Baron Investment Conference

Good morning. My name is Gilad Shani and I'm a research analyst at Baron Capital following the tech and energy infrastructure sectors. It is my distinct pleasure to introduce our next guest. He is a man who has been identified as everything from a super villain to a superhero. He doesn't stop at changing our world as we know it. He's on a mission to change our galaxy.

Elon Musk is the CEO of Tesla, a company whose mission is to accelerate the world's transition to sustainable transport. In 2004, Elon was a lead investor in Tesla's first financing ground. And in 2008, when the company was near bankruptcy, Elon became CEO and led its growth to over $5 billion of revenue today. The company developed three electric vehicles, the Roadster, Model S, and Model X.

The Model S has been described as a remarkable car that paves a new unorthodox course and it's a powerful statement of American startup ingenuity. Model X, which was recently launched, has a weight time of over a year. Tesla sold almost a 100,000 vehicles, electric vehicles to date. Tesla is building a battery manufacturing plant called Gigafactory that will be 10 times bigger than the largest Boeing facility producing Dreamlininers.

Interestingly, Tesla is the largest battery consumer in the world, surpassing consumer electronic companies like Samsung and Apple. Elon is a scientist, an inventor, a designer, and one of the world's most innovative minds. He is helping to advance some of the world's most disruptive technologies. Tesla in the auto industry, SpaceX in the aerospace industry, and Solar City in the power industry.

Now, please welcome Elon and Ron for a conversation. That's pretty cool. So when I started my career, one of my first clients told me that what was most important uh was finding someone uh who could realize a dream, make it happen. Uh and that's been my whole career, finding people in which to invest in whom to invest. Uh I was with Eric Schmidt recently. He's a chairman of Google and he's one of uh Elon's best friends.

and uh he was telling me that he regards Elon as a combination of Walter Chrysler and Thomas Edison. And I didn't really know very much about Walter Chrysler until I looked him up on Google and and pretty interesting to be compared to those two guys. So, uh so, so again, keeping with the theory about investing in people, uh so we're investing in you and uh and and I think we're talking about $5 billion in revenues.

Uh, I'm sure you believe this is just the very beginning. So, so I'd like to touch a little bit before we get into the business on your background. We just started to talk about that before. So, you came from South Africa. Your dad was an engineer. And your mother? Um, my mother's a model and a nutritionist. And one of your brothers worked with you. Yeah. We co-founded the post company together.

And so so Elon uh was also a founder of you know he's had these games and uh electronic games and then he was a founder of PayPal uh sold his business PayPal and PayPal got sold went public 7 $800 million sold it for a billion too. eBay bought it ultimately 50 billion. So presumably that has some impact on the way you think about things. Yeah, absolutely. Um I I actually I I actually was against the sale.

I wasn't in favor of the sale, but um I was um I I I I was largest, you know, owner of of PayPal at the time, but I only had like 12% and so everybody else really wanted to sell, so we went forward with that. Um but I think um I think we probably shouldn't have. Yeah. Um so so I was reading about your history and and we've spoken before obviously and about uh your interest in space and uh sustainable transport and solar energy.

Where did all this come from? Well, uh, when I was in college, I thought about, um, what would most affect the future of humanity and, uh, I wanted to be involved in in those at least some of those areas and and I I thought there would be there were five things that I that I came up with that I thought would really affect our our future as a civilization. Um, one of them was the internet. Um, and then uh, the other was uh, sustainable energy.

both production and consumption of of that. And the third was um making life multilanetary. Um and then fourth and fifth were uh genetics and uh and AI. Um and I didn't think I'd be involved in in those areas, but I just those sort of more in in the abstract of what I thought would would affect things.

Um and um but I mean going going back a little further, I actually didn't really expect to be uh involved in creating companies when I was like uh in high school or you know uh middle school. Um I actually was going to going to um pursue sort of physics and a career in physics and try to sort of understand more about the nature of the universe.

Um but um you know then things like the superconducting super collider got cancelled and I thought well you know like what if I'm stuck in some situation like that and then there's like some active government basically stops things and then uh then then I I would it would all be a waste.

So, so when I when I think about it's a cars and so obviously, you know, if you're using hydrocarbons and burning them and wrecking the environment, it makes it tough to live on Earth and it's viewpointed out unless we adapt and can start to breathe carbon dioxide. And so, so, so, so that's your effort there.

But yeah, actually the thing is that um in in college um my interest in sustainable energy was purely at the time was was really from the standpoint of of of us eventually running out of hydrocarbons to mine and burn. So there's there's there's obviously limited supply of oil in the ground um and and eventually we would have to transition to something that's sustainable.

Um because when we're drawing oil from the ground, we're we're essentially taking the accumulated uh solar energy that was bound up in plants and animals and then over hundreds of millions of years uh was turned into oil. Um and and and that's that's obviously finite. And if uh we if we if we run out of that and don't have a good solution, then there would be economic collapse uh independent of any environmental concerns.

Um and so that was actually what what sort of initiated my interest in sustainable energy. U and it's sort of toological. I mean if if you know it energy needs to be sustainable if it's going to last for the long term. Um and then over time it became apparent that there there was actually an even more pressing concern which is that we're quite materially changing the chemical constituency of the oceans and atmosphere.

Um, and the way that humanity has kind of grown up around the world is that, um, you know, we've put so much of our so many of our cities and settlements and towns right along the coastline. Um, and, uh, you know, and and that the world is quite sort of delicate in in in these sort of chemical balance.

And so the if if we do take trillions of tons of uh CO2 that was buried deep underground and has been since in a lot of cases since the pre-Camrian era um you know when the most sophisticated thing was like a sponge then that would be would be a bad experiment to run. So, so it seems so obvious and we have all these car companies that make all these cars every year that burn gasoline and nobody wanted to do anything. But why? Why? Why?

So, it's so obvious, you know, you read in evidence and Exon was in the paper about the impact that they're having on the environment and they hit it just like the cigarette companies in 196. Same exact thing, right? It's it's the same same playbook.

In fact, the crazy thing is um I'd recommend reading the book Merchants of Doubt um because they actually explored um some scientists at JPL and and and elsewhere sort of explored like well what's going on here? And they actually found that the uh I mean the oil and gas industry is actually using literally the same lobbyists as the tobacco industry. Like by name, not even the firm. Amazing. Like some of those guys still they're still going.

Amazing. Um, yeah. So, I mean, and and just like when they learned how to do it. Yeah, absolutely. Um, and and then, uh, oddly enough, the one movie I was involved with making was a movie called Thank You for Smoking, uh, which I recommend watching. It's kind of a fun movie.

Um, and and you but but it it's sort of um it's it's based on on Buckley's book and it's uh it's it's it's it really gets to the truth of the matter of like how how all this happens. Um and what they do is essentially exploit doubt.

Um, and so even when you've got a situation where virtually every scientist uh on Earth agrees that this is, you know, that that that global warming is real, that adding um billions of tons of carbon to the atmosphere and oceans is is a bad idea.

Then you have a few percent of who who descent and and then the way that is it is presented to the public is is not that you know 97 or 98% of scientists think what we're doing is crazy but that but simply that scientists disagree. Now scientists disagree about everything. Okay? You will not find 100% of scientists who agree about anything. Um so but but this is a very disingenuous argument.

So, so, so I understand that and then I go to visit your plant and I've been there go every three or four months now and I guess not very many people who are analysts on Wall Street even though 22 guys publish about Tesla. I think very few have actually been there and hardly anyone's spoken to you.

But then when I go into the plant and I see and I've been to other automobile plants also and there's a lot of people, not that many machines and I see our plant in Tesla and I see a lot of machines and not that many people. Uh and I look at it and it appears to me so herculean. How do you build such a thing? And how could you ever think you're going to be successful? Why how would you do such a thing?

And then to start up you're a poor immigrant kid. You come here and you do how do you do that? How'd that work? Uh sure. Well, I mean, at the beginning of Tesla, um, I didn't think we would be successful. I thought we would almost certainly fail. Um, and you put all the money you had in PayPal to to invest in this and you thought you'd fail. Yeah.

Um I mean I I could I could walk you through the basic logic of I mean how so um coming out of PayPal I was fortunate enough to have about $180 million. Um and I thought well that's that's a lot of money. Um, you know, if if if I I'm going to assign half of this to SpaceX, Tesla, and Solar City, and I'll still have the other half, and I'll be fine.

Um, and Yeah, but you told your wife if it doesn't work when you live in your in her parents' basement. I did. Yeah. I was Yeah. Hopefully kidding cuz it's like it's not it's not great in her parents' basement. It's really not great. U Yeah. So, uh, yeah. Yeah, she didn't like that.

Um but but I mean the way things so I thought yeah, you know, so I figure I'd probably lose the money, but we're you know, a good try and it's kind of important and um worth doing, but but then as time went by and the companies needed more money and then we hit that really tough recession of 0809, um which was super bad for the car industry. I mean, you had GM and Chrysler go bankrupt.

Uh, so I was like, man, uh, if if I don't invest everything, if if I invest everything, there's a there's a chance um and that we'll we'll survive. If I don't invest everything, there was no chance. So, if it wasn't for that recession, there's no way this could have existed. Being able to buy a billion dollar plant for $50 million. Oh, that's true. But that came that came a bit later. But yeah, um, but the the real key thing was was 2008.

Well, even maybe if you go from mid 2007 to mid 2009, those that 2-year period was super bad. Um, and we'd made so many mistakes in the beginning of Tesla that we basically had to recapitalize the company almost completely in 2007. Um, cuz I mean almost every decision we' made was wrong.

Um so and and when we created the company and and I got to give credit here for the beginning for um uh AC Propulsion which is a little little company in uh Southern California who created an electric sports car. Um, and it was actually based on on on AC Propulsion sort of idea, but I was trying to convince AC Propulsion to commercialize an electric sports car.

Uh, commercialize this sort of prototype that they done, but they had no interest in doing that. Um, and uh, after a while I got tired of trying to convince them. And so I said, "Look, I'm just going to do this myself." And then they said, "Well, you know, there's some other people that also want to do it. Do you want to join in with them?" I said, "Okay, let's let's do that." Um, and uh, but those guys don't get enough credit.

They they uh they did some cool stuff with an electric sports car before Tesla did. So, that's was that's when you were thinking about should we use an engine and electric or should we just use electric? Oh, no. That that was that was pure electric sports car. Um, I mean the whole sort of saga of Tesla is quite complex and there's like many soap opera episodes that you could make out of it.

Um but but no that that AC Propulsion had created a um a pure electric sports car uh called the T0 um as kind of just a demo. Uh but they were just not interested in commercializing their stuff. And um so I said, "Okay, look, this really needs to we need to show people broadly what electric cars can do." So um ended getting getting together with a bunch of guys and trying to commercialize that idea.

So again, so we go back to this plant, this massive plant that we have out in Fremont, California today. Yeah. I never expected that we'd have this plant, but it's amazing place. Yeah. And the amazing thing is like it's kind of full, which is I mean it when I when we got in there, we thought like when we first got that that plant, it's this one of the biggest plants in the world. Um I think it's sort of like by footprint.

I mean, I think it's like maybe the third or fourth biggest how many how many square feet? It's five and a half million square feet. Five and a half million. Yeah. So that's whatund how many acres? You mean under roof? 150 acres. Yeah, exactly. Um it's a General Motors building. Just to give you perspective, General Motors building, which is where the Apple store is, that one block, that's one acre. This 150 acres. Yeah, it's crazy.

You could go camping in there. Um and um like it takes you a long time to work walk from one side to the other. Um we have bikes in the factory so you can just get around a bit faster. Um and like when we first got this um which was actually it was a little bit later. It was in um early 2010. Um and uh we thought, man, there's no way we'd ever get that that that awesome plant because um you know, it just cost too much.

Um and we didn't have much we didn't have much money. But then as a result of the recession, um the plant which was joint owned by uh GM and Toyota, um the they decided to close it down. Um and the story behind that is sort of a long story independent of Tesla. So they were going to shut it down and it was just going to be empty and they was like maybe going to turn it into like a mall or something like that.

Um and but it was going to be empty for a long time and um and and anyway so so we sort of approached uh Toyota and said like look um you know we'll take it off your hands you know uh and um and and then uh and we also did a bunch of other strategic elements that the strategic elements we did with Toyota were actually independent. We also did a electric RAV 4 program and then Toyota also um did an investment at the IPO.

Um so and they invested at the IPO of $50 million at $50 million at a $17 share price. So it worked out for them. Um but um but we were amazed that that they were willing to move forward uh and and do it. Um and uh but for us at Tesla was so tiny at the time.

I mean, it was like imagine like you're like this little band, this little group, and this like somebody says, "Well, there's this giant like alien dreadnaugh that you can, you know, you can have for pennies on the dollar, and you have no idea how it works." And you're like, like, where do the where are the controls? How do how do you use this thing?

Um, and that that's what we um we were fortunate enough to to to buy it at a point where automotive plants were not worth much. So, this plan ultimately is going to be able to do a half a million cars a year. I think I think half a million cars and, you know, we could conceivably go beyond half a million cars, though, but that's not really the dream. I mean, long term, I think I think we want to try to do several million cars.

Um, yeah, I mean, from volume standpoint, but we're now doing 50,000 this year and 75,000 next year. We're talking about several million. And but we think about Volkswagen 10 million, Toyota 10 million, General Motors eight or nine million. Profit margins a fraction of what we think we can do. Why can't we be bigger than them? Well, I mean I guess I mean that's pretty possibly. It's not out of the question.

Um I think over time if we continue to if we build great products um and we keep our cost structure uh competitive um then I think uh you know who knows what the ultimate So we're going to need a lot of these plants. Yes. Many plants in fact many auto plants and many gigafactories I think are needed. So the gigafactory let's do that one. to gigafactories in Nevada. Yeah. And they and this is four billion, five billion.

It's we're expecting it to be roughly a5 billion dollar uh capital investment to get to full production. Um although te Tesla's providing you roughly 50 60% of that um over time and then our strategic partners like Panasonic and a number of others are providing the other half roughly and then Nevada gave us a billion or in tax credits or savings or something. Um the whole tax credit thing drives me crazy.

Um it sounds we're gonna have to turn it back. Yeah, it sounds much better than it is. Um so actually the first time I heard that the the amount was 1. 3 billion was at the press conference announcing the deal and I was like really how do we get to 1. 3? Um the what we actually got was um Nevada gave us uh some free land. Um but but the state of Nevada has a lot of land. So this is not a this is not in short supply like the desert.

Um yeah, there's a lot of land in Nevada. Nevada um as I said. Um and then they also agreed to build a connecting highway on the southbound uh to that connects to Carson City, but they were going to do that anyway, so I don't think like that should be included in our in what they gave us.

um like um and then they repurposed um I think uh I don't know $80 million of tax credits that was going to the like insurance comp insurance companies or something. They repurposed that to us. U but uh that that's the only sort of thing that we can actually monetize. Um and then um and and then they also gave us uh relief on um sales and use tax for equipment in the factory.

Uh and depending upon what type of uh situation, it's either 10 or 20 years for the sales and use tax abatement. Um so but so if you assume that we we fully use the sales and use tax debatement which requires building which requires actually capital equipment in excess of $5 billion over 20 years and you add all of that up it adds to 1. 3 billion 1.

3 yeah know actually in effect the contribution the initial contribution to the factory um the gigafactory by state of Nevada is less than 5%. And then they're and then they have roughly a 1% contribution over 20 years. So So presumably for them this a great deal because they're getting a lot of jobs. Oh, it's a no- loss proposition for the state.

I mean, uh, you know, as the saying goes, the house always wins and like Nevada understands the house. Okay, Nevada is the house.

So it's like the only way for us to actually have have the sales use tax credits be meaningful is uh if for us to have enormous numbers of machines and enormous numbers of people operating those machines and which is good for Nevada's calculation was that they that they would that their return on their tax credits would be somewhere between 80 and 100 not percent times times So it's like it's a it's a good deal for a state.

So um so so the the battery plant that's what the giga plant is uh is being done uh without a lot of without any I I understand uh public viewing of what we're doing inside of that factory. And there were some reporters Yeah, there will be some but so far Yeah. Yeah. And there had been some reporters, I guess a couple or three weeks ago, uh, that snuck into our property. Yeah. And like ran over two of our people, tried to kill us, kill our guys.

Um, yeah, that was pretty crazy. Um kind of, um, why? Well, I think they just got a bit overzealous and then and then I I assume that they panicked and weren't actually trying to kill our employees, but but they they did run over two of two of our employees, which is what, you know, while they were trying to they're trying to get away.

Um uh and so they ran over two of our guys and like fortunately like the injuries aren't too serious but um but yeah that's that's like not cool. Um, so, so you know, so so we think it's important enough to not let anyone see what we're doing inside and other people trying to figure out what's going on and obviously not a nightclub.

And uh, so so what is so what I think about is not knowing very much about technology and how things work is that so we're making that kind of a battery. Lithium. Lithium. Yeah. Although the the general rubric of lithium covers many types of chemistries. I mean um there's a really broad range of things of batteries that use lithium as the ion transport. So whatever you describe here is going to go over my head.

But my question is how do we know when we're making such an investments that what we're building in that factory is going to persist? And why is it that in a hundred years so we do all sorts of things. are sending things out of the atmosphere, out of the galaxy, out of the universe, planes, and and uh and yet for 100 years, we haven't been able to build a battery that goes for more than 300 miles. So, how can that be?

How how is it possible that we haven't been able to spend money on that? And if that's the case, because no one's paid attention to it, and all of a sudden, we come along and pay attention, we're going to try to reduce the weight in the existing batteries and use maybe silicon and having a 300 mile battery going to a thousand. Oh, yeah. So how do we worry that what we're building isn't going to get obsolete also?

Um well the reason is that at this point I think we we have quite a good understanding of all the veterary technologies uh in the world. Um like there could be some small laboratory that's being super secret. Um but uh but generally what people inventing battery technologies try to do is they approach Tesla first and foremost because we're the biggest lithium ion consumer in the world.

So anyone who wants to build a battery has new ideas, they're going to come to us before they go anywhere. Like we'd be their biggest customer. So if somebody invents something, the the obvious choice to license it to or is is Tesla. Um and so um and and and we try to take things, you know, as seriously as possible, but I mean we we track uh right now about 60 different uh efforts around the world to develop improved batteries.

Um and you know some of them hold some long-term promise but uh we and but we rate all of them on from a one to five. Um where five is we should be doing business with them and one is complete BS. Um how many fives are there? There's no fives. Um there's some there's some threes. Uh currently there's no no one in the there's no one even in the four. Like there's some that might go from a three to a four.

Four means we should we should be in like preliminary discussions. So what's what's going to change in the technology that's going to enable us to have this different are we going to have something in 10 years that's going to be an unusual battery that's going to be able to do a thousand miles and going to weigh less than it does presently? I don't think we'll have quite that much of an improvement.

Um and and and actually I think most likely we would not like like technically right now for us to do say a 500 mile range car we could absolutely do that right now uh with current current batteries but but the the cost would be too high and the useful load impact on the vehicle would be too high. So you have we have to fill up part of the trunk and the front and the front trunk and the rear trunk uh with batteries.

Um we'd have to impinch a little bit on passenger room. But for us to do a 500 mile range car right now be no problem. Um a 500 mile range car in the current uh form factor um I think that's you know probably less than 10 years away you know with in the same volume and roughly the same mass. And the way we're going to drive the cost of the kilowatt hours from 250 to 100. That's because we're doing what?

That's just because we're doing scale because we're using different materials. because we're changing chemistry. How do we do that? Yeah. So, we we're making quite substantial improvements in the total pack energy density. So, there's there's the cell energy density and then as you put those cells together in a pack and you have to figure out how to do that safely. Um, we're able to reduce the pack energy density.

So, we'll make I think quite significant improvements in the in the pack energy density. Um but but the thing that's most important really is the cost. Um because I mean for a lot of people that are driving Model S um you know the model the current say uh dual motor Model S will do over 300 m right now at 65 mph. Um so that's that's more than enough range for most people.

It's and then you got the supercharger where you can recharge very you know very quickly. Uh we have supercharge network that's now ubiquitous throughout the country. You can that lots of our customers do cross-country trips LA New York um whatnot uh using a supercharge network.

So there's really have you have freedom of travel at this point um and certainly incremental improvements to the battery pack range are important but the thing that's really important is reducing the cost per kilowatt hour.

Um so the and we can do that with existing we could yes yes yes we are going to make some uh technology improvements as well to the fundamental cell chemistry um and certainly to the way that the uh battery modules and packs are organized but uh the fundamental focus is on um cost per unit of energy and uh that that's so so that that's what the gigafactory is about It's it's it's taking economies of scale um as as far as we can we can possibly imagine to to a very extreme level as far as we can.

That's what gets it to 100 or that's what gets it lower than 100 to sorry 100 what $100 a kilowatt. Oh. Um, we um can't comment on exact price numbers, but but but I mean that's not that that's that's approximately, you know, it's that's in the ballpark of what we're aiming for. Um, and and and that's it's important to cut the essentially the cost per kilowatt hour at least by 30% with the gigafactory.

And our aspiration of course is to do better than a 30% cost per kilowatt hour reduction.

in in order to achieve the 50% cost reduction for the model 3 which is about a 20% smaller car um and so would require for the same range 20% pure you know less energy that that means to get to the full 50% we need another 30 points coming from economies of scale um which I'm I'm actually very confident we'll achieve um and and at the gigafactory what we're doing is consolidating the production of the pack all the way from the the raw materials so there's literally cars cars coming in from from the mines like rail cars of raw materials from the mines and then out come completely finished battery packs.

Um and this has actually never been done before. Uh so this it for batteries at least. Um and uh what we're able to to to to do in this process is massively improve the the cost of the of the of the cells and the packs.

Um because today if you were to trace the movement of the raw materials from when they're mined and and they go through the various refining steps around the world and eventually are put in a cell and then that cell eventually is put into a module and a pack and then put into a car and then delivered to somebody. The the the raw material that molecule from the mine is doing an around the world trip like three times. It's it's really crazy.

Um and there are even steps in the process where um it is converted first into one. So that's a big opportunity for yeah huge huge.

So, so one of the things, so Jeffrey Katzenberg is someone who I'm friendly with and he had a well publicized accident uh in in his Tesla car a week ago or two weeks ago or a month ago when someone went through a stoplight and a big SUV and hit him at u 40 miles an hour and he says that uh the Tesla car saved his life and he said because of the crush zones I guess and and he said it was just the most amazing thing.

So, so here this guy well-known great publicity. Then there's something on the internet that says that uh someone was just driving a car along and the car was about to smash into them and the car and he didn't see it and the car saw it and stopped turned around and stopped. Right. And and so so here we have this safety much safer car than the other cars. Yes. And uh Tom Prrisker, I presume you know him.

And uh his mom Cindy uh Tom goes Tom Tom is in his 60s and uh his mom Cindy I I don't know how I guess she won't say how old she is, but she's more than 60s. And so he drove his car to her house and she said, "I like this car." And so she kept the car. And so, so one of the things that's interesting to me is that just you talk about safety, but you don't really say, you know, your promotion isn't this is the safest car ever.

I mean, I know you say it, but isn't that an unbelievable opportunity to uh to promote to change the demographic of who's buying our car and to get more Cindy's buying Cindy Prriskers instead of Tom's or instead of Tom's children? Um, yeah, it's glad you mentioned that. In fact, um, in designing the the Model S and the Model X, uh, safety was our absolute paramount goal.

Um, and you know, I mean, my my I mean, I felt like obviously my family will be in the car, my friends. Um, if if if I didn't do everything possible to maximize safety and something went wrong, I couldn't live with myself. So um so we we spent enormous amounts of time on safety um and and and and the whole car is architected for for maximum safety. Um and and and we have we have physics on our side here which is very very important.

Uh so the there and I'll just go briefly like why exactly is the car safe because you hear things like cars are five stars and all that but I mean this this five stars that's not an actual statistical number like statist you know safety statistics are not measured really in stars they um there's an actual probability uh of of injury which is that that's the number that's most important. and and the probability of injury.

Um, you you can look it up. It's sort of varied in the in the the Department of Transport website, but they have this for each individual car. Yeah. Every every car has a a combined probability of injury. Um, and the Model S um is still uh even though we did it three years ago, it still has the lowest probability of injury of any car ever tested. Um, and that's just on passive safety. And then we have the active safety as well.

Um, and the um, the reasons basically are that because the the car does not have a big steel engine block in the front, we have a front trunk as well as a rear trunk because the electric motors are so small that they're actually coaxial with the with the axles. So, when you have a high-speed frontal collision, uh, what really matters is force of a distance.

You know, it's just like jumping into a pool from a from a high if you you know, if you jump from from a high diving board or something into a pool, um you'd want a deep pool and one without rocks in it. Um and and it's really not that complicated. It's the same thing for a car.

And what people don't realize is like they think you think of like having a steel engine block is protecting you except that if when you hit something, you're going 60 m hour. So it's stopping you that is important. And so that deceleration distance is incredibly important. Um or or described another way, the the length of the crumple zone is extremely important.

And the crumple zone on the front of a Model S is two to three times greater than that of any other premium sedan, which means that the uh impact attenuation is two to three times greater. Um and then anyone with their family, they want to buy one of these cars instead of a gasoline car. Absolutely. Definitely. Um, if I mean if this is um if if safety is of concern, I would for sure I mean it's just objectively true.

It it is the safest car by far. The the accident that um uh Jeffrey was in where he was he was sort of um t-boned by an SUV. Um it's so that's a side impact collision. The the reason the side impact collision on the the S is so much better than another car is because the the main structural component is the battery pack in the floor pan.

So the battery pack in the floor plan effectively acts as a big shear plate uh to transfer load uh from a side impact into the rest of the car. So so the whole car moves moves sideways uh in in a in a side impact collision. Um the but what happens in a in a gasoline car again because you've got the big steel engine block in the front you've got a huge portion of the mass in the front.

So you've got um and and and the rest of the car is is relatively weak. You essentially have um just uh thin sheet metal in in the on the on the side of the car and in the floor pan of the car. So uh the the the effect of side impact the load transfer um for a gasoline car um to the rest of the mass of the car is weak and as a result the side impact distance is dramatically greater.

Um the the net net result is that you are much safer in a side impact. Um so so I'll just do a couple more questions then I'll open it up for everyone else.

But with so uh safety SpaceX and Uber so so safety with all these other automobile companies having one safety issue after another not just this emission problem but also about brakes and about IGN uh I'm sorry uh yeah the emissions not not just about brakes and about batteries and I'm sorry uh gasoline tanks um why so when we have a car that's uh existing that is spoiling the atmosphere in addition that's not as safe.

Why don't you think people have moved more rapidly to adopt our technology which we've offered to give them for free? Oh, you mean with the patents everything? Yeah. Um I think actually that there are a number of companies using the patents. So it's starting. Yeah. Yeah. Absolutely. So that's one. Question number two is uh uh space SpaceX and we'll come back to Uber. So SpaceX.

So, when I was a kid, there was a television program called Captain Video and uh Channel 5. And the rocket would go up and it would fly around and come back and and then in the 1960s we started going to out you know to orbit and go to the moon and uh and and the rockets as they would take off the stage one after another would fall off like you know and and my first thought when that was happening I didn't really understand why that would happen.

Sure. And now your idea is that hey this rocket ship is going to stay together and we could do 99 trips instead of one or something like that and therefore we can do it for one or two or 3% as expensively as we did it before. Why didn't anyone think of that before? Uh well actually the in the um rocket industry people have thought about uh reusability for for a very long time.

Um and um it it it just happens that Earth's gravity is quite strong and um it it's just barely possible to get um reasonable payload to orbit um with an expendable rocket. Um so then if you add reusability um then that tends to give it negative payload to orbit. So you can't So how do you do it? So you've got to do two things.

Um you've got to uh really advance the the core rocket technology itself as far as the engines, the airframe, um the avionics, um the recovery systems, um like the landing legs, uh and uh the the the boost back capability. um you you've got to um make make the rocket such that if it was uh in a pure expendable mode, it would get approximately four or slightly more than 4% of its payload mass to orbit.

And and and to put this in perspective, normally a rocket gets about 2% of its payload mass orbit. So it's a very small number. Um but but if if so if you can push that two two-ish% to more like uh 4% on an expendable basis and then be really efficient in the way that the uh reuse takes place such that the reuse penalty is only maybe half of that so you still have a net payload to orbit of 2%.

That that's essentially the what's needed to achieve reusability. Um and um and it I mean SpaceX has been at it now for 13 years. Um and we haven't yet achieved it. So um and I so I think what we've done thus far is evolutionary, not revolutionary, but I think we're within sort of shooting distance of this. I think within um I think within the next year we'll be able to uh land the rocket intact. We'll be able to land the rocket just not intact.

It's like there's some exciting videos on YouTube if you want to watch them. Um, and uh, but but I think we're we're close to letting it intact. Um, and then we need to examine the rocket once we get it back to see what needs to be strengthened. Where do we overstrengthen things that we don't need to add as much mass and then we'll be able to do reusability uh, with the uh, with the rocket.

Um, and the and and just like some of these things are maybe not they're not obvious to to people aren't who aren't familiar with the rocket industry, but the cost of our rocket is to to build it um is $60 million. And the but the cost of the propellant, the fuel and oxygen and so forth is only about uh $250,000. Wow. Um or maybe $300,000 thereabouts. But it's basically uh um yeah it's it's only about as expensive as say fueling up a 747. Okay.

My last question uh is Uber. So I listened to your conference call and uh someone asked whether we could be like Uber and I won't ask you that but but been asked that a lot. Yeah. Because you always say can't comment on that. Not ready to make any announcements in that area.

But my question is so there's another company it's much smaller than Uber called Lyft and uh I guess it's Carl Icon is an investor in that and I think Len Botnik is too and so my question is that what is it about Uber's business uh that will make them immune from being an attacked by Lyft? Does Lyft have a chance against Uber? Oh wow. I'm not really an expert in that arena.

I is there some kind of scale that they have that makes it impossible for someone to compete against them is really my question. I I I think there's probably uh I think pro I mean this is I'm I've spent no time thinking about it but my impression this is of impression with like low confidence is that there's there's room for both Uber andyft. Yeah, that's what I I can see. Uh okay. So so Elon will take some questions now. Is that okay?

Yeah, sure. No problem. And uh and then afterwards uh I'm sure that you know you there's a couple of Teslas out on the mall and I'm not getting a commission to sell them but but uh if you sign up for a uh a test drive then and we know about it then we will send you a a present so you can get that afterwards. But in the meantime questions.

Oh, I should mention I I guess just got reminded um that that there's actually um for for anyone that isn't able to do a test drive today, uh we've actually arranged a a special uh VIP uh URL um just just for you guys, uh which is uh tesla. com/baron. Wow. Cool. Yeah. So, it's just uh Yeah. Thank you. Number six. Hi. Um, I had the pleasure of test driving a sick um an S just the other night.

So, uh, it was 5 minutes in New York City traffic, but sweet. Yay. Um, I know you're not saying a whole lot about the Model 3 at this point, but I'm just curious what you're willing to say about the experience of driving a $35,000 or so Model 3 as compared to driving a Model S. Sure. Well, our intent is the Model S and the X will be a kind of premium sort of high-end cars. Um and we will try to lead with new technologies um in the S and the X.

Um so uh that that will be the the advantage of the S and the X. Uh but the the the three will be um a smaller version. So maybe about 20% smaller uh comparable in size to say a 3 series BMW or an Audi A4. Um and um but it's it's going to have a very similar feel uh to to to the S. Um, and so it'll it'll be sort of have great acceleration, um, good driving feel, good handling, um, and for the size of the vehicle, uh, great cargo space.

Um, yeah, I should mention like the the the S because it's got uh a trunk in the front and a trunk in the back. Um the the the actual cargo space of of the S is anywhere from 50 to 100% more than a typic than a than a gasoline car of the same external dimensions. Am I? You're the one. Thank you so much for joining us. I think that is fantastic.

I think uh I as well everybody else here enjoyed hearing, you know, from you and you were indeed a visionary. I have one observation. Uh we have a favorite restaurant that has installed about six uh Tesla charging stations right outside the door. Okay, it's a good restaurant, but I notice they're always full. All those charging stations are full.

And thinking of the great synergy of, you know, having a restaurant, I've got charging stations and now I get extra business. So, I hope they're paying you to put in these these stations. But I I have, you know, what I want to get to is a technical question. Read an interesting article about inroad charging. You know, take your pick. It can be inductive. It could be RF. Is there any potential for that? Okay.

In terms of in, you know, if there is, is Tesla involved or engaged in looking or doing something with that? Thank you. Sure. I I actually don't I think that's unlikely to occur. Um, I think it's it's really going to be just long range batteries. Um, and then and then and then most charging tends to occur at people's home or business. Um, and and then that's really 80 90% of charging.

Uh, 10% of charging is long distance, which is what we have the the superchargers, so you can travel anywhere in the country. Um, actually did this great road trip with with my kids uh from uh LA to Mount Rushmore in South Dakota. Um, so you can travel anywhere in the country, complete freedom.

Um, and um, uh, but but I think in locations that are not home or business and not long distance that there will be a small amount of charging that occurs, but it's in the sub 5% category. So, it's nice to have, but it's not it's not needed for full utility of the car. Put the stations near. Okay. Sure.

So we that's our that's our that's our aspiration actually is to put the supercharging stations um somewhere where you can you can immediately then go and um have a a nice meal and um grab a coffee and be on your way. So or and do some shopping if you want. So so so I apologize to everyone. I hogged the time and I didn't realize that we were running over.

I thought that this was the amount of time we could talk and then there were more time for questions. Would you be able to answer some questions a little bit longer? Yeah, no problem. Sure. So, so Elon can stay here uh for a bit. There's entertainment that's now starting in three venues. Uh in the left venue, uh we have Steve Martin and Martin Short for comedy. Uh on the right venue, uh we have Michael Boué.

And in the center, there's uh Tony Bennett and Lady Gaga. Not bad. Pretty cool, right?