Thursday, October 24, 2024

Tesla Q3 2024 Earnings Call Transcript, Oct 23, 2024 (TSLA)

From Motley Fool Transcripts:

Q3 2024 Earnings Call
Oct 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 third quarter 2024 Q&A webcast. My name is Travis Axelrod, head of investor relations, and I'm joined today by Elon Musk, Vaibhav Taneja, and a number of other executives. Our Q3 results were announced at about 3:00 p.m. Central Time in the update deck we published at the same link as 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.

[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, as someone was saying, something that what -- the industry was seeing year-over-year declines in order volumes in Q3. Tesla, at the same time, has achieved record deliveries. In fact, I think if you look at EV companies worldwide, to the best of my knowledge, no EV company is even profitable.

And I'm not -- to the best of my knowledge, there was no EV division of any company, of any existing car company that is profitable. So, it is notable that Tesla is profitable despite a very challenging automotive environment, and this quarter actually is a record Q3 for us. So, we produced our seventh million vehicle actually just yesterday, so congratulations to the teams that made it happen in Tesla. That's staggering the immense amount of work to make 7 million cars.

So, you see, we all have -- the energy storage business is growing like wildfire with strong demand for both Megapack and Powerwall. And as you all know, on October 10, we laid out a vision for an autonomous and future that I think is very compelling that the Tesla team did a phenomenal job there with actually giving people an option to experience the future, where you have humanoid robots working among the craft, not with a canned video and a presentation or anything but walking among crowd so he drinks and whatnot. And we had 50 autonomous vehicles. There were 20 Cybercabs, but there were an additional 30 Model Ys, operating fully autonomously the entire night, carrying thousands of people with no incidents the entire night.

And all those who went there that worth emphasizing that the Cybercab had no steering wheel or brake or accelerator panels, meaning there was no way for anyone to intervene manually a unit if they wanted to and the whole night went very smoothly. So, regarding the vehicle business, we are still on track to deliver our affordable models starting in the first half of 2025. This is -- I think probably people want should they assume for vehicle sales growth next year. And at the risk of -- to take a bit of risk here, I do want to give some rough estimate, which I think it's 20% to 30% vehicle growth next year, notwithstanding negative external events, like if there's some force majeure events, like some big war breaks out or interest rates go sky high or something like that.

We can't overcome massive force majeure events. But I think with our lower-cost vehicles with the advent of autonomy, something like a 20% to 30% growth next year is my best guess. And then Cybercab reaching volume production in '26. I do feel confident of Cybercab reaching volume production in '26, just starting production, reaching volume production in '26.

And that should be substantial, but we're aiming for at least 2 million units a year of Cybercab. That will be in more than one factory, but I think it's at least 2 million units a year, maybe 4 million ultimately. So, yes, these are just my best guesses but if you ask me my best guesses, those are my best guesses. The cell 4680 lines, the team is actually doing great work there.

The 4680 is rapidly approaching the point where it is the most competitive cell. So, when you consider the fully landed -- the cost of a battery pack fully landed in the U.S., net of incentives and duties, 4680 is tracking to be the most competitive, maybe lower cost per kilowatt hour, fully considered than any other alternative, which is -- we're not quite there yet but we're close to being there, which I think is extremely exciting. And we've got several -- a lot of ideas to go well beyond that. So, I think there's -- if we execute well, the 4680 -- we'll have the -- the Tesla internally produced cell will be the most cost competitive cell in North America, a testament to the tremendous amount of hard work there done by the team.

So, that's to say we'll continue to buy a lot of cells from our competitors. I tend not to provide -- to make cells just internally. So, I don't want to sort of here. We're obviously increasing substantially our vehicle output and our stationary storage output, so we need a lot of cells.

And most of them will still come from suppliers. But I think it is some good news that the Tesla internal cell is likely to be the most competitive in the U.S. So, with respect to autonomy, as people are experiencing in the cars really from week to week, there are significant improvements and the miles between interventions. So, with the new version 12.5, the release of full self-driving and Cybertruck, combining the code into a single stack so that the city driving and the engine and highway driving are one stack, which is a big improvement for the highway driving.

So, it's just all neural nets. And the release of actually Smart -- we try to have a sense of humor here. And we're also -- so that's 12.5. Version 13 of FSD is going out soon.

will elaborate more on that later in the call. We expect to see roughly a five- or sixfold improvement in miles between interventions compared to 12.5. And actually, looking at the year as whole, the improvement in miles interventions, we think will be at least three orders of magnitude. So, that's a very dramatic improvement in the course of the year, and we expect that trend to continue next year.

So, the current total expectation, internal expectation for the Tesla FSD having longer miles between versions than human is the second quarter of next year, which means it may end up being in the third quarter, but it's next -- it seems extremely likely to be next year. Ashok, do you want to say anything?

Ashok Elluswamy -- Director, Autopilot Software

Yeah. Miles between critical interventions, like you mentioned, Elon, we already made 100x improvement with 12.5 from starting of this year and then with v13 release. We expect to be 1,000x from the beginning, from January of this year on production software. And this came in because of technology improvements going to end to end, having higher frame rate, partly also helped by Hardware force, more capabilities, so on.

And we hope that we continue to scale the neural network, the data, the training compute, etc. By Q2 next year, we should cross over the average, even in miles per critical intervention collision, in that case.

Elon Reeve Musk -- Chief Executive Officer and Product Architect

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

Ashok Elluswamy -- Director, Autopilot Software

Yes. Yeah.

Elon Reeve Musk -- Chief Executive Officer and Product Architect

So, that's not sandbagging or anything else. Our internal estimate is Q2 of next year to be safer than human and then to continue with rapid improvements thereafter. A vast majority of humanity has no idea that Tesla could drive themselves so especially for something like a Model 3 or Model Y, it looks like a normal car. So, you don't expect a normal car to be able to be intelligent enough to drive itself.

A Cybercab looks different. A Cybertruck looks different, but Model Y and Model 3 are -- look, they're good-looking cars but look fairly normal. You don't expect a fairly normal-looking car to have the intelligence, enough AI to be able to drive itself, but it does. So, we do want to expose that to more people, and so we're doing -- every time we have a significant improvement in the software, we'll roll out another sort of 30-day trial to encourage people to try it again.

And we are seeing a significant improvement in adoption. So, the take rate for FSD has improved substantially, especially after the 10/10 event. Yes. So, there's no need to wait for robotaxi or Cybercab to experience full autonomy.

We expect to achieve that next year with the -- with our existing vehicle line.

Ashok Elluswamy -- Director, Autopilot Software

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

Elon Reeve Musk -- Chief Executive Officer and Product Architect

Ye. And we actually -- we have for Tesla employees in the Bay Area. We already are offering ride-hailing capabilities. So, you can actually -- with the development app, you can request a ride, and it will take you anywhere in the Bay Area.

We do have a safety driver for now, but it's not required to do that. We've developed -- and I mean, David, do you want to elaborate on that?

David Lau -- Vice President, Software Engineering

Yeah, sure. It's David. We showed some screenshots of this in the Q1 shareholder deck, and this is real. We've been testing it for the good part of the year.

And the building blocks that we needed in order to build this functionality and deliver it to production, we've been thinking about working on for years. It just so happens that we've used those building blocks to deliver great features for our customers in the meantime, such as sharing your profile, synchronizing it across cars so that every single car that you jump into, whether it's another car that you own or a car that somebody has loaned to you or a rental car that you jump into, it looks exactly like yours. Everything synchronized, seat mirror positions, media, navigation, everything is the same, just what you would expect from one of our robotaxis. But we gave that functionality to our customers right now because we've built it intending for it to be used in the future, but we're releasing that functionality now.

All the end-to-end cybersecurity that we knew we were going to need to deliver that functionality, sending a navigation destination from your phone to the vehicle. And so, we're doing that now with the ride-hailing app, but it's something that we've made available to customers for years. Seeing the progress on a route in the mobile app, that's something you'll need for the ride-hailing app, but again, we released it in the meantime. So, it's not like we're just starting to think about this stuff right now while we're building out the early stages of our ride-hailing network.

We've been thinking about this for quite a long time, and we're excited to get the functionality out there.

Elon Reeve Musk -- Chief Executive Officer and Product Architect

And we do expect to roll out ride-hailing in California and Texas next year to the public. Now, California is somewhere -- there's quite a long regulatory approval process. I think we should get approval next year but it's contingent upon regulatory approval. Texas is a lot faster so it's -- we'll definitely have available in Texas and probably have it available in California, subject to regulatory approval.

And then -- and maybe some other states actually next year as well, but at least California and Texas. So, I think that would be very exciting. That's really a profound change. Tesla becomes more than a sort of vehicle and a battery manufacturing company at that point.

So, we published Q3 vehicle safety report, which shows one crash for every 7 million miles of autopilot. That compares to the U.S. average of one crash roughly every 700,000 miles. So, it's currently showing a 10x safety improvement relative to the U.S.

average. And we continue to expand our AI training capacity to accommodate the needs of both FSD and Optimus. We are currently not training compute-constrained. Probably the biggest limiting factor of the FSD is actually getting so good that it takes us a while to actually find mistakes.

And when you start getting to where it can take 10,000 miles to find a mistake, it takes a while to actually figure out which it is. Is software A better than software B? It actually takes a while to figure it out because neither one of them makes the mistakes -- would take a long time to make mistakes. So, it's actually the single biggest limiting factor is how long does it take us to figure out which version is better? Sort of a high-class problem. Obviously, having a drone fleet is very helpful for breaking this out.

And then with Optimus, we showed a massive improvement in Optimus dexterity improvement on October 10. And our next-gen hand and forearm, which is 22 degrees of freedom, which is double the prior hand or forearm, it's extremely human-like, and so it's much better at tactile sensing. It's really -- I feel confident in saying that we have the most advanced humanoid robot by a long shot. And we're moreover the only company that really has all of the ingredients necessary to scale humanoid robots.

Because the things that -- what other companies are missing is that they're missing the AI brain, that they're missing people to really scale to very high-volume production. So, you see some impressive video demos, but what like the localized AI and the volume to very high numbers. As I've said on a few occasions before, I think Optimus will ultimately be the most valuable part, so I think has a good chance of being the most viable product that we made. For the energy business, that's doing extremely well.

And the opportunity ahead is gigantic. The Lathrop Megapack factory reached 200 Megapacks a week, which is now a 40-gigawatt hour a year run rate. And we have a second factory in Shanghai that will begin with the 20-gigawatt hour a year run rate in Q1 next year so next quarter. And that will also scale out.

It won't be long before we're shipping 100-gigawatt hours a year stationary storage at Tesla. And will that -- I mean, that will ultimately grow, I think, to multiple terawatt hours per year. It has to actually in order to have a sustainable energy future. If you're not at the terawatt scale, you're not really moving the needle.

So, if you look at our very complicated last master plan, which I think actually is too much detail, I'll maybe ask to analyze it and give us the TLDR on the management plan. We shared in that master plan that it is possible to take all of us to a fully sustainable energy situation using sustainable energy, power generation and batteries and electric transport. And there were no fundamental material limitations, like there's not some very rare material that we don't have enough of. We actually have enough with raw materials to take all of human civilization, make it fully sustainable and dramatically increased its trust usage would still be fully sustainable....

....MUCH MORE