully autonomous and wasn't and we somehow misled them into thinking it was fully autonomous. It is the opposite case. When there is a serious accident, it is almost always, in fact, maybe always the case that it is an experienced user. And the issue is what more wanted complacency. Like, they get too used to it. That tends to be more of an issue. It's not a lack of understanding of what autopilot can do, is actually thinking they know more about autopilot than they do. Like, quite a significant understanding of it, but less than they realize.
Other
Just to clarify, Elon, so you've had two accidents spaced out pretty far. You've had dips during those periods when the accidents explained. But to clarify your comments, you are increasing. You're seeing increasing usage and you've weathered those dips.
Based on where we are today, that is correct.
Other
Wonderful. Thank you so much.
Operator
Thank you. Our next question comes from Ben Callow with Baird.
Other
Hey, Elon. So I remember the Baird story. I don't know if it was fake news or not when you hung up on him about your battery costs. And I don't want to ask a mundane question, but I think it's important because one of your stakeholders or shareholders right now, and so far we've had a couple push outs in production. And is there a way that you can update us when you get to that 3,000 number or 4,000 number per week? I mean, you're active on Twitter. Can you just let us know? Because we're going to have a big vacuum here and there's a lot of news flow out there that makes volatility into the stock. It makes it hard for people to own, even though you have a lot of believers out there. And so even though we're beating my opinion right now, I think it's very important to get those kind of updates. And so that's, I think that's my question.
Can you give us an update when
Other
you get to 3,000, 4,000 per week on the Model 3?
Yeah, actually Tesla is such a leaky server of information that I think the news will leak pretty quickly. And also people track registrations very closely. So at most any information that we provide would be a week or two in advance of what will become public knowledge just due to vehicle registrations and shipments that attract very carefully. So really the problem is people get too focused on what's happening in the space of a few weeks or a few months. It's an old maxim of investing. You should not be focused on short term things, you should be focused on long term things. We have no interest in satisfying the desires of day traders like couldn't care less. Please sell our stock and don't buy it.
Other
I completely understand your frustration and I'm frustrated too on how biologic we are right now. They also say that, you know, great years are made out of quarters and great decades are made out of years. So everyone's short term focus in some ways and volatility has a way of shaking people out even that are strong and want to be there. And so anything you can do to help in the near term on that I think is helpful for the stock.
That's it. I mean, I think that if people are concerned about volatility, they should definitely not buy our stock. I am not here to convince you to buy our stock. Do not buy it if volatility is scary. There you go.
Okay, and let's go to our last question now.
Operator
Thank you. Our last question comes from Alex Potter with Piper Jaffrey.
Not sure if this is going to
be a hard question to answer.
You mentioned Model 3 market share versus the 3 series and others in that segment. To what extent do you think Model 3 is, I guess changing the denominator, making that segment larger as a class versus what it used to be? I think it will probably increase the total number of sedans purchased.
yeah, I think so. So you think you're pulling, you know what, ex Accord buyers and Camry buyers into that class? Yeah, we know this because of the trade ins. So we see quite a wide range of cars including so people that are trading in the cars, they're not necessarily owners of a C class or an Audi A4 or 3 series.
Even with Model S. You're with Model
Other
S, So with Model 3 it's going to be even more prominent.
Yeah, yeah. Exactly. And I think also once we get to the shared autonomy ride hailing thing, which could be as soon as the end of next year, but that's when it's technically ready. But then not long after that, I would expect some jurisdictions to give regulatory approval. The effective cost of ownership of a Model 3 or Tesla drops dramatically because you can share that car with others. Okay, very interesting.
Last one. You mentioned earlier.
You think the Model Y production is going to be a true sort of production revolution.
Other
If you had to do the Model
3 over again, there are some things that you would have changed and you hope to incorporate those learnings into the Model Y. What specifically would you do or what specifically plan to do? Well, I think let's save that for another time. We'll talk about that when we unveil the Model Y. But it's really going to be dramatically better. The design and production system, I think, really will be next level.
All right, thanks a lot. Thanks, everyone. Appreciate the good questions.
Okay, these are unfortunately all the time we have, so thank you very much and speak to you now next quarter.
Operator
Thank you very much and goodbye, ladies and gentlemen. Thank you for participating in today's conference. This does conclude the program. You may all disconnect and have a wonderful day.