From Motley Fool Transcribing via Yahoo Finance:
Q2 2024 Earnings Call
Jul 23, 2024, 5:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:Travis Axelrod -- Head of Investor Relations
Good afternoon, everyone, and welcome to Tesla's second-quarter 2024 Q&A webcast. My name is Travis Axelrod, head of investor relations and I'm joined today by Elon Musk; Vaibhav Taneja; and a number of other executives. Our Q2 results were announced at about 3:00 p.m. Central Time in the update deck we published at the same link as this webcast.
During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. [Operator instructions] Before we jump into Q&A, Elon has some opening remarks.
Elon?
Elon Reeve Musk -- Chief Executive Officer and Product Architect
Thank you. So to recap, we saw large adoption and acceleration of EVs and then a bit of a hangover as others struggled to make compelling EVs. So there have been quite a few competing electric vehicles that have entered the market and mostly, they have not done well, but they have discounted their EVs quite substantially, which has made it more a bit difficult for Tesla. We don't see this as a long-term issue, but really as fairly short term.
And we still obviously firmly believe that EVs are best for customers and that the world is headed for a fully electrified transport, not just the cars, but also aircraft and boats. Despite many challenges, the Tesla team did a great job executing and we did achieve record quarterly revenues. Energy storage deployments reached an all-time high in Q2, leading to record profits for the energy business. And we're investing in many future projects, including AI training and inference and great deal of infrastructure to support future products.
We won't get too much into the product road map here because that is reserved for product announcement events. But we are on track to deliver a more affordable model in the first half of next year. The big -- really, by far, the biggest differentiator for Tesla is autonomy. In addition to that, we have scale economies and, I think, we're the most efficient electric vehicle producer in the world.
So this -- while others are pursuing different parts of the AI robotics stack, we're pursuing all of them. This allows for better cost control, more scale, quicker time to market, and a superior product, applying not to -- not just to autonomous vehicles, but to autonomous humanoid robots like Optimus. Regarding full self-driving and Robotaxi, we've made a lot of progress with full self-driving in Q2. And with version 12.5 beginning rollout, we think customers will experience a step change improvement in how well supervised full self-driving works.
Version 12.5 has five times the parameters of 12.4 and finally merged the highway and city stacks. So the highway stack at this point is pretty old. So often the issues people encounter are on the highway. But with 12.5, we finally merged the two stacks.
I still find that most people actually don't know how good the system is. And I would encourage anyone to understand the system better to simply try it out and let the car drive you around. One of the things we're going to be doing just to make sure that people actually understand the capabilities of the car is when delivering a new car and when picking up a car for service to just show people how to use it. And just driving around the block.
Once people use it, they tend to continue using it. So it's very compelling. And this, I think, will be a massive demand driver, even unsupervised full self-driving will be a massive demand driver. And as we increase the miles between intervention, it will transition from supervised full self-driving to unsupervised full self-driving, and we can unlock massive potential in the fleet.
We postponed the Robotaxi product unveil by a couple of months where it's shifted to 10/10, to the 10th of October. And this is because I wanted to make some important changes that I think would improve the vehicle -- the sort of -- the Robotaxi -- the thing -- the main thing that we're going to show. And we're also going to show up a couple of other things. So moving it back a few months allowed us to improve the Robotaxi as well as adding a couple of other things for the product unveil.
We're also nearing completion of the South expansion of Giga Texas, which will house our largest training cluster to date. So it will be an incremental for 50,000 H100s plus 20,000 of our hardware for AI5 at Tesla AI computer. With Optimus, Optimus is already performing tasks in our factory. And we expect to have Optimus production Version 1 and limited production starting early next year.
This will be for Tesla consumption. It's just better for us to iron out the issues ourselves. But we expect to have several thousand Optimus robots produced and doing useful things by the end of next year in the Tesla factories. And then in 2026, ramping up production quite a bit.
And at that point, we'll be providing Optimus robots to outside customers. That will be a production Version 2 of Optimus. For the energy business, this is growing faster than anything else. This is -- we are really demand constrained rather than production constrained.
So we're ramping up production in our U.S. factory as well as building our -- building the Megapack factory in China that should roughly double our output, maybe more than double -- maybe triple potentially. So in conclusion, we're super excited about the progress across the board. We're changing the energy system, how people move around, how people approach the economy.
The undertaking is massive, but I think the future is incredibly bright. I really just can't emphasize the importance of autonomy for the vehicle side and for Optimus. Although the numbers sound crazy, I think, Tesla is producing at volume with and supervised MSD essentially enabling the fleet to operate a giant autonomous fleet. And it takes the valuation, I think, to some pretty crazy number.
ARK Invest thinks, on the order of $5 trillion, I think they are probably not wrong. And long-term Optimus, I think, it achieves a valuation several times that number. I want to thank the Tesla team for a strong execution and looking forward to exciting years ahead.
Travis Axelrod -- Head of Investor Relations
Great. Thank you very much, Elon. And Vaibhav has opening remarks as well.
Vaibhav Taneja -- Chief Financial Officer
As Elon mentioned, the Tesla team rose to the occasion yet again and delivered on all fronts with some notable records. In addition to those records, we saw our automotive deliveries grow sequentially. I would like to thank the entire Tesla team for their efforts in delivering a great quarter. On the auto business front, affordability remains top of mind for customers and in response, in Q2, we offered attractive financing options to offset sustained high interest rates.
These programs had an impact on revenue per unit in the quarter. These impacts will persist into Q3 as we have already launched similar programs. We're now offering extremely competitive financing rates in most parts of the world. This is the best time to buy a Tesla.
I mean, if you're waiting on the sidelines, come out and get your car. We had a record quarter on regulatory credits, revenue as well. On net, our auto margins remained flat sequentially. It is important to note that the demand for regulatory credits is dependent on other OEM's plans for kind of vehicles they are manufacturing and selling as well as changes in regulations.
We pride ourselves to be the company with the most American-made cars and are continuing our journey to further localize our supply chain, not just in the U.S., but in Europe and China as well for the respective factories. As always, our focus is on providing the most compelling products at a reasonable price. We have stepped up our efforts to provide more trims that have estimated range of more than 300 miles on a single charge. We believe this, along with the expansion of our supercharging network is the right strategy to combat range anxiety.
Since the revision of FSD pricing in North America, we've seen production rates increase meaningfully and expect this to be a driver of vehicle sales as the feature set improves further. Cost per vehicle declined sequentially when we removed the impact of Cybertruck. While we are experiencing material costs trending down, note that there is latency on the cost side and such reductions would show up in the P&L when the vehicles built with these materials get delivered. Additionally, as we get into the second half of the year, it is important to note that we are still ramping Cybertruck and Model 3 and are also getting impacted by varying amounts of tariffs on both raw materials and finished goods.
While our teams are working feverishly to offset these. Unfortunately, it may have an impact on the cost in the near term. We previously talked about the potential of the energy business and now feel excited that the foundation that was made over time is bearing the expected results. Energy storage deployments more than doubled with contribution not just from Megapack but also Powerwall, resulting in record revenues and profit for the energy business.
Energy storage backlog is strong. As discussed before, deployments will fluctuate from period to period with some quarters seeing large increases and others seeing a decline. Recognition of storage gigawatt hours is dependent on a variety of factors, including logistics timing, as we send units from a single factory to markets across the world, customer readiness and in case of EPC projects on construction activities. Moving on to the other parts of the business, service and other gross profits also improved sequentially from the improvement in service utilization and growth in our collision repair business.
The impact of our recent reorg is reflected in restructuring and other on the income statement. Just to level set, this was about $642 million of charge, which got recorded in the period. And I want people to remember that we called it out separately on the financials. Sequentially, our operating expenses, excluding surcharges reduced despite an increase in spend for AI-related activities and higher legal and other costs.
On the capex front, while we saw a sequential decline in Q2, we still expect the year to be over $10 billion in capex as we increase our spend to bring a 50k GPU cluster on line. This new center will immensely increase our capabilities to scale FSD and other AI initiatives. We reverted to positive free cash flow of $1.3 billion in Q2. This was despite restructuring payments being made in the quarter and we ended the quarter with over $30 billion of cash and investments.
Once again, we've begun the journey toward the next phase for the company with the building blocks being placed. It will take some time, but will be a rewarding experience for everyone involved. Once again, I would like to thank the entire Tesla team for their efforts.
Travis Axelrod -- Head of Investor Relations
Great. Thank you very much, Vaibhav. Now let's go to investor questions. The first question is, what is the status on the Roadster?
Elon Reeve Musk -- Chief Executive Officer and Product Architect
With respect to Roadster, we've completed most of the engineering. And I think there's still some upgrades we want to make to it, but we expect to be in production with Roadster next year. It will be something special. Like the whole thing might be.
Travis Axelrod -- Head of Investor Relations
Fantastic. The next question is about timing of Robotaxi event, which we've already covered. So we'll go to the next question. When do you expect the first Robotaxi ride?
Elon Reeve Musk -- Chief Executive Officer and Product Architect
I guess that, that's really just a question of when can we expect the first -- or when can we do unsupervised full self-driving. It's difficult, obviously, my predictions on this have been overly optimistic in the past. So I mean, based on the current trend, it seems as though we should get miles between interventions to be high enough that -- to be far enough in excess of humans that you could do unsupervised possibly by the end of this year. I would be shocked if we cannot do it next year.
So next year seems highly probable to me based on quite simply plus the points of the curve of miles between intervention. That trend exceeds the humans for sure next year, so yes.
Travis Axelrod -- Head of Investor Relations
Thank you very much. Our third question is, the Cybertruck is an iconic product that wows everyone who sees it. Do you have plans to expand the cyber vehicle lineup to a cyber SUV or cyber van?
Elon Reeve Musk -- Chief Executive Officer and Product Architect
I think we want to limit product announcements to when we have a special -- a specific product announcement event rather than earnings calls.
Travis Axelrod -- Head of Investor Relations
Great. Our next question is, what is the current status of 4680 battery cell production? And how is the ramp-up progressing?
Lars Moravy -- Vice President, Vehicle Engineering
4680 production ramped strongly in Q2, delivering 51% more sales than Q1, while reducing COGS significantly. We currently produce more than 1,400 cybertrucks of 4680 cells a week. We'll continue to ramp upward as we drive cost down further toward the cost parity target we set for the end of the year. We've built our first validation Cybertruck with dry cathode process made on mass production equipment, which is a huge technical milestone, and we're super proud of that.
We're on track for production launch with the dry cathode in Q4. And this will enable cell costs to be significantly below available alternatives which was the original goal of the 4680 program.
Travis Axelrod -- Head of Investor Relations
Great. The next question is any update on Dojo?....
....MUCH MORE including the analyst queries which are not as fluffy as the above from shareholders.
Earlier: