Tesla Investor Day 2023 (Master Plan 3)
Questions on ElonsFAQ asked in this interview (2)
Transcript
11:18Zach KirkhornGood afternoon, everyone. Good afternoon. My name is Zach Kirkhorn. I lead finance here at Tesla and welcome to our Investor Day.
11:38Zach KirkhornFor those of you here in the audience at our global headquarters in Austin, Texas, we welcome you. Thank you for being here and thank you for traveling in. For those joining us virtually, thank you for being a part of the day today.
11:51Zach KirkhornSo as we reflect back on the history of the company, there's been distinct phases of product advancement, technology innovation and rapid volume growth. The most recent of which has been the global expansion and localization of the Model Y program.
12:09Zach KirkhornAnd so today we want to talk about the future. We don't want to talk about this quarter or next quarter. We want to go further out into the future.
12:18Zach KirkhornAnd we've divided today's presentation into three parts. The first of which we're going to go macro. What does it take to convert Earth to sustainable energy generation and use?
12:33Zach KirkhornThe second, we want to talk about Tesla's contribution to that global need. We're going to go function by function through the company and you'll meet our entire leadership team and we're going to get into the details of what those teams are doing as part of the broader goal.
12:52Zach KirkhornAnd then in the third part, we're going to bring it back up and talk about what this all means for, for the company as a whole. So before we get started, statements made in this presentation are forward looking statements that are subject to risks and uncertainties.
13:10Zach KirkhornMore details can be found in our written materials. So with that, let's get started. Part 1 Elon Musk and Drew Baglino.
13:32Elon MuskAll right, Master Plan Part three. So as Zach was mentioning, the, the thing that I think is we wanted to convey probably more, more importantly than anything else that we talk about here, is that there is a clear path to a sustainable energy Earth.
13:53Elon MuskIt's not. It doesn't require destroying natural habitats. It doesn't require us to be austere and stop using electricity and sort of be in the cold or anything. The story, and I think that this holds together quite well and we'll be actually publishing a detailed white paper with all of our assumptions and calculations is that there is a clear path to a fully sustainable Earth with abundance.
14:26Elon MuskIn fact, you could support a civilization much bigger than Earth, much more than the 8 billion humans could actually be supported sustainably on Earth. And I'm just often shocked and surprised by how few people realize this.
14:48Elon MuskMost of the smart people I know actually don't see this clear path. They think that there's, there's not a path to a sustainable energy future, or at least there's not one that is sustainable at our current population or that would have to resort to extreme measures.
15:10Elon MuskNone of this is true. So we're going to walk through the calculations for how to create a sustainable energy civilization.
15:23Drew BaglinoAnd to set the stage. Today our energy economy, it's, let's be honest, it's dirty and it's wasteful. Over 80% of global energy primary energy comes from fossil fuels. And only one third of that global energy actually ends up delivering useful work or heat.
15:38Drew BaglinoThis is the problem statement, but we're here to talk about the solution.
15:42Elon MuskYeah, it's like if for some of this I'm going to elaborate because there's a very wide range of technical expertise out there from people who are like, you know, whatever level 9 Wizards in the subject to people who do not do engineering at all.
16:00Elon MuskSo if you have a gasoline car, you're converting less than a third, often maybe only 25% of the energy in the gasoline is converted into motion. The rest is turned into waste heat.
16:15Elon MuskThat doesn't do any good at all. And there's a lot of energy required even to get the oil out of the ground, to refine the oil and to transport the gasoline to the gas station.
16:25Elon MuskSo when you look at all that for a typical gasoline car is, is actually going to be using less than 20% fully considered of the energy from the oil actually goes into motion.
16:40Elon MuskSo this is a. When I see people, when we see people doing calculations for what does it take to create a sustainable energy earth, they assume that the same energy amount is required for an elect for electric electrified civilization versus a combustion civilization.
16:57Elon MuskThis is not true because most of the energy of combustion is waste heat.
17:05Drew BaglinoAnd even to get the fuel to combust in the first place and get it to the end use, there's a lot lost along the way. I mean this is the primary energy consumption 165 petawatt hours a year.
17:14Drew BaglinoPetawatt hour is a trillion kilowatt hours. So it's a large amount of energy. But the nice thing about electrified economy, there's a better way we're going to talk about it, is that through end use efficiency and through efficiency along every step of the way actually the total energy use halves.
17:34Drew BaglinoSo this is one of the most enabling aspects of electrifying everything, is that the sustainable energy economy is that much easier to accomplish. It's actually half the problem statement of the fossil fuel economy.
17:46Elon MuskYeah, and we're being conservative here. So it could be better than half but we're trying to have assumptions that are reasonable, not overly optimistic, in fact, slightly pessimistic. So it's really better than half.
17:58Elon MuskBut just say for it's, it's easy to make the argument that we need half as much energy with an electric economy versus a combustion economy.
18:06Colin CampbellYep.
18:10Drew BaglinoSo how the master plan works. You want to talk?
18:12Elon MuskYeah, so. So the thing that is needed at very large scale, that is not currently present, is a vast amount of battery energy storage. Our rough calculations are that this is about 240 terawatt hours or 240,000 gigawatt hours.
18:35Elon MuskThis is a lot of batteries, but it is actually a very achievable amount. We'll go into details on that. So that's a combination of electric vehicles and stationary storage.
18:47Elon MuskSo if you've got solar or wind, you've got to store the energy when the wind is not blowing or the sun is not shining. And so we're assuming sort of an 80:1 ratio of stored energy to power.
19:01Elon MuskSo 30 terawatt hours of power. 30 terawatts of power. Our actual capital expenditure calculation for manufacturing investment is more like 6 trillion. But we, you know, we made it higher to make it 10 trillion.
19:21Drew BaglinoAnd this is across mining, refining, you know, battery factories, recycling vehicle factories, all the things that we're going to talk about needing to invest in to build this sustainable energy economy.
19:31Elon MuskYeah, no, if you look at the total world economy, it's just under 100 trillion. So if this was spread out, say over 10 years, it would be 1% of the global economy.
19:43Elon MuskOver 20 years, it would be half a percent of the global economy. So this is. Yeah, not a big number relative to the global economy. As Drew mentioned, you need about half as much energy with an electric economy versus a combustion economy.
19:59Elon MuskAnd in terms of wind and solar, how much land would be used? It's less than 0.2% of the land area of Earth. Like, generally, people don't realize quite how much energy is reaching us from the sun.
20:15Elon MuskIt's roughly a gigawatt per square kilometer. And, you know, sun doesn't shine all the time, but it's. If you multiply that by, say, four to get the continuous power, four or five, then that gives you the land area of solar.
20:34Elon MuskAnd you can put wind and solar often in the same place. So a lot of places that currently have wind, you could have solar there and you double your energy.
20:42Drew BaglinoYou can also put wind offshore. It doesn't even need to be on land. So wind is even more flexible.
20:46Elon MuskYou could put Solar offshore too.
20:48David LauYep.
20:48Elon MuskSo Earth is 70% water. Anyway, the point is that with a pretty, really a remarkably small amount of Earth's land area, we can go fully sustainable. Yeah.
21:04Drew BaglinoAnd from. Do the resources and raw materials exist to support this transition? We'll go through that in detail, but we do not see any insurmountable resource challenges at all.
21:13Drew BaglinoIn fact, in the end, we should be mining less ore to accomplish this economy than we currently do with the fossil fuel economy. And we're going to talk through that.
21:21Ashok ElluswamyYeah.
21:21Elon MuskJust to emphasize that again, the electrified economy will require less mining than the current economy does. Less, not more.
21:31Drew BaglinoOkay, so this is the plan. And now we'll get into a little more of the details of the plan. Basically, five areas of work. First, renewable power, the existing grid.
21:43Drew BaglinoSecond, switch to the to electric vehicles. Third, switch homes, businesses and industry heating to heat pumps. Fourth, high temp heat delivery and storage for high temp industrial and chemical processes.
21:58Drew BaglinoAnd a little bit of green hydrogen in there for chemical processes that need hydrogen. And finally, sustainably fueled planes and boats. These are the five areas and we're going to go into detail on all of them.
22:09Elon MuskYeah, I mean, my personal opinion is that as we improve the energy density of batteries, you'll see all transportation go fully electric with the exception of rockets. That's awkward.
22:23Elon MuskBut, but you can make the fuel with CO2 and water, so you can make methane with CO2 and water.
22:31Drew BaglinoSo in fact, you can do that with just electricity.
22:33Elon MuskYes, exactly. So. So in fact, on Mars, if we hopefully get there at some point, the atmosphere is CO2 and there's water ice throughout Mars. So you can take the CO2 and H2O and turn that into CH4, which is methane and oxygen.
22:51Elon MuskSo ultimately, even rockets can be electrified.
22:56Drew BaglinoSo first, repowering the existing grid with renewables. And this is going to be a consistent theme. You'll see our estimates for the number of terawatt hours total and trillions of investment at the bottom of the page.
23:07Drew BaglinoYou know, this is already actively occurring in front of US. 60% of the generation added to the US grid was solar in 2022. And actually on a year on year basis, solar deployment is growing 50% year on year as of 2022.
23:22Drew BaglinoSo this is a, this is a serious upswing. And if we continue this trend, this is going to be behind us before we even know it.
23:30Elon MuskYeah.
23:32Drew BaglinoSecond, switching to electric vehicles. Again, 21% reduction in fossil fuel use by doing this alone. Obviously, Tesla is heavily engaged in this activity as along with many others. Overall EV production grew 59% year on year in 2022 and EVs hit an amazing 10% market share.
23:51Drew BaglinoI mean, it's an awesome milestone. I'm super excited to see that.
23:56Elon MuskAnd yeah, this is obviously happening very rapidly and I mean I think really all cars will go to fully electric and autonomous and so riding a non autonomous gasoline car is going to be analogous to riding a horse and using a flip phone.
24:20Elon MuskThat's basically going to be the situation.
24:23Drew BaglinoAnd we actually took a somewhat conservative assumption here in terms of how many batteries are required because the more the fleet is autonomous, the fewer, the smaller the fleet needs to be just from a utility basis.
24:34Drew BaglinoSo we're not accounting for all of those benefits or really much of those benefits at all in this number. And what does this fleet look like? You know, just rough view from our perspective.
24:44Drew BaglinoOf course we could be wrong, but you know, you can see the sort of breakdown of the fleet by millions of vehicles. You know, our goal is to do 20 million electric vehicles a year.
24:55Elon MuskYeah. Fewer vehicles will be needed, at least passenger vehicles with autonomy. So there's some debate as to what that number is, but it's a number less than the number of vehicles needed today.
25:10Elon MuskThere's roughly 2 billion cars and trucks in operation in the world today.
25:15Drew BaglinoAnd yeah, so what we show here is actually I think only 1.4 million or so. So we're represent 1.4 billion, I mean, or so. So a smaller fleet. And you know, the numbers here in this presentation are around 85 million vehicles a year produced.
25:31Drew BaglinoJust to give you a sense of how we're thinking about this again, we're going to put all these assumptions up online and you know, encourage people's thoughts.
25:37Elon MuskYeah. So yeah, so we're basically heading rapidly towards an electric or autonomous future.
25:46Drew BaglinoExciting.
25:46Elon MuskYeah.
25:48Drew BaglinoAnd one of the reasons why EVs are so enabling is this end use efficiency point. Tesla Model 3. It's four times more efficient from the well to wheel than a Toyota Corolla.
26:00Drew BaglinoAnd that's all about the efficiency of getting the electricity to the into the car in a sustainable energy economy. And then how efficient the car is in transferring that stored energy to motion on the road when compared to the engine in the Toyota Corolla.
26:15Drew BaglinoAnd all the, you know, extraction, refining, transmission, distribution of the gasoline to the Toyota Corolla. And just for this is a Fun reference, Model 3 can drive over a mile on the energy it takes to boil a pot of water for pasta and then it can drive another mile on the energy it took to cook the pasta and that pasta is £1 from all three is like £4,000.
26:37Drew BaglinoJust to give you a sense of just like what? Like it really doesn't use a lot of energy to move a Model 3, that 4,000 pound object down the road.
26:45Elon MuskAlso, heat is a lot more energy than motion.
26:47Drew BaglinoYeah, yeah. But people, you know, you just boil a pot of water, you don't even think about it. Yeah. It's just interesting how efficient these cars are. Next, switching to heat pumps in homes, businesses and industry.
27:01Drew BaglinoYou know, right now heat pumps meet 10% of building heating needs install rates growing 10% year on year. It really needs to accelerate. Heat pumps can serve, you know, heat applications up to 200c in businesses and industry.
27:13Drew BaglinoAnd from an investment perspective, as you can see on this page, it's actually the lowest hanging fruit in terms of displacing fossil fuels. You might be saying, well, what exactly is a heat pump?
27:23Drew BaglinoSo heat pumps don't move heat, don't create heat, they move heat. When you think about like the natural gas furnished in your house, like it's, it is generating heat itself.
27:36Drew BaglinoBut what the heat pump is doing is actually moving heat from outside of your house into your house. They're just an air conditioner or a refrigerator in reverse. So we're surrounded by heat pumps.
27:44Drew BaglinoThere's like, you know, they're all over this factory, they're in your house. And all this really is, is about bringing them to displace all the fossil fuel heating in all the homes, business in the industry that, that we can.
27:56Drew BaglinoAnd from an end use efficiency perspective, there's a three times reduction in the total energy required to heat these buildings. So a real obvious thing to do.
28:06David LauYeah.
28:06Elon MuskHeat pumps, there are cars.
28:09Drew BaglinoYeah.
28:09Elon MuskNow as default. And at some point we might make a heat pump for our home.
28:14Drew BaglinoSo yeah, maybe, maybe, maybe. Next a little bit more detail on electrifying high tempo sort of industrial chemical processes. So over 50% of industrial heat is greater than 400C.
28:28Drew BaglinoYou know, cement, steel, fertilizers, chemicals, plastics, metals, refining, all need like 1,500 C. So we need a solution here. Ultimately it's purpose built equipment that enables electrification. You know, carbon graphite is stable up to 2800C.
28:43Drew BaglinoThere's other options in the 1500C range, like Silicon carbide, other materials. So the idea here is you create and store heat when renewable power is available. If this is a sustainable energy economy, you know, renewable energy is intermittent.
28:58Drew BaglinoPeak of the day, you've got more generation than you need you make a bunch of heat then, and then you transfer that heat into the industrial process 24 hours a day using the stored heat you created when the sun or the wind was blowing.
29:09Drew BaglinoThat's the concept here. And then on the hydrogen side, we also need green hydrogen to decarbonize metals and chemical refining processes. This is things like ammonia making steel. You know, there's roughly 120 million tons of hydrogen sourced from fossil fuel today to do these things.
29:26Drew BaglinoAnd hydrogen can also directly replace coal which is currently used in a ton of steel production through a process called directly reducing iron. You can replace blast furnaces with a hydrogen reducing direct reduced iron furnace.
29:40Drew BaglinoAnd this is the way to eliminate fossil fuels from these aspects of the economy and the CO2 associated with them.
29:46Elon MuskYeah, so I mean some of this, there's like room to disagree, but some amount of hydrogen is needed for industrial processes. My personal opinion is that hydrogen will not be used meaningfully in transport, but and shouldn't be.
30:02Elon MuskIf you're going to use a chemical fuel, you should use Ch4, not H2, but nonetheless it is needed for industrial processes and can be produced just by splitting water essentially.
30:16Drew BaglinoI mean something that's been done for decades and decades. This is not rocket technology. And lastly, a small part of the pie, but a necessary part of the pie is sustainably fueling planes and boats.
30:30Drew BaglinoShipping accounts for 3% of global CO2. It's ripe for electrification. Even with lithium iron phosphate. Long haul ships can be fully battery powered. So that's a great opportunity to electrify.
30:43Drew BaglinoEnergy density is a little bit harder for planes, but short haul is doable. Today with some improvements, we'll get long haul underway. But even, even in the meantime, we can leverage sustainable aviation fuels produced and stored using excess renewable electricity.
30:55Drew BaglinoThere's a lot of work going on in this space and it's, it's, it's not.
30:59Elon MuskYeah, yeah. I mean to, to really get long range aircraft and long range shipping to use lithium ion, you need to redesign the ship and not just. Or the plane and the plane to take advantage of the fact that it is a new source of energy.
31:23Elon MuskIt's a different architecture. So just like with an electric car you wouldn't just, you know, take a gasoline car and stick a battery in it. That's very suboptimal. It's much more efficient to have the battery be the structure of the car and you know, make it as, make it mass efficient and optimized for battery, for batteries the same.
31:47Elon MuskIf that's done with aircraft, I think you can get long range aircraft at, around with, with cells at around 450 watt hours per kilogram, which you can buy it right now.
31:57Elon MuskActually it's expensive, but I think that price will come down.
32:02Drew BaglinoSo when we stack up all of these efforts, we end up with the numbers we shared at the beginning of the presentation. 30 terawatts, 240 terawatt hours, $10 trillion.
32:12Drew BaglinoAnd you're, you may be saying like I need some context. Is this feasible? Spoiler alert, it's entirely feasible. Just looking at it from a growth rate, growth rate perspective, how much do we need to grow the deployment of these technologies?
32:28Drew BaglinoWe're talking about only a 3x growth rate in solar and wind deployment. Solar is already growing at a breakneck pace, as is wind. This gap is going to be closed really quickly.
32:39Drew BaglinoWhen we look at the electric vehicles, they have to grow 11x. Well they grew 60% year on year last year. That growth rate is also going to close pretty, pretty darn.
32:49Drew BaglinoThat gap is going to close pretty quickly as well. And lastly, storage. You know, Tesla's energy storage business has grown at 65% CAGR since 2016. The global, you know, energy storage business is accelerating pace as well.
33:04Drew BaglinoI mean all these gaps are going to close, especially as, as this momentum of the transition to sustainable energy accelerates. And of course our goal on this page is 20 million EVs per year and 1 terawatt hour of stationary storage per year, basically as soon as we can.
33:24Drew BaglinoAnd then, you know, what about this investment? How do I have a reference point on this investment? You know, Elon mentioned it's 10% of, you know, one year's world GDP.
33:35Drew BaglinoAnother way of thinking about it is how does it compare to what we're investing, like what we invested last year in the fossil fuel infrastructure and it's 60% of that investment.
33:44Drew BaglinoSo actually building this sustainable energy economy is less than extending the fossil fuel economy from a year over year investment basis. So very doable when we look towards does this fit on the planet?
34:00Drew BaglinoAbsolutely. Less than 0.2% of land as a reference point. The total land area intensively farmed today is 12 and a half percent of all land. So I mean, you drive around, you see some farms, but you don't see them everywhere.
34:16Drew BaglinoThis is, this is an order of magnitude, more than order of magnitude difference between farming and what we're talking about for sustainable energy land.
34:24Elon MuskAnd it doesn't need to displace farmland or you know, forests or jungle or any kind of ecological preserve. It can be used in very sparsely
34:36Drew Baglinopopulated desert regions, barren areas, areas that are just not really fit for development or otherwise used. So Yeah, I mean, 0.2% can fit into a lot of places.
34:46Elon MuskYeah, it's, it's, there's, there's essentially no meaningful ecological impact. In fact, transition to a sustainable energy economy economy would result in a substantial reduction in current ecological impact.
35:00Drew BaglinoIt's a great way to put it.
35:01Elon MuskYeah.
35:03Drew BaglinoAnd what about on the mineral extraction side? So this is a cartoon that sort of gives you a sense for all the ore and the like extracted minerals that are coming out of the earth every year.
35:14Drew BaglinoIt's about 68 gigatons. So each truck is a gigaton. What does this look like when we're in a sustainable energy economy? Looks like that the fossil fuel extraction disappears.
35:27Drew BaglinoWe replace it with the materials required to fulfill the sustainable energy economy actually reduces. Now, it's not to say that we don't need to continue to explore, you know, bring on mining and refining for the sort of specific materials for the sustainable energy economy.
35:43Drew BaglinoWe do, but the investment in mass flows are all very achievable. Just looking at what is already happening on the planet, like this is nothing out of scale of what has been done and is already being done.
35:54Drew BaglinoAnd then we calculate it on a sort of, you know, element by element basis. The resources are there to support the transition. You know, this is cumulative demand to move in the sustainable energy economy direction until 2050 relative to USGS resources today.
36:10Drew BaglinoYou know, we're not breaking the resource bank for any of these materials. And then when we look at what really happens as we move forward, history teaches the more we look, the more we find what people think happens is, oh, there's this many resources, next year there's going to be less because we're going to extract them.
36:27Drew BaglinoWhat actually happens is as we extract resources, we, we find more. And you can see on the right what has actually occurred with the key materials to the sustainable energy economy since 2000, as the Sustainable energy economy has been growing and Tesla's been growing and all the industries around us have been growing, the actual resource availability has increased, not decreased.
36:48Elon MuskYes, there still seems to be quite a bit of confusion about the, about lithium. Lithium is extremely common. It's one of the most common elements on Earth. There is, there's no country that has monopoly on lithium or even close to it.
37:04Elon MuskThere's, there's enough lithium or in the United States to electrify all of Earth. If the United States was the only place producing lithium, there's enough Domestic material to electrify Earth.
37:18Elon MuskIt's very common. The limiting factor is the refining of the lithium into battery grade lithium hydroxide or lithium carbonate. That's the actual limiting factor.
37:30Drew BaglinoAnd the same is true for these other materials. And this is again, these are not like crazy technologies. It's just the investments need to be made. And the investments, they're not gigantic.
37:39Drew BaglinoThey just need to happen.
37:40Elon MuskRight. Nickel's maybe of them all the trickiest one to solve. But as we showed with the graph, there Maybe need like 30% of the world's known nickel reserves. So.
37:51Drew BaglinoAnd the nickel reserves have actually grown since 2000.
37:54Elon MuskThere is more. Exactly. So and you only need nickel for basically aircraft, long range boats and very long range cars or trucks. But the, the vast majority of the heavy lifting for electrification will be iron based cells.
38:15Elon MuskAnd the earth is. Iron is actually literally the most common elements on Earth. So trivia point, if you say like what is Earth made of by mass? It is most.
38:27Elon MuskIt is made of iron more than anything else. And second oxygen and then everything else after that. So basically we're a muddy rust bowl is what earth is. So an iron cathode is sort of.
38:43Elon MuskYou're definitely not going to run out of iron. There's so much iron is insane. So that's. Yeah, yeah.
38:53Drew BaglinoAnd ultimately this resource extraction, we go through this effort, we build these batteries and then we recycle these batteries. So ultimately we're doing this to build this sustainable energy economy.
39:06Drew BaglinoBut the maintenance amount of ore that we require is really an order of magnitude or more less because of recycling. So in the end a sustainable energy economy is within our reach and we should accelerate it.
39:22Elon MuskYeah, I mean, so this is really the main message of today. And I really wanted today to be not just about tells the investors who own stock, but really anyone who is an investor on Earth.
39:36Elon MuskAnd what we're trying to convey is a message of hope and optimism and hope, optimism that is based on actual physics and, and real calculations. It's not wishful thinking.
39:52Elon MuskEarth can and will move to a sustainable energy economy and will do so in your lifetime. Thank you.
40:01Drew BaglinoYes, thank you.
40:07Drew BaglinoAnd I just want to welcome up Lars and Franz to the stage.
40:21Ashok ElluswamyHi.
40:22Franz von HolzhausenHi, I'm Franz, I lead design at Tesla.
40:27Lars MoravyAnd I'm Lars. I've been doing vehicles with Franz for almost 13 years now.
40:34Franz von HolzhausenSo I joined Tesla in 2008 to vertically integrate design into the company. It didn't exist before, was a pretty small team. It was tasked with designing the most beautiful, innovative and well engineered vehicles on the planet.
40:48Drew BaglinoNo small task.
40:49Franz von HolzhausenIn 2008, there's not a lot going on in the EV sector then. Since then, we focused on constant improvement in cost, efficiency, innovation, things that you'll continue to hear about today, while continuing to design the most desirable cars.
41:06Franz von HolzhausenToday, we produce cars differently than we did 10 years ago, but the end result is always an exciting, futuristic and desirable set of vehicles.
41:14Lars MoravyBack then, we only had a handful of designers and engineers like myself, but we had a great vision to radically change transportation.
41:22Franz von HolzhausenSo back in 2008, when we were designing Model S, we didn't have a factory. In fact, we had a really small engineering team and a tiny design team. But that allowed design to lead all the conversations.
41:38Franz von HolzhausenIt let us innovate forward thinking ideas like how do you fit seven people into a sedan? Or how do you make door handles disappear into the. Into the doors?
41:48Franz von HolzhausenOr putting a huge touchscreen into the center of the vehicle, Something that had never been done before.
41:55Lars MoravyAnd then we won Motor Trend Car of the Year.
41:57Franz von HolzhausenYes. And we won Motor Trend Car of the year in 2013. Our first, our first great award first car, pretty good start, kind of a home run, I think.
42:08Franz von HolzhausenBut that whole process resulted in a linear process that you see on the screen. We designed first, then we engineered, and then we figured out how to manufacture it.
42:17Lars MoravyYeah, I mean, I think that's really important. When we were designing the car together, we didn't even know where we were going to build it. And so we came up with.
42:23Franz von HolzhausenWe didn't even know Lars when we were designing it.
42:24Lars MoravyThat's true, we didn't. So once we got Fremont, we were very fortunate and we figured out the manufacturing solutions. Sort of like we were flying a plane and putting the wings and building the engine at the same time.
42:36Lars MoravySo we knew we had to do better.
42:38Franz von HolzhausenYeah, we knew we had to be better in order to scale. And as part of the master plan that you've read, Model 3 needed to be a smaller, more efficient and more affordable version of Model S.
42:49Franz von HolzhausenBut it
42:50Zach Kirkhornhad to be equally great.
42:51Franz von HolzhausenIt had to have all the things that people loved in their Model S or, or Model X, but be much more affordable. And so we approached the process a little bit differently than the first time around.
43:02Franz von HolzhausenNow we had teams that we all worked together, so we were able to combine design, engineering and manufacturing process all at the same time. But somewhere along the way, we changed the manufacturing process to be fully automated.
43:19Franz von HolzhausenAnd so we leaned into this whole new way of manufacturing a car, but we had already engineered it so things didn't quite go as well as planned.
43:27Lars MoravyIt was an amazing product but it landed us in production hell. Many of us who lived through that carry those battle scars. It was a great idea, but it wasn't the right timing.
43:38Lars MoravyLike Franz said, automating something that we designed to be built manually is super hard. And we have many, many failed examples of that at the Fremont factory that we ripped out.
43:48Lars MoravyBut some of them eventually still work. This is one I actually worked on with a small team of engineers. It's still running today and some of the engineers that came by said we couldn't do it, are no longer with the company but it's running and it's running faster than ever.
44:02Lars MoravySo we kind of self imposed constraints on the design when we were doing it to be built manually and we really didn't think about it. But despite all that, model 3 is the best selling EV ever.
44:13Rebecca TinucciIt yeah.
44:14Franz von HolzhausenAnd Model Y which is derived from Model 3 is about to pass that. But we knew we had to improve the process further. And with Cybertruck we designed a vehicle around a vision that actually started with a manufacturing process.
44:30Franz von HolzhausenAnd in this case the materials dictated the design.
44:35Lars MoravyForming full hard stainless steel isn't rocket science, but it sure isn't easy and it limited the way we could do it.
44:42Franz von HolzhausenYeah, absolutely. It really forced us to think about designing something in a way that you couldn't normally stamp panels, you couldn't form them in a traditional way. So you ended up with very linear bending processes that are just not in automotive kind of language of manufacturing today.
45:00Franz von HolzhausenBut it actually created a very efficient and process and one of the most dynamic designs ever, I believe. It's definitely something that's going to change the road landscape.
45:11Lars MoravyHopefully you guys saw it down there and you experienced it. It's definitely real. Those are real trucks. We're on our way to build them. But what that stainless steel opportunity did for us, it let us rethink the factory footprint.
45:23Lars MoravyWe don't stamp those. That's a huge part of it. We don't even paint them. So our footprint got smaller and we started to think about innovative ways to take those constraints and make great products.
45:34Franz von HolzhausenBut that constraint didn't really change the end result of the truck. It's a super dynamic truck and it has all the functionality you would expect out of any of the other competitive trucks.
45:45Franz von HolzhausenAnd the best thing about it, it's coming this year.
45:55Lars MoravySo ideally after all that we would design, engineer, manufacture and plan for automation happening together. It gives us the opportunity to question requirements. This is something that is fundamentally only available at Tesla.
46:09Lars MoravyThe places I used to work and the top manufacturing companies in the world, they don't sit together.
46:14Franz von HolzhausenOne team, nowhere I know has all these teams together, thinking about these processes from the very beginning.
46:20Lars MoravyIn fact, all of those engineering teams, manufacturing, design, automation, they're all in one org. They all report to one person. We can't point fingers at each other, so we have to solve them together.
46:29Lars MoravyWhich is the best way to innovate. A traditional way of making a vehicle is this. You stamp it, you do build a body in white, you paint it and you do final assembly.
46:38Lars MoravyAnd what's interesting is these shops are dictated by the organizational structures that exist, and they're dictated by the boundaries that exist in the factories that are laid out. If something goes wrong in final assembly, you block the whole line and you end up with buffering in between.
46:55Lars MoravyThis is at the tail end of its manufacturing optimization. Henry Ford first invented this assembly line in 1922. It's been 100 years, and it's really hard to make a change after 100 years.
47:08Lars MoravyAnd when you watch it happen, it's actually really silly to a guy like me. You take all these stamped panels, you put them together, then you put them in a framing station.
47:18Lars MoravyYou build a body that looks something like a car. You put the doors on and then you paint them. Once you get the color, you take the doors off, and then you start putting the interior inside the car.
47:33Lars MoravyIt comes in through the openings that already exist. I wish it went in like this big piece like this, but there's actually people coming in and out of the car.
47:40Lars MoravyThere's awkward movements. Then we lift the car up, we put stuff from underneath it, we put it down, Then we put the seats in the car, and finally we close it all out with glass and we bring those doors that went away for a trip and we put them back in the car.
47:55Lars MoravyMost of the time we're doing this with a big giant car and moving it and doing really nothing to it at all.
48:01Franz von HolzhausenWhat's funny, though, in this kind of whole process is that just recently, Toyota just called this an engineering work of art.
48:09Lars MoravyTrue. The model, yeah, that was humbling. But at Tesla, it's not good enough. If we're going to scale the way we want to do, we have to rethink manufacturing again.
48:22Lars MoravyAs part of the master plan, we have to make another step change in cost. We started this on model Y when we made these huge gigacastings and we deleted hundreds of parts.
48:32Lars MoravyWe simplified assembly with the model Y structural battery, where we decided the floor should be a part of the car. The battery is the floor. We put the seats in the interior on the battery, and we bring it up through a big open hole and we assemble it.
48:47Lars MoravyAnd this allowed us to do things in parallel, fully rethinking the process and reducing the final assembly line by about 10%. And we thought maybe we could do this other places.
48:57Franz von HolzhausenYeah, I mean, in a way the constraints become part of the solution rather than a problem.
49:05Lars MoravySo when you think about what I'm trying to say, I really want to hammer this home. When you have a car that's about 5 meters long and you have people working around it like we did in model 3, and we change that to this process where we take different parts of the car, we can do more at the same time like we did with the model Y structural battery pack.
49:22Lars MoravyWhat you see here is us doing that on the front part of the vehicle or the rear part of the vehicle. That means we can get more people working on the car or robots working on it at the same time.
49:35Lars MoravyThat means we have better operator density, less time doing nothing. I call that space time efficiency. It has nothing to do with quantum mechanics. We can have that conversation later.
49:44Lars MoravyBut we get 44% more operator density, which means more work, less time walking back to the station. 30% improvement in space time efficiency. And because we're not building it in and out of the car with those slow movements of those robots I showed you from production hell, when we go to automate it, it's going to be a lot easier in the end.
50:05Lars MoravyThat will probably look something like this. Where we balance parallel and series manufacturing in a way where we only do things that are necessary. With a much shorter final line blocking a lot less of the entire rest of the factory.
50:18Lars MoravySo we can optimize material flow using the best practices. And what that means, it's going to look something like this, where we build all the sides of the cars independently.
50:26Lars MoravyWe only paint what we need to, and then we assemble the parts of the car once and only once, we put them where they need to go. The interior is attached from a bottom up or a top down strategy so there's more access for those robots and people.
50:43Lars MoravyWe aren't moving heavy objects around and doing nothing to it. And it means we're doing more work on the car, more of the time. And then when we take it all, all of these tested sub assemblies and we put them together, we finally assembled the car only one time putting the sides on with all of their parts to a front and rear that was already assembled, carrying the floor in with the seats and finally boxing it out with the doors one time.
51:07Lars MoravyJust like Cybertruck. So in the end you get the same car, but it's not going to be a Model Y. Yeah.
51:15Franz von HolzhausenThis is not. This is a Model Y for illustration, not the next generation vehicle.
51:21Lars MoravyIn the end, what does that mean? To increase the scale and adoption of electric vehicles on the orders of magnitude that we just showed you, we have to make constraints part of the solution.
51:30Lars MoravyIt leads us to greater than 40% reduction in footprint, which means we can build factories faster with less capex and more output per unit. Faster, less capex, more output per unit dollar.
51:46Lars MoravyZach's going to go into more details on this later, but it also means through this innovation and some of what my other engineering colleagues are going to talk to you about in the future, we'll reduce costs as much as 50%.
51:57Lars MoravyThis is the two for one concept you hear me and Elon talking about on earnings calls.
52:03Franz von HolzhausenYeah. So I think our track record approves that we can deliver the best cars and we deliver the best cars in spite of because of these constraints. And I'd love to really show you what I mean and unveil the next gen car, but you're going to have to trust me on that until a later date.
52:22Franz von HolzhausenJust. And I promise we'll always be delivering exciting, compelling and desirable vehicles like as we always have.
52:27Lars MoravyHave we ever not? We always do.
52:29Franz von HolzhausenBut what else is Tesla known for?
52:32Mike SnyderSpeed.
52:34Lars MoravySo with that, I want to bring on Colin, who's in charge of making our cars go fast.
52:43Colin CampbellThank you, Lars. Thank you, Franz. My name is Colin Campbell and I have the real privilege of leading powertrain engineering here at Tesla. We make the fastest cars that you can buy for the money, whether they're electric or gas.
52:57Colin CampbellAnd the Model S plaid that we're looking at here, it has more than 1,000 horsepower and pound per pound, the motors in that car, or as powerful as jet engines.
53:06Colin CampbellOur cars are super fun. People absolutely love driving in them. And the other thing that you probably all know about our powertrains is that they're efficient. Our coast go 25 to 30% further than other EVs in our class for the same amount of efficiency.
53:21Colin CampbellBut at Tesla, efficiency means more than just reducing how much energy the cars use. It's about how we develop, how we manufacture, how we how we refine, and how we scale the powertrain.
53:35Colin CampbellNow, the Model 3 and Y powertrain is a great example of this. Broader meaning of efficiency. So since we launched it back in 2017, we've continuously improved that powertrain and the factory that builds it.
53:47Colin CampbellSo the drive unit, the engine of the car, is 20% lighter. For the same power, we use 25% less heavy rare earths than when we started. And the powertrain factory, which is behind me today, is 75% smaller and 65% cheaper than the one that we originally built.
54:07Colin CampbellAnd what I really want to emphasize is that we did all of this without compromise. Our cars are just as powerful, they go just as far, they cost the same or less, and the factories have the same output.
54:22Colin CampbellSo how did we do that? We did it by designing the entire vehicle and the entire factory together as one company. And this sets Tesla apart. We have small and highly capable teams.
54:37Colin CampbellAnd to make a critical decision, we can have the battery cell chemists, the mechanical engineers, the manufacturing engineers, the supply chain team, the automation designers, the software programmers, all in one room, working together in real time.
54:53Colin CampbellAnd that allows us to make decisions that are best for the whole car and to make them really fast. And that approach is unlike traditional automotive engineering, which is really fractured.
55:03Colin CampbellAnd if you were to go buy, like a premium German electric car, the engineers who designed the drive inverter in that car, they did not work for that car company.
55:12Colin CampbellThey worked for a contractor. And at Tesla, we designed the entire car and the factory that builds it. And I want to highlight a few examples of what we've been able to do in house thanks to that unique approach.
55:25Colin CampbellSo inside the charger of your Tesla are transistor packages, and that's at the top of your screen here. And every electron that moves you down the road flows through one of these packages.
55:37Colin CampbellWe designed our own custom package, which is what you're seeing here. And we can extract twice as much heat out of that package as what we could buy off the shelf.
55:45Colin CampbellAnd so what does that mean? It means that the silicon carbide wafer that's inside those packages can be much smaller. And silicon carbide is an amazing semiconductor, but it's also expensive and it's really hard to scale.
56:01Colin CampbellSo using less of it is a big win for us. And then on top of that, orchestrating all of these transistors and making them switch in the right ways is computationally extremely intensive.
56:13Colin CampbellIt used to require four microprocessors, which are shown here in the bottom left. We have developed our own custom microprocessor. It's purpose built for high power electronics. It's half the cost.
56:27Colin CampbellAnd it does in just one the job of all of those four. And these are just two examples of many that I could use to showcase our expertise in high power electronics.
56:37Colin CampbellAnd that expertise has allowed us to take the cost of the chargers that were in our Model S when we launched it in 2012, both the cost and the mass, and cut both of those in half.
56:50Colin CampbellAnd even more important, power electronics are central not just to our cars, they're also central to our superchargers into our energy storage products. And Rebecca and Mike will be talking more about that.
57:02Colin CampbellSo in addition to the work that we've done in software and hardware, we've also done a lot of work in house on software. So this is the drive unit for Model 3 and Y.
57:10Colin CampbellAnd if we take a cross section, we see this data and the rotor, and they're responsible for the core function of the drive unit, which is converting electricity into motion.
57:19Colin CampbellAnd our custom software lets us simulate the rotating magnetic field that is responsible for that conversion and getting that simulation exactly right. It's central to the cost, the weight, the size, and even the sound of the drive unit.
57:37Colin CampbellNow, you can buy software that will do all of this, but our tools are faster and they're more accurate, and that was not easy to do. And that allows us to quickly iterate through millions of possible drive unit designs to find the best one.
57:53Colin CampbellI want to highlight one more area where Tesla really excels, because we integrate work that is often farmed out. So when you are making a new product, it's not enough to think about the product itself.
58:05Colin CampbellYou have to think about how you're going to make it at scale. So Tesla, our powertrain and our powertrain manufacturing equipment is both designed under one roof. The engineers who are designing the motor, they are in the same room as the engineers who are designing the machine that's going to put that motor together.
58:22Colin CampbellAnd that collaboration pushes us from day one to design products that are not only high performance, but are really easy to assemble. So all of this expertise that we have in the powertrain team, in hardware and software, in manufacturing, it's going to have a major impact on our next platform, in our next powertrain.
58:46Colin CampbellSo silicon carbide transistors that I mentioned that are key component, but expensive, we figured out a way to use 75% less without compromising the performance or the efficiency of the car.
58:58Colin CampbellAnd of course, we know that battery cell supply is one of the constraints on the scalability of EVs. Right now, our new powertrain is compatible with any battery chemistry that will give us great flexibility in battery sourcing.
59:14Mike SnyderIf we want to make EVs more
59:15Colin Campbellaccessible to people, they have to be cheaper. We've reduced the drive unit cost to about $1,000. And we don't think any other automaker is even close to that number.
59:27Colin CampbellFinally, the bigger a factory is, the longer it takes to build. If we can build the same number of cars from a smaller factory, we are going to be able to scale EV production faster.
59:37Colin CampbellOur next powertrain factory is 50% smaller than the one that's behind me today, even though it has the same capacity. All of these improvements, I think, are going to be transformative for the adoption of EVs and our ability to scale them.
59:52Colin CampbellThere's one more thing that I want to highlight. So I talked about how we had reduced the amount of rare earth in our powertrains. And as the world transitions to clean energy, the demand for rare earth is really increasing dramatically.
1:00:07Colin CampbellAnd not only is it going to be a little hard to meet that demand, but mining that rare earth, it has environmental and health risks. So we want to do even better than this.
1:00:18Colin CampbellWe have designed our next drive unit, which uses a permanent magnet motor to not use any rare earth materials at all. So how does all this fit into the master plan?
1:00:30Colin CampbellWe can make lower cost products that are still efficient and compelling, and we can make them at scale. We're going to use less of constrained commodities. Silicon carbide, rare earths, we're going to build them all in compact and high output factories that are easy for us to build quickly.
1:00:47Colin CampbellWe're going to make that easy to scale powertrains all the way up to the levels that Drew and Elon mentioned at the beginning. And this achievement, like all of the achievements that I mentioned today, it's only possible because of the incredible people on our powertrain teams.
1:01:00Colin CampbellThey are absolutely committed to the cause of sustainable energy. And that is why we can do what no other company can do. Thank you.
1:01:16Drew BaglinoSo next I'd like to welcome my
1:01:17Colin Campbellcolleagues Pete Bannon and David Lau.
1:01:20Pete BannonThanks, Colin.
1:01:25Pete BannonGood afternoon everybody and welcome to Texas. Pictured here is the low voltage system of a Model S from 2012. This car was primarily designed with vendor source controllers integrated by Tesla.
1:01:38Pete BannonThere are over 300 low voltage devices that encompass everything from the mundane to like the light in the glove box to the complicated like the infotainment computer to the safety critical like the airbags steer by wire and break by wire.
1:01:56Pete BannonThe low voltage harness is built from individual wires cut to length, crimped and inserted into connectors. A manual process that is tedious, error prone and doesn't scale well. Going forward, we want to reduce the size and complexity of the harness and enable automated manufacturing.
1:02:16David LauThese wire harnesses introduce extraordinary complications, especially in the early stages of development and bring up of a vehicle. Because when we're trying to bring up this entire system and we see that it's not working properly, we don't know whether it's a problem with the software, with the controller, the processor, any of the endpoints in this entanglement of wires.
1:02:34David LauAnd so we have to go and debug everything all at once. And Pete's going to tell us about how we're going to make it better.
1:02:40Pete BannonSo I'm going to talk briefly about a few things that we've changed over the years since the Model S. With the Model 3, Tesla started designing an increasing share of our controllers.
1:02:50Pete BannonBy merging controllers together and we were able to simplify the design with a significant reduction in wire count and weight. Going From S to 3, we reduced the wire harness by 17 kg compared to model S.
1:03:05Pete BannonAnd this is a pretty big deal. And just to put that into context, our VP of engineering, Lars, will deliver a bottle of your favorite Spirit to your desk if you manage to save a kilogram of weight from the car.
1:03:17Pete BannonSo this improvement cost him quite a lot. Did we skip one? Yeah. The original model 3 controllers were enhanced and then built into Model Yes. Those improved controllers were then moved back into Model 3 when we introduced the heat pump.
1:03:33Pete BannonAt that point we had shared controllers across both cars, which helped simplify our supply chain. Those Model 3 and Y controller designs were then updated and enhanced for the new versions of Model S and X that we introduced in 2021.
1:03:47Pete BannonFor Cybertruck. We are now designing 85% of the controllers in the car for the next gen platform. We're going to finish the job and designing 100% of the controllers to give us full control of the design and the supply chain at the component level.
1:04:01Pete BannonHaving full control of the supply chain at the component level has been critical to Tesla over the last few years as the supply constraints have hampered our ability to build cars.
1:04:11David LauAnd with that control comes control over all the software, which enables us to develop features and functionality that we never even dreamed of at the time we designed the hardware.
1:04:21David LauSo that's why you see software in your car is getting better and better over time in ways that we didn't even think of when we designed the hardware in the first place.
1:04:28Pete BannonYes, Sentry mode is one of my favorite last minute changes with the introduction of Model 3 in 2017, we deleted relays and fuses from the car in favor of E fuses.
1:04:42Pete BannonE fuses replace moving parts with solid state transistors. They provide fine grained control of the power supply system to software and allow software to do advanced things like load shedding in the car under adverse conditions.
1:04:54Pete BannonE fuses also allow for software controlled retries for transient faults and they allow for detailed monitoring of the power system over time.
1:05:04David LauThe theme you hear a lot about today is software controlled hardware. And when I think about that in my team, software controlled hardware is fundamentally about being able to sidestep what otherwise would have been static trade offs between one attribute or another in a piece of hardware.
1:05:18David LauWe are able with software to instill intelligence, context awareness and context specific behavior into what otherwise would have been a piece of hardware that had to get optimized. For one type of scenario.
1:05:31David LauWe get more of everything.
1:05:34Pete BannonIn 2022, we completed the transition lead acid batteries to lithium ion batteries and which use a new toolless connector. We expect lithium ion batteries to last for the life of the car, so don't expect anyone to wake up to a dead battery ever again.
1:05:50Pete BannonThis eliminates a major source of failures for our car and the tool less connector makes it easier to service the car. And it also includes a software feature to allow validation that the connector has been properly installed at the end of a service event, which removes another source of failures in our cars.
1:06:09Pete BannonObviously the mass and volume savings are also significant, which is super helpful. At Tesla we're always trying to improve every single component in the car and a nice example of that is the 15 inch display that was originally shipped in the 2017 Model 3.
1:06:27Pete BannonOver time, the cost of the display has gone down 24%. We've been able to reduce the weight by 12% and we've reduced the power by 33%. At the same time, we've increased the brightness of the display by 50% and improved the color accuracy.
1:06:43Pete BannonSo this is one of our favorite things at Tesla does make a component cheaper and better. At Tesla, the drive to improve efficiency in the car is never ending.
1:06:52Pete BannonI think of it as like peeling a carrot. You just take a swipe at it, a little bit falls off, doesn't really make much of a difference. But if you just keep at it over time, it accumulates into a pretty significant improvement.
1:07:03Pete BannonOne of the changes that we're looking to make right now is to change something that's been steady for the last 60 years. 12 v. 12 v has been as I said, for 60 years the demand for power in the car has been steadily increasing to the point where we now have to have pretty large wires to drive over 200amps of current around the car, which increases the mast and costs.
1:07:25Pete BannonWith Cybertruck and all future Tesla platforms, we will be moving to 48 volts. This reduces the current needed by a factor of four. And since power loss in the harness is resistance times the square of the current, a 4x reduction in current leads to a 16x reduction in lost power while distributing energy in the car.
1:07:45Pete BannonThat allows for smaller wires, smaller E fuses and smaller controllers. It also allows us to to make those heat sinks smaller or in many cases remove it completely, all benefiting the car in terms of mass and weight.
1:07:58Pete Bannon48 volts is the future for low voltage design at Tesla and likely the rest of the industry.
1:08:03David LauIn due course, we welcome and encourage other OEMs and the entire supplier network to join us on this evolution.
1:08:11Pete BannonYou bet. The number of wires in the car is driven by the number of endpoints that need to be powered, powered and controlled. In the past, centralized control has led for wires spanning the entire car.
1:08:24Pete BannonFor cybertruck design we have moved to a local controller where the wire is connected to the nearest controller and those controllers are connected over ethernet. Wires are routed to the nearest controller where the data is converted into a network packet for transmission to the correct location on the car.
1:08:42Pete BannonTo be effective, the network must be reliable, have low latency and low jitter. And these are all attributes that we've been able to achieve with the current design. The design has eliminated most of the cross car wires in cybertruck and with the next gen platform we're going to finish the job and eliminate all of them.
1:08:59David LauThis consolidated vehicle network allows us also to make a whole lot more dynamic changes on the fly to how components in the vehicle talk to each other, rather than the traditional approach of separate can buses that are spread throughout the vehicle in hardware.
1:09:13Pete BannonAnd one of the nice things is that you can see the entire vehicle through a single connection, which wasn't possible in the past. For debug for the next gen platform, we're looking to optimize the controller design across the entire car and across all of the organizations, not just for a given subsystem.
1:09:29Pete BannonSimplifying the wire harness will enable automation. 48 volts will allow us to reduce the size, mass and cost of the low voltage system. And it's one of the key things to enabling us to scale production of the low voltage systems for the master plan 3 David Cool.
1:09:52David LauSo I joined Tesla in 2012, and even in those very early days of the Model S, we already had the ability to update software over the air in all the controllers throughout the entire vehicle, at a time when other cars were just so starting to update software in only their infotainment units.
1:10:10David LauAnd furthermore, we've had sophisticated anonymized data logging and telemetry capabilities that allow us to understand how the fleet is doing, what customers are doing with it, and how it's responding in the field to that usage.
1:10:24David LauThese two capabilities combined, OTA updates and data insights, give us the ability to iterate quickly on our software and and to maximize the amount that we learn and proceed and the progress that we make in every one of those iterations.
1:10:40David LauWe've used these capabilities to inform countless design decisions in both software and hardware.
1:10:47Pete BannonYeah, one example is that we were able to monitor and track the use of the sunroof in our cars and found that our customers never use their sunroof. So we made this easy decision to remove it.
1:10:57David LauVery barely. Yeah, haven't had Sunrise for a while. As another example, we are able to use our collision data to design our crash safety systems for what happens in the real world, far beyond what regulatory and consumer ratings tests prescribe.
1:11:16David LauAnd then furthermore, we're able to use that data to recreate in simulation all of those crashes every single time we make a change to the vehicle's design or to the software that controls the airbags and other restraint systems.
1:11:31David LauHere on this graph, the gray dots that show up first are specific crash tests that are prescribed by regulatory and consumer ratings agencies throughout the whole world and the rest of the color that fills in around and on top of it, those represent the crashes that we've seen happen in the real world.
1:11:49David LauThose are what we design for and what we test to.
1:11:53Colin CampbellRight.
1:11:54Pete BannonAnd last year, this data was used to change the algorithm for seat belt tensioning to reduce injuries in the field, which was OTA to all of our cars.
1:12:04David LauHere are a few statistics that demonstrate how staggeringly quickly we gain new insights from the anonymized data that we've received from the fleet every day. Every day, 123 million miles driven, 1.9 million charge sessions.
1:12:20David LauAnd those rates are only increasing as we deliver more and more cars into the world. As another example, we've analyzed patterns in the way the fleet drives and charges to optimally sized battery packs for our next generations of vehicles.
1:12:36David LauAnd you'll hear lots of other examples throughout the rest of the day. About how we're using data to inform decisions in the product and in manufacturing. So you've heard a lot from Pete, Colin and others about how important vertical integration is for us in hardware, but it's especially important for us in software.
1:12:54David LauAnd this is extremely difficult from the way the rest of the traditional automotive supply chain is set up. In most situations, all the controllers in the car are delivered by different tier 1 suppliers whose software is written by tier 2 suppliers who farm some of that software out to different tier three suppliers, and so on and so on.
1:13:15David LauMaking a change that spans multiple components takes months of coordination before any work can even start. And furthermore, integration of software in the server side with what's happening in our vehicles has always been a core part of our DNA and enables us to do things that nobody else can.
1:13:33David LauMost engineers think about the vehicle as a complete, consolidated, fully contained system. But in the software team, we think about the system as including the vehicle as well as all of our backend server side applications and infrastructure, and the resultant feedback loop from the entire fleet that informs all the decisions we make as an engineering team.
1:13:55David LauFor example, we recently released a feature in Model S and X that automatically predictively adjusts and raises the suspension for ride comfort before the car hits a section of rough road.
1:14:08David LauWe do that by leveraging the fleet to generate a map of road roughness everywhere our cars drive. Sounds pretty simple, but requires coordination of software across a number of different components inside and outside of the car.
1:14:22David LauThe restraint control module, whose inertial measurement unit senses the road roughness. The AutoPilot computer, whose GPS module and localizer figure out where the car is in the world. Our navigation server, which aggregates the anonymized telemetry from the fleet and annotates our map with things like updated speed limits, lane topology, and now road roughness.
1:14:45David LauThe onboard navigation engine, which looks ahead of the route that the car is traveling on and determines whether things are about to get rough. And finally, the air suspension controller, which takes all of those factors into account and decides continuously whether it is appropriate to adjust the suspension for ride comfort.
1:15:05David LauAnd before we released this feature to the world, we sent prototype versions of it to the entire fleet that ran passively in the background, sending us anonymous data about every time it would have engaged, which taught us exactly how it was going to behave in the wild, in every environment, in every circumstance.
1:15:25Pete BannonYeah, being able to test new algorithms in the background without impacting the car is really critical ability for us, especially for safety. Critical things like automatic emergency braking.
1:15:36David LauAnd we've used it to iterate on early versions of our stability control algorithms, which were introduced to the entire Model 3 fleet in 2017 with extremely high confidence, even on a very foundational and safety critical function.
1:15:54David LauOkay, so far you've heard me talk a lot about how we leverage our software systems to iterate quickly on the customer facing product. But what I haven't talked about and what we haven't said much about publicly in general, is how we leverage these capabilities in our own internal operations.
1:16:09David LauSo, for example, in the early days of manufacturing Model S, we very quickly realized that there are a lot of different ways you could misassemble a car. You could forget to plug in a wire you could not fully set a connector you could pull apart from the wrong bin.
1:16:26David LauSo when we designed our manufacturing processes for Model 3 and all of our other vehicles going forward, we took a page from the software playbook which says test early and test often.
1:16:39David LauAnd we applied that mantra to every single car that we build every at every step of the assembly line. So now when a production associate plugs something into the car, the central car computer sees that connection, confirms that it's the correct part for the type of car that's supposed to be built, installs a software update if necessary, checks configurations and calibrations, and runs a barrage of tests on that thing and all the other things that are connected to it.
1:17:04David LauAnd if it finds an anomaly that can't be fixed purely with software, it throws an alert immediately that is displayed prominently on the vehicle's display as well as sent to back end command and control systems so that a human can come over and fix the problem before the rest of the car gets built on top of it.
1:17:22David LauAnd we're taking a similar approach in service through a combination of onboard vehicle diagnostics, natural language processing applied to customer narratives. When a customer schedules a service appointment, and a suite of internally developed tools, we are successfully diagnosing, scheduling and ordering parts for over 33% of customer concerns and service.
1:17:44Roshan (Tesla)Yep.
1:17:45Pete BannonAnd we also use testers built around our own controllers to test sub assemblies before they get to the car, which will be even more important as we go to Lars unboxed assembly strategy 100%.
1:17:55David LauWe'll know with extremely high confidence that before those boxes get put together, that they are. That they are assembled. They themselves are assembled correctly. Okay, you've heard at lots of other events about all the awesome things that our autopilot and AI teams are doing to make the car drive itself, bringing us into the future of autonomy.
1:18:17David LauBut we've also been thinking for years. About all of the other pieces that we are going to need to manage a network of autonomous vehicles. A lot of this has been happening behind the scenes in the form of platform level functionality that we'll leverage later.
1:18:31David LauBut you've seen some of it surface already in terms of features that our customers and our internal operations teams can benefit from. Like in 2021, we built on top of our mobile app phone key and gave our customers the ability to share their car with anyone by sending them an invitation in a text message or an email.
1:18:48David LauLast year we introduced profile synchronization which synchronizes your seat, steering and mirror positions, as well as your settings, media favorites and stored navigation locations across all vehicles in your account.
1:19:01David LauInternally, we have an app that allows our personnel in engineering, manufacturing, delivery and logistics to view, locate and drive all Tesla owned vehicles at their site. And when customers bring their car into service, when they receive a Tesla owned service loaner vehicle, we are starting at some locations to automatically add that vehicle to the customer's mobile app account.
1:19:25David LauSo that combined with cloud synchronized profiles and phone key, it's a completely seamless experience. As soon as the customer walks up to that loaner, it behaves and feels exactly like their own car.
1:19:38David LauAnd all this is built on top of end to end encryption and cryptographically signed commands so that customer data remains private and obscure. And and the fleet only trusts commands from authorized parties.
1:19:52David LauSo that's a bit of a preview of all the pieces that we're building looking ahead to our future of autonomous fleets, synchronization, permissions, management, security and privacy. And that has been a whirlwind tour through some of the things that we're doing behind the scenes to enable the efficiency, cost reduction and speed that we are going to need for our next phase of growth and for the next phase of the master plan.
1:20:18David LauAnd so now to tell us about the latest in full self driving, I'd like to introduce Ashok.
1:20:33Ashok ElluswamyThanks David and Pete. Hey everyone. My name is Ashok Kailiswamy. I work on autopilot and self driving at Tesla. I joined Tesla back in 2014, so I've been working on this problem for almost nine years now.
1:20:46Ashok ElluswamyYeah, some of you might be wondering, hey, what the self driving got to do with the plan to a sustainable future. But it's actually a critical part of this plan and here's why.
1:20:57Ashok ElluswamyCurrently, when the car is not being used, it is sitting idly in parking lots, not doing anything. But when autonomy is truly unlocked, this car, instead of being idle, can go serve Other customers.
1:21:12Ashok ElluswamyThis fundamentally reduces the need to scale manufacturing to extreme levels because each car is being used way more. But this is no trivial problem. Building a scalable self driving system is I think one of the hardest real world AI problems out there right now.
1:21:33Ashok ElluswamyNonetheless, we at Tesla have have made significant strides in making one of the most generous systems at solving this problem. There are three main parts to get right to build a scalable problem.
1:21:51Ashok ElluswamyFirst is the architecture, the architecture of the AI system. Second is the data. And third is the compute. We'll start with the architecture. At Tesla we are betting on AI machine learning neural networks to help us build a general vision and planning system.
1:22:12Ashok ElluswamyIn the early days we used to have single camera, single frame neural networks that produce some outputs. These were stitched together in some post processing steps for the planner.
1:22:23Ashok ElluswamyBut this was very brittle and was not leading to great success. So what we did in the last few years is transition most of our stack into this multi camera video neural networks.
1:22:35Ashok ElluswamyThese neural networks take in the live feed from the car in real time of the eight cameras in the car and produce a single unified 3D output space. There are many tasks that we produce such as the presence of obstacles, their motion, lanes, roads, traffic lights, what have you.
1:22:58Ashok ElluswamyThis is one example output that you're seeing here. This is from our occupancy network that predicts the positions of obstacles and their motion. You can see that it precisely captures the swervy violent motion of this truck next to us.
1:23:11Ashok ElluswamyAnd this helps the planning system to avoid a collision with this object.
1:23:19Ashok ElluswamySome of the tasks, such as lane connectivity, are more complicated to model using naive methods in computer vision. So we don't stop at the computer vision techniques. But we reach out to techniques in other areas such as language modeling, reinforcement learning to model this task.
1:23:35Ashok ElluswamyThis is similar. These networks use similar techniques such as transformers, attention modules, autoregressive modeling of tokens, similar to what large longish models like ChatGPT do out there. With such an end to end system of solving perception, we have really removed the brittle post processing steps and produce high quality output for the planning system.
1:24:01Ashok ElluswamyEven the planning system is not stuck in the old ways. It is now starting to use more and more AI systems to solve this problem. The neural network based planners are needed especially in complicated urban planning when there's a lot of other objects interacting with us.
1:24:17Ashok ElluswamyThis is for example, an intersection where we have to turn left while leading to crossing objects and to the pedestrians crossing the road. We have to do this both safely and smoothly while respecting everyone's right of way and preferences.
1:24:32Ashok ElluswamyIf this was done naively, each configuration would take 10 milliseconds of compute and there are easily thousands of configurations to reason about. This would not be feasible using traditional compute, but using AI, we have packaged all of this into a 50 millisecond compute budget so it can run in real time.
1:24:54Ashok ElluswamyThe second big piece of this puzzle is the data. This is where Tesla has a unique advantage because it can tap into the fleet, tap into the fleet to access the exact data that can fix the problems.
1:25:09Ashok ElluswamyBut raw data is not sufficient. In order to train these networks, you need label data. You need labels to supervise the networks. And if you only depended on the human labelers, this data would be too tiny to train these large multi camera video modules.
1:25:28Ashok ElluswamyWe need lots and lots of data to train these networks. Hence we have built a sophisticated auto labeling pipeline that collects data from the fleet, runs computational algorithms in our data center, and then produces the labels to train these networks.
1:25:47Ashok ElluswamyHere you are seeing a 3D reconstruction that is happening by collecting various clips from different cars in the fleet and assembling them, all of them together, into a single unified representation of the world around the car.
1:25:59Ashok ElluswamyYou can see all the lanes, the road boundaries, curb crosswalks, even the text on the road being accurately reconstructed by these algorithms.
1:26:11Ashok ElluswamyWe don't have to stop at this kind of reconstruction. Once we have this base reconstruction, we can build various simulations on top of it to produce an infinite variety of data to train.
1:26:22Ashok ElluswamyFor all the corner cases. We have a capable simulator that can synthesize adversarial weather, lighting conditions and even the motion of other objects to test all the corner cases that might even be rare in the real world.
1:26:40Ashok ElluswamyHere's an example of why this data is critical and how we can solve problems using data. So, back in the days, for example, in this case we had some false breaking where we thought this car that's actually parked there was going to move into our path and hence we were precautiously braking.
1:26:58Ashok ElluswamyBut it is unnecessary because the car is truly parked. So how can we solve this? What we did was we mined the fleet for similar cases where the car falls braking due to some parked car.
1:27:11Ashok ElluswamyWe added 14,000 videos to our training set. And then once we train the networks again with this new data, it now correctly understands that okay, there is no driver in this car, hence it must be part so then there is no need to break.
1:27:24Ashok ElluswamyAnd this is a systematic way to solve problems. On the chart on the right side, you can see that every time we add data the performance improves and then we can do this for every kind of task that we have in our system.
1:27:38Ashok ElluswamyAnd this is what we call as data engine. We identify challenging cases such as the one you saw earlier. There could be other different types of challenging cases too.
1:27:48Ashok ElluswamyWe mine the fleet for such data, put it through our auto labeling system and produce the labels. Add it to the training set, and once you have the newly trained models, we deploy them to the fleet.
1:28:02Ashok ElluswamyIf we rinse and repeat this process, everything gets better and better.
1:28:10Ashok ElluswamyThe final critical piece is the computer. In order to train these large models in a reasonable amount of time, you need lots of compute. In addition, compute is also required to produce the labels automatically.
1:28:22Ashok ElluswamyThis is just compute in our data centers. In addition, we also have high computers in the car which can run up to like 150 teraops of compute. On the back end we have a 14,000 GPU cluster and roughly 30% is used for auto labeling and the remaining 70% is used for training.
1:28:45Ashok ElluswamyWe also have a 30 petabyte of video cache and this is growing to 200 petabytes. All of this is going to significantly increase once we bring Dojo, which is our training computer on board, into this.
1:28:59Ashok ElluswamyJust to give a reference, just the occupancy networks that you saw earlier use 1.4 billion frames to train these networks.
1:29:10Ashok ElluswamyWe have already shipped our FSD beta software to pretty much everyone that has bought it in United States and Canada. This amounts to roughly 400,000 customers who can turn it on anywhere.
1:29:21Ashok ElluswamyAnd then the car would attempt to drive to the destination. It's still supervised, but it can already handle turns, stop at traffic lights, yield with other objects, and generally get to the destination.
1:29:34Ashok ElluswamyWe observed that people who use FSD are already 5 to 6x safer than the US national average. Like I mentioned earlier, the solution to scalable FSD is getting the AI architecture, the data and the compute just right.
1:29:51Ashok ElluswamyAnd we have assembled a world class team to execute on this. We are pushing the frontier on these three items. And as we improve the safety, the reliability and the comfort of our system, we can then unlock driverless operations which then makes the car be used way more than what is used right now.
1:30:11Ashok ElluswamyWith that, I'd like to introduce Elon back on stage to give some more updates.
1:30:26Ashok ElluswamyYeah, this next video.
1:30:35Elon MuskIt's kind of weird seeing the arms and legs just separate.
1:30:44Elon MuskWe have a whole lab full of arms and legs.
1:30:58Elon MuskWith bearing in mind that when we did AI day, this version of Optimus didn't work work at all. So the rate of improvement here, I think is, is quite significant.
1:31:11Elon MuskIt's obviously not doing parkour, but it is walking around and we have multiple, multiple copies, I suppose, of Optimus.
1:31:27Elon MuskThe thing that I think Tesla brings to the table that others don't have is that we have,
1:31:41Elon MuskWe have the real world AI. We're the most advanced in real world AI. So the same AI that drives the car, which you can think of the car really as a robot on wheels and this is a robot on legs.
1:31:59Elon MuskSo as we solve real world AI, and I don't think there's any, I don't think there's anyone even close to Tesla on solving real world AI. That same computer and software goes into Optimus.
1:32:14Elon MuskSo it's not that helpful to have a humanoid robot if you have to program every individual action. It needs to be able to walk around autonomously and solve tasks.
1:32:26Elon MuskYou should be able to instruct it in simple things by showing visually what the robot needs to do or just telling it what to do. So, so I think that's a key advantage that we have.
1:32:39Elon MuskAnd then we also are good at designing things for manufacturing and then manufacturing itself. So the, the actuators in Optimus are all custom designed Tesla actuators. So we designed the, the electric motor, the gearbox, the power electronics, obviously the battery pack and everything else that goes into to Optimus.
1:33:01Elon MuskWe're actually quite, we were quite surprised to find how little was available off the shelf because there's a lot of vast number of electric motors, gearboxes and whatnot that are available in the world.
1:33:15Elon MuskAnd we found none of them were useful in, in a humanoid robot. Literally none. So you have to custom design the actuators for a humanoid robot. And so the same team that designed the groundbreaking electric motors that are in the, say the model S plaid designed the actuators in the robot.
1:33:45Elon MuskSo I mean, for practical purposes, what this means is that we should be able to bring an actual product to market at scale that is useful
1:33:56David Laufar
1:33:56Elon Muskfaster than anyone else. And you know, assuming the things I'm saying are true, or at least I think they are true, you can just, it's just a question of the timing.
1:34:10Elon MuskYou start getting into interesting questions of like, what's the ratio of humans to humanoid robots? I think it might be greater than one to one, you know, because you could, you could sort of see a use, a home use for robots, certainly industrial uses for robots, humanoid robots.
1:34:30Elon MuskI think, I think we might exceed a one to one ratio of humanoid robots to humans. It's not even clear what an Economy means at that point, you know, since an economy is output per person times persons.
1:34:47Elon MuskBut if output is much higher and there's no limit on persons, then what's the actual limit on the economy? You know, we're still pretty far from Kardashev scales here, but we're getting there.
1:35:04Elon MuskSo, anyway, so probably the least understood or appreciated part of what we're doing at Tesla, but will probably be worth significantly more than the. The car side of things long term.
1:35:20Elon MuskSo, charging.
1:35:20Ashok ElluswamyI think Rebecca's next for talking about charging.
1:35:25Zach KirkhornChar.
1:35:36Colin CampbellThanks.
1:35:40Rebecca TinucciHi there. My name is Rebecca Tannucci, and I lead our charging infrastructure teams here at Tesla. And at Tesla Charging, we have understood since day one that a great charging experience is the linchpin to electric vehicle adoption.
1:35:54Rebecca TinucciAnd that understanding has meant that we've always taken a holistic approach to charging. That's a word that you've heard a lot here today. But what it means for charging is that we've considered every use case.
1:36:05Rebecca TinucciWe think a lot about what it means to charge at home, even if that home is an apartment or condo. And we spend a lot of time thinking about what does it mean to charge away from home, including if that's for daily commuting or if you're going on a road trip.
1:36:17Rebecca TinucciAnd this holistic approach has led to some pretty incredible results. In 2022, we provided 9 terawatt hours of charging across our various charging methods. Over 50% of that was supplied via convenient AC home charging.
1:36:33Rebecca TinucciAnd when our customers are away from home, they can visit one of our 80,000 charging points. That includes 40,000 of our beloved superchargers. Now, getting here has meant that we've spent 10 years building charging infrastructure when basically no one else in the industry would do it.
1:36:49Rebecca TinucciAnd while we certainly have a lot of areas that we want to improve, those 10 years have afforded us the opportunity to get pretty good at charging. First, we have the industry's lowest deployment cost.
1:37:00Rebecca TinucciOur costs are often 20%, if not 70%, lower than alternatives. And that goes for both our supercharging hardware and deployments and our AC charging product lines. A lot of reasons that we're able to achieve this, you've heard a lot of them here.
1:37:15Rebecca TinucciToday, we're vertically integrated. We manufacture and engineer all of our own charging equipment. We share components across our different product lines. And on the supercharger side, we also install and operate all of our own sites.
1:37:29Rebecca TinucciAnd that's led us to be pretty obsessed with finding new ways to innovate around installation. As an example we have recently extended our excellence in manufacturing to how we build supercharger sites.
1:37:42Rebecca TinucciWe are pre building four post supercharger units at our factory in Gigafactory. At our factory in New York, we load them on a truck, we truck them to site, and then we crane them into position.
1:37:53Rebecca TinucciThis method saves us 15% on our deployment costs and we can install a site in a matter of days. Once we install a site, we also operate it really efficiently.
1:38:06Rebecca TinucciOver the last few years, we've been able to cut our per kilowatt hour cost by 40%. Again. A lot of reasons for this, but one at the top of the list is we've focused on increasing our site utilization.
1:38:17Rebecca TinucciSite utilization is just how many sessions or kilowatt hours can we push through a site or a post? And basically doing that allows us to spread our cost over more sessions, thus lower cost per kilowatt hour.
1:38:29Rebecca TinucciBut of course that's easier said than done because when we push up site efficiency, of course the risk is that we have a poor customer experience and we have wait time at our sites.
1:38:40Rebecca TinucciThis is where Trip Planner comes in. Trip Planner is our in vehicle routing or navigation system. Other electric vehicle manufacturers, well, some of them have vehicle side data, other infrastructure providers have site data, but at Tesla we have both.
1:38:55Rebecca TinucciAnd what that allows us to do is to use Trip Planner to route vehicles towards available sites and away from congested sites so we can balance our utilization without risking wait time.
1:39:06Rebecca TinucciAnd the results speak for themselves. Over the last few years, we've been able to drive up site utilization by 30%. That means lower per kilowatt hour cost while also cutting our wait time in half.
1:39:18Rebecca TinucciAnd we think this can get even better. Today we're feeding Trip Planner with real time site information and information about vehicles currently at sites. Going forward, we'll be moving that to projecting site occupancy based on the understanding of what vehicles are currently routing to those sites.
1:39:34Rebecca TinucciAnd ultimately our vision for Trip Planner is that it's the air traffic controller for electric vehicle charging across all all infrastructure on a global basis. And the last thing we focused on to get here is quicker charge times.
1:39:48Rebecca TinucciWe're really proud of what we've been able to accomplish here. We've shaved off 30% of our charge time average, supercharging site time, visit time over the last few years.
1:39:58Rebecca TinucciThis has taken improvements on the hardware side with our software on our vehicles and on our infrastructure. And we're really excited to continue pushing this trend down. Looking forward, the job does not get any easier as you Heard earlier, we aspire to a fully electrified global fleet.
1:40:18Rebecca TinucciThat fleet, from an industry standpoint, needs 9 petawatt hours of charging on an annual basis. And while Tesla charging certainly doesn't have to supply all of that, it does require that for our part, we have a few new focuses in order to scale
1:40:36Laurie Shelbyfirst.
1:40:36Rebecca TinucciIf you want a fully electrified global fleet, all of those vehicles have to have a great and reliable charging experience. So, as many of you know, recently we have started opening up our networks on a global basis.
1:40:50Rebecca TinucciOver 50% of our superchargers in Europe are currently open to other electric vehicles. We've also opened up in Asia Pacific with our first sites in Australia. And just yesterday, we opened our first 10 Supercharger sites here in North America in the US to other electric vehicles.
1:41:08Rebecca TinucciWe've also invested a lot to be able to make this a really easy experience for our new customers. All you have to do is sign into our Tesla app to unlock a post and start charging.
1:41:18Rebecca TinucciWe've also on physical site changes, we've also added hardware to our sites. They're called MagicDocs and basically that is installed in areas where we have different charging standards and they allow for other electric vehicles to come to our site without having to bring their own adapters or hardware.
1:41:34Rebecca TinucciWe've also just started installing our fourth generation Supercharger posts. Those are being installed in Europe first. And while it's not a big mention, not a big thing to mention, they do have longer charging cables so that we can more easily reach the charge ports of different vehicles.
1:41:50Rebecca TinucciThe second thing we need to make sure we do, when we talk about scaling all of this charging infrastructure is we need to make sure that it's powered from renewable sources.
1:42:00Rebecca TinucciWe're very proud that over the last two years we've procured enough renewable energy to offset the amount of charging we've provided to customers. But as we look forward and we talk about this fully electrified fleet on a global basis, we really want to make sure that the demand for charging more closely follows when renewable sources are available.
1:42:19Rebecca TinucciNow, this chart is on an aggregate basis for the US and it varies based on what your renewable generation sources are locally. But basically what this shows is we want to kind of move that charging curve.
1:42:31Rebecca TinucciAnd for solar and wind, in this example, it means more daytime charging. And we think the best way to go towards daytime charging is to install AC charging that is convenient and low cost everywhere.
1:42:45Rebecca TinucciVehicles are typically parked throughout the day. So that's really the plan. While supercharging and home charging, definitely, definitely stay A big part of the puzzle. Our teams are currently scaling to install AC charging everywhere.
1:42:57Rebecca TinucciVehicles charge during the day so we can power them from renewable sources. So summing it up, While we've spent 10 years installing infrastructure that is low cost, it's efficient and it provides a great customer experience, we're really just getting started when we talk about supporting master plan part three.
1:43:17Rebecca TinucciWe've got to scale capacity on an industry wide basis to 9 petawatt hours on an annual basis. We've got to open up to non Teslas and make the charging experience for everybody really great and we've got to power all of this via renewable sources.
1:43:34Rebecca TinucciAnd one more thing, yes, we've got to scale our infrastructure and yes, we want to power it via renewable sources, but we're Tesla so we also want to make sure that we're continuing to focus on providing really incredible charging experiences.
1:43:50Rebecca TinucciWith that, I want to welcome up our leaders of supply chain, Roshan and Karn to talk a little bit about that topic.
1:44:05Karn BudhirajThanks rebecca.
1:44:11Karn BudhirajHi, my name is Karn and my team leads supply chain for electronics, powertrain and battery at Tesla. And we've also got responsibility for indirect purchasing, construction procurement and warehousing and distribution.
1:44:25Roshan (Tesla)Hi, my name is Roshan, I've been with Tesla for over 14 years. My team manages vehicle commodities, solar logistics planning and capital equipment.
1:44:38Karn Budhiraj10 years, forgot that. So today we wanted to provide you a quick overview of Tesla supply chain and what really separates us from the typical automotive supply chain. As you've seen in presentations prior from Pete and Drew and some others, Tesla designs a lot of the subcomponents that go into our vehicles.
1:44:56Karn BudhirajSo we're not buying things that are off the shelf from suppliers. So supply chain is not purely a commercial relationship as it is in most other companies. We actually have an arm within supply chain called supply industrialization engineering.
1:45:10Karn BudhirajAnd the burden of taking a drawing a design from concept and turning it into thousands of products produced at the right cost and at the right yield falls with this group.
1:45:20Karn BudhirajOf course they work very closely with design engineering, but really the level of detail that our engineers get involved in terms of building the capability of the supply suppliers is pretty detailed.
1:45:31Karn BudhirajSo you know, once we get a new part, naturally with electric vehicles, a lot of the supply chain doesn't exist. Our engineers would basically take the drawing, turn it into a manufacturing concept, do the equipment selection and physically go to the supplier and stay there for weeks or months, however long it takes to basically do the line bring up.
1:45:51Karn BudhirajOnce the line is brought up and we're Hitting the right rate, the right quality at the right yield. Then we work on things like automation and yield improvement and those types of activities.
1:46:02Karn BudhirajSo there's a big group of mechanical, electrical, industrial, you name it, engineers within supply chain and it's their responsibility to take care of this. Now, this is a huge strategic advantage because we manage every detail of our supply chain because we're so integrated with our partners that we know about issues before they happen.
1:46:23Karn BudhirajIt's almost live. We've got dashboards, we've got connections, and across the 10,000 or so factories across the world that are making our components, we have a pretty good view of the health of those suppliers.
1:46:34Karn BudhirajAnd this has been a key asset and how we've been able to kind of manage things through a lot of different issues over the past couple of years.
1:46:42Zach KirkhornSo,
1:46:44Karn Budhirajyou know, supply chain is a game of perfection. Perfection is a passing grade. It's like a, you know, if one part doesn't show up, that line goes down and our CEO finds out about it in less than 20 minutes.
1:46:56Karn BudhirajTesla is very different than Apple. They outsource manufacturing, we do it in house. So supply chain is kind of right in the middle. And perfection is increasingly elusive and very expensive.
1:47:07Karn BudhirajIf you kind of look at all the issues we've had to encounter over the past year and today we're just going to talk about how we got through the past and then what are we going to do going forward and how are we going to get there?
1:47:22Karn BudhirajSo let me draw your attention to this slide. On the left you'll see a portfolio, our existing portfolio of products. Right at the top you've got the SNX platform.
1:47:32Karn BudhirajIn the middle you've got 3 and Y. I think everyone's more than familiar with those. And then the Tesla Energy platform, which is a very high rate of growth for us.
1:47:43Roshan (Tesla)And you don't forget the solar and Supercharger.
1:47:46Karn BudhirajAnd Solar and Supercharger. Thank you, Roshan. And you'll see a reduction in so and. And then we basically got the Tier 1 and Tier 2 parts. This might be boring, but a Tier 1 supplier is any supplier that builds and supplies parts directly for consumption in our five factories.
1:48:04Karn BudhirajAnd our Tier 2 supplier basically does the same thing for a Tier 1 supplier. So they are the supplier supplier to our supplier. And depending on the supply chain of any one of these products, this can actually go down to the tier 6 levels.
1:48:16Karn BudhirajFor example, if you're talking about the battery cell, we really get involved with the minds of like, where we're procuring the lithium The Cobalt and all that sort of stuff because we're procuring such high volumes of it.
1:48:26Karn BudhirajSo you'll see a reduction in the number of parts on the SNX platform to the 3 and Y platform. And, and this is because of the great work our design engineers have done of making the car simpler and easier to manufacture in parallel.
1:48:41Karn BudhirajWe actually had a similar strategy in supply chain. We had cast a wide net to a lot of suppliers for the SNX platform. There's a lot of suppliers that we invited to partner with us and we used that platform as sort of a filter to see which suppliers have the technical, financial and cultural capabilities to match us.
1:49:02Karn BudhirajRight. Like who do we invite to the party when we really scale things up. And we, you know, we've really dramatically reduced the number of suppliers that we were dealing with for the 3NY platform.
1:49:13Karn BudhirajAnd this is an approach we'll continue to do for future platforms as they come along that are even more high volume. So this, this has really been our approach.
1:49:20Karn BudhirajIt's made things a lot easier and it, you know, we could, we could figure out the of sort suppliers that were capable of moving at our pace and then the ones that didn't have the desire to, or the capability to.
1:49:32Karn BudhirajYou need both desire and capability. Secondly, the complexity on the tier 2 level is very high.
1:49:41Ashok ElluswamyRight.
1:49:41Karn BudhirajThese are the suppliers to our suppliers and there are a lot of components. Think about silicon, think about resistors, capacitors, diodes, all the little assemblies, raw materials. Raw materials, all the, that's even further down.
1:49:53Roshan (Tesla)Yeah.
1:49:54Karn BudhirajBut all these little sub assemblies that have to come into Tesla, the complexity is immense. So even though at the tier one level we're talking about 8,000 parts total, it seems like a lot, but it's not a lot.
1:50:06Karn BudhirajThe management of the tier 2 is really where we excel. And I'd like to illustrate that with an example. Meet the car computer. Very innocent sounding name and it's anything but.
1:50:18Karn BudhirajThis is an absolute monster to manage. So I think you've all seen the picture on the left of the autopilot board. That's the top of the autopilot board. The autopilot board also has a bottom and the bottom is populated heavily with components.
1:50:32Karn BudhirajOn the other side of the heat sink you've got the mcu, the multimedia cluster board. This board is equally complex. It's also double sided, eight layered. And these boards, these computers run so hot at peak operation that they have to be liquid, liquid cooled through a heat sink.
1:50:47Karn BudhirajSo this assembly requires taking those two boards and then bonding them to a heat sink that's hermetically sealed as an assembly. Of course, flashing the software and all that sort of stuff.
1:50:58Karn BudhirajAnd then that's one part number that comes to Tesla. So this is an example of one tier, one part number that's a very complex assembly to manage at the tier 2 level.
1:51:09Karn BudhirajAnd there's more than 7,000 components here. There's a, you know, as we stand here, a component's being assembled onto a car computer every 1.4 milliseconds. The line that builds this computer is the length of a football field.
1:51:23Karn BudhirajSo it's, it's quite complicated. And initially, when we first started building this board, due to the complexity of it, we had to rely heavily on labor. But once we dialed in the quality, the rates and the yield, we started focusing on making this more efficient.
1:51:36Karn BudhirajThe only way to control cost is by removing labor. The first step is removing labor. The second step is fully automating. The first step is turning off the lights and letting the factory run, ideally.
1:51:45Karn BudhirajAnd that's going to be the goal for us here. So 95%. But our work is not done. We're going to be going a lot further than this. So this illustrates the point that a part is not a part.
1:51:55Karn BudhirajA part has a lot of complexity underneath it. Supply chain is a game of multiple tiers. And what's made us successful is our involvement and all the details with our supply engineers that are Tesla employees, they're Tesla supply engineers.
1:52:08Karn BudhirajSo they're like on our payroll that go and ramp up these capabilities that are suppliers and then just managing each and every attribute of it. You know, 7,000 a day, through the chip shortage, through the pandemic, through all the other stuff that we had to deal with was very difficult to manage.
1:52:23Karn BudhirajBut because we had all the details, we were able to pull this off. Of course, supply chain is not just about parts, it's also about logistics and a lot of other things.
1:52:32Karn BudhirajSo I'll hand it off to Roshan for sharing some stats.
1:52:38Roshan (Tesla)Yeah, so talking about inboard complexity, just over the course of just last year, we moved about 16 million pallets from our suppliers to our factories. Just to visualize that if you put those pallets side by side, it could cover half the circumference of the Earth.
1:52:59Roshan (Tesla)And talking about, again, the tier 2 complexity, over 1 billion electronic components get moved every week to support the production that Karnan team manages.
1:53:10Karn BudhirajThis is right now, 1 billion components a week, 52 billion a year. This is going to go up, by the way.
1:53:15Roshan (Tesla)And on top of that, we also have the responsibility to make sure the right component is supplied to the right service location to support the growing fleet of our vehicles.
1:53:26Roshan (Tesla)And we have about 685 service centers that these components need to show up just in time. And then we've also been, as a result of Pandemic, and even before that, we're working on dual sourcing and triple sourcing some of our critical components.
1:53:47Roshan (Tesla)As a result of it, we have suppliers around 45 countries in the world.
1:53:51Ashok ElluswamyYeah.
1:53:52Karn BudhirajOur approach really has been to bring the manufacturing of some components closer to the point of consumption. It makes the supply chain more green because you're not burning diesel, moving stuff around.
1:54:00Karn BudhirajAnd it also gives us a security of supply of having multiple sources in case one factory gets taken offline.
1:54:05Roshan (Tesla)And that's how we got through Pandemic also.
1:54:07David LauYep.
1:54:11Roshan (Tesla)So last three years were incredibly hard. Karn and I used to look a lot younger pre Covid, but on a serious note, Pandemic really changed the game of supply chain management.
1:54:26Roshan (Tesla)We were just not being a regular supply chain person. We were rolling up our sleeves and negotiating with state governments, city managers, mayors to help kickstart our suppliers to restart their operations.
1:54:42Roshan (Tesla)You know, there are some really inspiring stories where our supply chain team really fought hard to make sure that the factories don't go down. And it's also a testament to the resilience of our supplier partners.
1:54:57Roshan (Tesla)Having said that, you know, it was not all about resilience and never give up attitude. We had also laid the foundation of having dual sources. And also, you know, in many instances, we had many, you know, things that we had simplified.
1:55:23Roshan (Tesla)The parts that we had simplified, the supply chain design that we had simplified, due to which we were able to get through the Pandemic in much better shape than rest of the automotive.
1:55:33Karn BudhirajIt forced us to adapt. You know, we encountered issues one at a time. It was really a team effort. We heavily relied on the government relations team. You literally had to.
1:55:43Karn BudhirajThe COVID pandemic, as you're aware, you know, happened in different countries at different times. But unfortunately, you need all the parts to make the car. So at any given point, there was one factory that was lying down, there was one jurisdiction that was being used, you know, that didn't wanna.
1:55:56Karn BudhirajThey wanted to shut down a factory because you had an outbreak. So learning the rules, understanding, coming up with argument points, leveraging the team and getting those, it was a difficult but good experience.
1:56:06Roshan (Tesla)Exactly.
1:56:06Karn BudhirajWe learned a lot.
1:56:07Roshan (Tesla)Yeah. And as we were just figuring out to work with COVID then the Port congestion hit on the west coast. Logistics lead time went up by, you know, twice the, twice the amount.
1:56:18Roshan (Tesla)And we were operating with less than 35% accuracy in the system. That means at any given point the ETAs of the vessels were 75% off. So we figured out how to work with that.
1:56:32Roshan (Tesla)And then the chip shortage hits.
1:56:34Karn BudhirajYeah, the chip shortage, that was a nightmare. But we got through it. I mean, you know, I think it's a testament to the tenacity of the team and the resilience of our supplier partners.
1:56:46Karn BudhirajIt's mostly behind us and I think the results speak for themselves. Tesla was able to grow production volumes at a time where the rest of the industry had a hard time staying flat.
1:56:56Karn BudhirajI think they shrunk actually cumulatively. And you know, we're often asked the question, how do we manage through it? And the answer is very much kind of baked through the presentations today.
1:57:05Karn BudhirajFirst we design our own electronics. So in order to control cost, we really had to go and build relationships with all the tier 2 suppliers to negotiate them directly.
1:57:15Karn BudhirajSo these relationships are formed, you know, over 10 years ago and, and we've really gotten to know them well. So when a shortage hit, we knew, you know, who to escalate to, who to call, who to ask for help and, and really kind of swarming the issue at the point of constraint.
1:57:30Karn BudhirajSo the best team, you know, strong relationships with vendors. And then we also have a pretty sophisticated capacity planning function. Tier 2 capacity needs to come, come on, earlier than Tier 1 capacity.
1:57:41Karn BudhirajTier 3 capacity has to be even earlier. And our team does a very good job of having that strategic alignment with all our partners to make sure that the capacity is ready before we need it.
1:57:51Karn BudhirajWe're a mission based company. Our goal is to put as many EVs out there. We did not let the pandemic phase us. We were full throttle and it was pedal to the metal in terms of our demand signal that also helped.
1:58:02Karn BudhirajThe silicon industry has very long lead times. They invest billions of dollars in and sophisticated fabs that take years to build. So that stability and demand is something they appreciated and it's something that is very, very much a Tesla thing.
1:58:16Karn BudhirajSo this was looking back, right? This is how we got here, this is how we got from zero to 40,000 cars a week. Let's talk about how we get to 20 million.
1:58:27Karn BudhirajSo the question gets asked, you know, is Tesla going to basically break the chip industry if we grow to 20 million vehicles? The answer is no. But let me walk you through our logic on that.
1:58:36Karn BudhirajSo as it stands right now. A Tesla enabled with a full self driving computer has four times the silicon content of a regular vehicle. So at about the 2 million run rate, we're consuming about 700,000 12 inch wafer equivalents.
1:58:51Karn BudhirajThat's the industry trend that's thrown around for capacity in silicon. That's how much we're using. So a little bit below a million. And the global wafer capacity, based on the estimates we've seen, seen it's about 135 million.
1:59:02Karn BudhirajSo we're about half a percent off the industry. Not a lot. Now if you get to 20 million. When we get to 20 million and if we don't make any simplifications in terms of part count, which is also a separate work stream, I think Colin talked about it, Pete talked about it.
1:59:16Karn BudhirajWe're not going to have all these different components. We're really going to simplify the architecture because simpler is better. But even if you don't do that, and we take the most pessimistic case, we're going to need 8 million wafers.
1:59:27Karn BudhirajOkay. And the industry is going to scale to 200 million by that point. So still we're less than 5% of the market share. And if we run the same offense we ran all along and continue to work with our partners and you know, invest in fabs and invest in capacity, we'll have the capacity ready by the time we need it.
1:59:43Karn BudhirajSo I really don't see this as an impediment from a supply chain perspective to get to 20 million.
1:59:54Roshan (Tesla)Now I would like to talk about a page that we took out of the electronic playbook and applied it to the mechanical side. Our vehicles use currently the heat pump based technology for the thermal system.
2:00:06Roshan (Tesla)But before heat pump, our vehicles used to have a dispersed thermal system connected by hoses. Engineering was inspired from circuit boards and then created a system which was extremely integrated where 60% of the system was the size of a basketball, where it contained about 100 components, 50 ceiling interfaces and several different manufacturing processes.
2:00:36Roshan (Tesla)All were packaged into this tight size. Now why are we talking about this? Well, we launched the system right during the outbreak of the pandemic in Model Y. The team was forced to manage hundred plus components from different suppliers around the world remotely.
2:01:00Roshan (Tesla)So there are four videos playing at the same time. One is the video of the manual line that was created when we started the production. And this manual line produced a lot of quality issues, let alone throughput.
2:01:15Roshan (Tesla)So we quickly pivoted to a semi automated line. But in spite of that, although the throughput was great, the quality issues sustained. So our team decided that fully automated is the only way to go.
2:01:35Roshan (Tesla)So before we automate the line, we created a 3D simulation. Now not many companies or teams have this capability where at this point now when a part gets specked, we have the ability to create a 3D simulation of all the complex sub assemblies that would be involved in making the part and tell the suppliers exactly what equipment to purchase, what, what to test and create an end to end line in simulation.
2:02:06Roshan (Tesla)And that's what we did here. So with the help of the simulation, we had a very detailed sub assembly cell which was juxtaposed with the supplier's factory layout. And then we, after a back and forth of iteration and optimizing the processes, we implemented this fully automated line in less than eight months.
2:02:33Roshan (Tesla)And the results were remarkable. 99% reduction in labor force. So a line that would need thousand associates to build the super manifold in full volume now just takes 10 associates.
2:02:53Roshan (Tesla)And the quality also went up by an order of magnitude. We have a defect rate of less than 0.05% and a super manifold rolls out every seven seconds. Because we have created many automated lines and these factories are the size of two football fields by the way.
2:03:14Karn BudhirajRoshan had to one up me on that 1, 99% two football fields.
2:03:20Roshan (Tesla)So why are we talking about this in a world where labor costs are increasing, labor participation is decreasing, there's a huge turnover and the cost of implementing automation is going down by 3x in the next 10 years.
2:03:37Roshan (Tesla)This is how we are thinking about complex assemblies and we are going to push this type of thinking into our supply base more and more who will be building our complex assemblies.
2:03:48Roshan (Tesla)This is the only way we think we can confidently scale to the 20 million vehicles target. To summarize, we have laid the foundation in getting ready to execute Master Plan 3.
2:04:04Roshan (Tesla)Our strategy is supply chain design simplification. We are going to make sure that we have more control into the tiers of the supply chain. We are going to grow responsibly and sustainably with our long term partners and we'll automate.
2:04:23Karn BudhirajYeah, you know, going from 0 to 40,000 cars a week was tough. I mean it took a lot of trial and error, it took a lot of learning. There was a lot of pain, there's a lot of mental scar tissue as Elon calls it, through that process.
2:04:36Karn BudhirajBut now the that we're at that level and the foundation is set. Going from 40 to 400 is not going to, it doesn't really phase us, we have a capable team.
2:04:44Karn BudhirajWe've got capable external partners that have, you know, gone through hell with us. Our leadership team is galvanized behind the mission and we're going to get it done. So I'd like to thank you for your time and hand it off to Drew and Tom for the next presentation.
2:04:58Drew BaglinoThank you.
2:05:06Tom ZhuHi everyone, my name is Tom Zhu. I'm now responsible for global production and sales and delivery service. I joined the company back in 2014 and I've been running the company's business Integrated China and apac.
2:05:20Tom ZhuToday I'm representing all the gigafactories and talk about how we can make more cars and faster. So right now we have four vehicle factories on three continents to serve our markets.
2:05:35Tom ZhuThe total number of manufacturing employee is over 65,000. This is also including our amazing team in Reno. They are making power trains, battery packs and drive unit for our vehicle factories.
2:05:46Tom ZhuThe total installed capacity in all these vehicle factories, about 2 million cars a year. That said, we always looking for opportunity to grow more capacity from the existing footprint.
2:05:56Tom ZhuSo you expect this number will grow over time. To build more factories is the start to building more cars and we certainly the expert of it. This is the before and after image showing you the progress we made back in 2019 when we built a gig factory in Shanghai.
2:06:17Tom ZhuSo in nine and a half months time we built a greenfield project to establish the vehicle factory. And three months later we start deliver our first customer vehicle. People are really asking me, you know how Tesla can build a factory that fast.
2:06:34Tom ZhuReally? We learned from our Fremont factory a lot. We talked to the survivor from the production hell and tried to avoid all the mistakes we made. And we decided to design a straight line with the minimum number of up and downs and turns for easier manufacturing ability and easier construction.
2:06:53Tom ZhuWe also challenged all the assumptions people ever know to build a vehicle factory. When we delete and simplified all the redundancies and the buffers, that's helped us to save a lot of time.
2:07:05Tom ZhuAlso we have a very strong in house construction team in Tesla. If there ever a job cannot be done by others better and we bring this in house so we have this in house construction team have a full control over all the activities on site from design engineering to construction site management.
2:07:27Tom ZhuSo this team didn't just build Giga Shanghai, they also built Giga Berlin, Giga Texas and Giga Nevada. And they're really the hero behind the scenes. Like Lars shared earlier, going forward with the new platform, the more modular design and densified gigafactory will Be able to make more cars from even reduce the footprint.
2:07:53Tom ZhuThat also means we can build more factories at the same time with the drawing effort of all manufacturing teams around the globe. I'm happy to share. Early this morning we hit the 4 million mark for total Tesla ever build.
2:08:13Tom ZhuAnd the the 4 million vehicle actually built in this factory. When you took a tour on our shop floor you probably walked past it. All right, so took us 12 years to build the first million vehicle and about 18 months to the second build the second million.
2:08:32Tom ZhuThe third million took us 11 months and just assuredly less than seven months. We built the fork million cars. So we're getting better and faster.
2:08:41Drew BaglinoExponential growth really.
2:08:44Tom ZhuKudos to the team. So what it takes to ramp a gigafactory? Well, if you have 600 robots, 10,000 trained employees or 5,000 human and 5,000 optimus and hundreds of processes you can do it sounds simple but it's extremely hard.
2:09:03Tom ZhuSo. So there's two key metrics we predominantly focused on. It is an overall equipment effectiveness and the cycle time. In Tesla we're setting the passing rate for our vehicle factories with 90% OEE and 45 second cycle time.
2:09:20Tom ZhuWhat that means the OEE really evaluate the equipment uptime, the machine performance and the quality. Simply put, this is the actual production time on a good quality product versus the planned productive time.
2:09:38Tom ZhuThe higher the better. 45 second cycle time. That means you expect every 45 seconds there's a car running off the final assembly line in the factory. And the faster we rent, the faster we can get to economy of scale.
2:09:55Tom ZhuIf you look at the chart on the left Shanghai be able to significantly drop our labor hours per car during the ramp. The little dip that has happened in the last Q2, 20, 22 because of the COVID shutdown.
2:10:12Tom ZhuAnd on the right is a Fremont model Y shop. Even this is a six year old facility, the team there still be able to optimize the material flow and eliminate all the single point of failure and drive higher output.
2:10:25Tom ZhuHence reduce the labor hours. And actually this factory keep setting new record. Yesterday they just had a new factory daily record.
2:10:36Drew BaglinoCongrats Fremont team.
2:10:38Karn BudhirajAbsolutely.
2:10:43Tom ZhuSo how can we reduce the cycle time keep improving efficiency? We follow the philosophy Elon shared about building rockets which is questioning basically find the right problem to solve.
2:10:57Tom ZhuAnd we start with delete, simplify. Then we try to accelerate, pressurize the line and find if the solution actually work. And at last we think about the automation. There's one example in gigafactory Shanghai in the paint shop we Find that there's overlap baking range between the PVC sealer and the topcoat.
2:11:23Tom ZhuIt was done by two different ovens. And we decided to combine the two processes. Eventually that helped us didn't just help us to reduce the cycle time, but also save the 9% of energy consumption and 9% of the CO2 emission.
2:11:38Tom ZhuAlso we commonized the SNX design in Fremont. Right now we have a common body and common headlamp. We eliminated about 40 parts and reduced about 10% of the cycle time.
2:11:53Tom ZhuSo all these improvements really help us to get to a faster ramp trajectory. And we didn't just learn from these high volume existing factories. We also learned from the new factories.
2:12:08Tom ZhuMost recently, our Berlin factory team implemented a 5G private network on the shop floor. Helped us to overcome about 90% of overcycle issues for a particular process in ga shop.
2:12:24Tom ZhuWe're going to soon implement this globally.
2:12:27Ashok ElluswamySo
2:12:31Tom Zhuright now we have an integrated global organization from production all the way to sales and delivery service. This will help us to strengthen feedback loop between manufacturing and the service.
2:12:43Tom ZhuWe obviously wanna bring a delightful customer ownership experience to our car owners. And with this direct feedback loop, we be able to turn customer escalations and feedback into quick actions improvement on shop floor immediately.
2:13:01Tom ZhuWith that effort in the past six months, we'll be able to reduce the time in service and early ownership service. Also service appointment with time significantly. So four factories not enough.
2:13:17Tom ZhuIf we want to hit the 20 million car a year target, we're going to keep building new factories, new lines and that will come up with new product as well.
2:13:29Tom ZhuAnd with all gigafactories now in one organization, we'll be able to replicate unified ideas across factories. Also we will help the new factories rev faster and also produce a better quality at a lower cost.
2:13:46Tom ZhuNow I'm gonna hand over to Jul to talk about the cell manufacturing.
2:13:51Drew BaglinoThanks. Yeah, we're not just talking about new vehicle factories, but also new cell factories. And we're going to talk about how we follow the same model when we do so.
2:14:01Drew BaglinoBut first I thought I'd just provide a little bit of an update on cell production. So remember battery day we showed this video with the spoon and how we went from dry powder to film.
2:14:13Drew BaglinoLet's just say there's no spoon. Now so many of you in this room saw this on your tour today. But you know, here is our dry electrode machine here in Texas.
2:14:23Drew BaglinoOne of the lines we have installed here, fully automated, no spoon from powder and foil in to coated electrode out. From from a peak productivity perspective per tool Perspective.
2:14:35Drew BaglinoThis is over 20 times the productivity of the tools that we showed folks on the tour and Cato back in battery day. So we've made a lot of progress on the key, one of the key parts of the cell manufacturing process.
2:14:47Drew BaglinoAnd we've also continued to focus on refining the way we make cells and the factories that the cells go inside. We, as you can see on this chart, from typical 2170 cylindrical cells to 4680 made a huge leap, which is basically a 5x reduction in the factory footprint and volume and volume and footprint.
2:15:09Drew BaglinoAnd then from going from what we did in Fremont in our pilot line to Texas, we improve further and we're improving again when we go into Nevada. And what this actually represents is a series of actions taken by a very integrated holistic design team across, you know, the product design, the manufacturing design, the process design, the equipment design and the facility design.
2:15:31Drew BaglinoThey all need to work together to make this happen. And you can see on the bottom, just as an example of simple simplicity, up, investment down and scaling up, you know, parts, we've reduced the number of parts in the cell, the number of processes, significant reduction in the number of processes and, and collaborating with those five design groups, we've been able to result, you know, build a end up in a, with a factory that's 10 times smaller volumetrically, which means it's faster to get built, it's much lower capex per gigawatt hour output.
2:16:02Drew BaglinoAnd we can go and scale, you know, to our objectives of, you know, 240 total terawatt hours, 1 terawatt a year of stationary storage and 20 million vehicles a year with the scalability that is required to achieve our goals.
2:16:18Drew BaglinoAnd we're not just looking at the cell factory itself, but also upstream materials where necessary. What you see here is the rendering of the 50 gigawatt hour a year corpus Christi Lithium refinery that we've already broken ground on here in Texas.
2:16:33Drew BaglinoThe facility will start commissioning by the end of 2023 this year. This is a good example of something where we're basically talking about breaking ground and starting commissioning within 10 months and with actual production within 12 months.
2:16:49Drew BaglinoThat's the target. Similar to what we did in Shanghai. Again, the result of collaboration and intelligence, internal execution of construction in partnership with local communities. This site is 30 minutes from the Corpus Christi port, located directly on rail.
2:17:06Drew BaglinoThe process route we're taking is a direct soda ash leach of the input material, which means there's no acid roasting. We don't have any of the sort of waste products associated with an acid roasting step.
2:17:21Drew BaglinoWe're designed to consume lithium spodumene, which is a very commonly traded lithium rock, but it is flexible to other feeds from primary and secondary sources. And similarly, we're working on our cathode facility here in Texas.
2:17:33Drew BaglinoMaybe you've seen it as you're driving around, which is a 60 GWh year cathode facility behind the main building here. 10 months build time there as well. The equipment's being installed for the first line as we speak and we'll be commissioning starting next quarter.
2:17:48Colin CampbellSo.
2:17:48Drew BaglinoSo we are doing this where we need to. Our plan is not to do it always. There are lots of competent companies out there, but we are also trying to sort of accelerate the pace of the industry by trying some new things that are a little bit more scalable and de risking certain innovations that improve productivity in terms of capex per gigawatt hour and things like that.
2:18:09Drew BaglinoAnd with that, I think that sums up our efforts on the factory side. Mike, you want to come up and we'll talk about energy?
2:18:16Colin CampbellAll right.
2:18:25Drew BaglinoAll right, take it away. All right. Hello everyone.
2:18:30Mike SnyderMy name is Mike Snyder. I lead our Megapack organization. I've been with Tesla for almost nine years. I'm excited to talk to you today about the Megapack product and the business and some of the exciting things we have ahead of us.
2:18:44Mike SnyderFrom the beginning with this business, we have always focused on building successful projects for our customers and not just the
2:18:52Colin Campbellbatteries in the box.
2:18:54Mike SnyderWe've built a hardware and a software platform that is able to adapt to environments all over the world and is able to scale from small island projects to large gigawatt hour scale batteries.
2:19:08Mike SnyderWe've invested our time and our talent to best understand every aspect, every step in the process and every risk of a project to ultimately provide a solution that is, that is thoughtful, intuitive, provides great value to our customers, and is as plug and play as possible.
2:19:28Mike SnyderAnd yeah, just looking at these projects, it's incredible to see them all come together in one montage.
2:19:33Drew BaglinoSeeing the future. Yeah, yeah, compressed.
2:19:36Mike SnyderIt's 10 years of building these projects and it's incredible to see the impact and to see what we have in front of us.
2:19:42Colin CampbellAbsolutely.
2:19:45Mike SnyderWe're on our sixth generation of our industrial product, which is the Megapack XL that we're building out of the. Out of Lathrop, California. We've deployed over 16 gigawatt hours of industrial and residential products across 50 countries.
2:19:57Mike SnyderAnd really Megapack is a market leader. It's best in class in Efficiency, reliability, energy density, and easiest to install, lowest cost to install.
2:20:08Drew BaglinoAnd we call it XL because it is actually the largest, heaviest object that you can transfer around the roads of the world without having to shut them down and get crazy permits and things like this.
2:20:21Drew BaglinoIt is extra large and there is not going to be an xxl, let's just say it that way.
2:20:27Mike SnyderThere's been incredible demand for the project or for the product. 2023 is going to be a great year. We have gigawatt hour scale projects being built. The Lathrop factory continues to scale and ramp up and there's new products on the near term roadmap.
2:20:39Mike SnyderSo a lot to look forward to. How did we get here? Number one, a maniacal focus on all aspects of delivering stationary storage. What do we mean by that?
2:20:50Mike SnyderWhat are some examples? As you see here, the megapack enclosure, for one example, we designed the. The wire weighs directly into the base of the enclosure. So typically you need to install a bunch of conduits and cables under the ground.
2:21:01Mike SnyderNow you can lift them up and install them directly into the base, increasing the speed of deployment and lowering the cost. Next we see the batteries and the power electronics.
2:21:11Mike SnyderAnd the power electronics is really the beauty and the elegance of the megapack. So this is what converts the DC power to AC power on the grid. The brain is built directly into the product.
2:21:23Mike SnyderIt is able to connect to any grid in the world right out of the box. It allows it to all the megapacks on a given site to work as one unit.
2:21:34Mike SnyderAnd really it's what makes it what it is. I think it's the most incredible feature of the megapack. As you build out the full site, what we end up with is the most energy dense solution on the market, upwards of 300 megawatt hours per acre.
2:21:47Mike SnyderAnd just as a frame of reference, this solution is two times more power dense than a typical gas peaker plant. So this is the future, this is where we're going.
2:21:58Drew BaglinoThis is the product that retires the fossil fuels one power plant at a time.
2:22:03Mike SnyderWe talk about power electronics a little bit more. Tesla is a leader in power electronics. We've deployed over 1.4 terawatts across energy storage and vehicle. And we deliver more power electronics than the solar and the wind industry combined on a per annum basis.
2:22:19Drew BaglinoAnd power electronics, it's hard to overstate how impactful they are. They are really the glue in the sustainable energy economy. Between generation, storage and the end use, you know, those power electronics devices are switching, you know, thousands of times per second.
2:22:36Drew BaglinoHundreds of thousands of times per second to efficiently react to whatever is needed either in the car or in the grid. And because they are so like, sort of slightly software driven, at their core, they can provide functionality that hasn't been available to the grid in the past.
2:22:52Drew BaglinoAnd it's one of the reasons why renewables and storage together are such a great solution.
2:22:56Mike SnyderYep. And one reason that we focus on power, electronics and control so much is because of the impact that it has on the projects directly. So just as an example, here on the left, we have a firmware feature that we call virtual machine mode.
2:23:13Mike SnyderAnd what virtual machine mode is, is it contributes to grid stability, like a car shock absorber, that dampens oscillations or vibrations and keeps the ride smooth. So you can imagine if you don't dampen those vibrations, the vehicle could lose control or someone could get hurt on the grid.
2:23:32Mike SnyderYou could have a blackout. We have one grid operator that's utilizing virtual machine mode and said they will not operate their grid at 100% renewables unless they have this feature.
2:23:41Mike SnyderUnless they have virtual machine mode working.
2:23:43Drew BaglinoYeah, they tried and it didn't work very well.
2:23:45Mike SnyderAnd virtual.
2:23:46Drew BaglinoWhy is it virtual machine mode? It's like synthetic inertia, where you turn the battery power plants into like, through software behaving like it's a giant spinning machine, literally. And that, like inertia stabilizes the grid.
2:24:02Drew BaglinoBut you don't need a giant spinning machine. You don't need like a huge fossil fuel power plant or a giant hydro turbine. You can just have the battery do it and you can program it to whatever you need at that part of the grid or even have it be dynamically changing as the.
2:24:12Drew BaglinoAs the grid conditions change.
2:24:13Colin CampbellRight.
2:24:13Mike SnyderAnd that's why we focus so much on, and we believe it's the future of how batteries are going to add value. It's going to be more about adding power stability just as it is about energy.
2:24:21Drew BaglinoYep, yep.
2:24:22Mike SnyderAutobidder is another software feature I wanted to mention. Autobidder is an autonomous energy trading platform that in its most basic sense is buying energy low and selling it high.
2:24:32Mike SnyderAnd the.
2:24:32Colin CampbellThe owner can net the difference of that.
2:24:34Mike SnyderBut operating battery storage is actually very complex upwards, needing upwards of hundreds or even thousands of decisions every five minutes. It's much more complex than a pv, a solar plant, or a wind plant, or a thermal battery or thermal generation plant.
2:24:52Mike SnyderAnd it's mostly because of the versatility and the ability of the battery to provide so much value in different ways that these decisions need to be made. In real time in order to optimize and get the most value out of
2:25:01Colin Campbellthe batteries that can.
2:25:03Mike SnyderSo there wasn't a solution that existed in the market. So we built one ourselves in the market that we've been markets, we've deployed them in in Australia and Texas and the uk it has proven to be a market leader.
2:25:13Mike SnyderWe're continuing to invest in Autobidder as
2:25:15Colin Campbellwe expand to new markets.
2:25:19Mike SnyderSecond point of how we got here, a relentless focus on speed of execution. And there's two points to be made here. First one is in building factories. What you're seeing here is a time lapse of the mega factory that was built in Lathrop.
2:25:33Mike SnyderWe took it from a JCPenney distribution center to a world class manufacturing facility in less than 12 months, which is incredible. And really the way that we did this is similar to what my colleagues have described.
2:25:45Mike SnyderIt's leveraging the vertical integration of Tesla. It's getting the vehicle manufacturing team in the same room as construction and engineering and making decisions quickly with all the decisions with all the stakeholders and decision makers.
2:25:57Mike SnyderWe're using the lessons learned from Lathrop as we speak as we plan for our next factories. Second, it's about installing projects faster. I've mentioned this already, but Plug and play is kind of at the core of what we're going for.
2:26:12Mike SnyderOver the past four years we've increased the installation speed by 4x and we've reduced the total labor involved across both construction and manufacturing by 3x. We think that this is key to unlocking our ability to scale and our customers ability to scale with us.
2:26:30Mike SnyderWe need to be laser focused on reducing that time from when the Megapack leaves the factory to when it is operational on the grid.
2:26:40Drew BaglinoAnd it's not just about centralized storage, it's also about distributed storage. The future roadmap of, of, well, at least here at Tesla and, and maybe some of you know about this sort of retail plan we have here in, in Texas and I just wanted to talk a little bit about how that all fits together.
2:26:58Drew BaglinoSo Tesla Electric really unlocks the full value of distributed energy and storage products. So it enables our customers to become their own utility. The data on the page is from our South Australia virtual power plant.
2:27:13Drew BaglinoAnother Tesla Electric setup that we have over over 2022. It's 5,000 customers that we have the data for. You can get a sense for what's happening. So just if they were being provided default utility service and you looked at the cost of serving them that electricity on average $140 a month if they all had Solar and Powerwall, but the Solar and Powerwall wasn't interacting with the grid, wasn't participating in the energy market, the cost of serving that customer would go from what would have go from $140 a month to $70 a month.
2:27:42Drew BaglinoIf, if Tesla Electric is operating those assets in an intelligent way to benefit the grid. Tesla Electric being basically a software that we developed out of Autobidder for the purposes of these distributed energy resources, we can actually pay the customers to bring their, their, their energy services to the grid.
2:28:03Drew BaglinoThat's what happened in Australia last year. And Australia is a little bit of a special case. They represent the future. South Australia, in particular, solar and wind, supplied 70% of South Australia's energy in 2022.
2:28:15Drew BaglinoThat compares to 30% in Texas and 35% in California. But it, but this is an indication of where this is all headed, of both centralized and distributed storage resources providing the key to unlocking fully renewable grids.
2:28:32Drew BaglinoAnd Tesla Electric is the retail plan that we're using to bring that to bear for our customers that have our products. And, you know, this is how we're rolling it out.
2:28:45Drew BaglinoFirst, as it exists, it's available for, in Texas for people who have powerwalls in their homes, but we need to extend beyond that. Over a billion people live in markets with competitive retail electricity, and there's over 2 trillion in annual energy spend in these markets.
2:29:02Drew BaglinoThis is a huge opportunity and our intention is to bring this to market by market in the same way that we've approached Tesla Insurance, where we can bring value to our customers to reduce their total cost of ownership of our products.
2:29:17Drew BaglinoSo actually, what we're going to do next, and this is pretty exciting here in Texas, by this summer, we're going to offer a retail electricity plan to people who have our cars where they can have unlimited overnight home charging for $30 a month.
2:29:31Drew BaglinoThis is part of reducing the total cost of ownership of our vehicles. And the reason why we can do this is because Texas has a ton of wind. And in Texas, the wind blows at night.
2:29:40Drew BaglinoSo actually serving these customers with electricity at night for their cars is the best thing to do for everyone. And so this is a way to incentivize people to charge at home at night directly from renewable power.
2:29:51Drew BaglinoIt's part of the grand master plan we talked about at the beginning. So we're very excited about this. And we do see this similar to Tesla insurance, as I said, as further reducing the total cost of ownership of electric vehicles.
2:30:05Drew BaglinoSo putting this all together we're really at the beginning of this massive ramp in energy storage deployment. And yeah, yeah.
2:30:14Mike SnyderReflecting back on the. On the master plan, we talk about tens of terawatt hours, needing tens of terawatt hours of stationary storage. So we have our sights set on annual production rates of 1 terawatt hour, which is 25x our capacity at Lathrop.
2:30:27Mike SnyderIn the near term, we see really strong demand for the megapack product, over 100 GWh per year in 2023 and growing by over 100 GWh per year over the next few years.
2:30:38Mike SnyderSo the demand is there. And naturally, as we continue to focus on cost and speed and value, the things that we've mentioned, it's clear we need to build more capacity and we
2:30:46Colin Campbellneed to ramp it quickly. Quickly.
2:30:48Mike SnyderSo while the challenge is big, it's also a huge opportunity for Tesla. It's a huge opportunity for the megapack business, and I'm excited to see the impact that it's going to make on our grid transition.
2:30:57Drew BaglinoAs am I. Yeah. All right, all right.
2:31:00Colin CampbellThank you.
2:31:00Drew BaglinoThank you all. Yes. All right. And Laurie, Brandon, come on up.
2:31:17Colin CampbellHi, I'm Brandon with the legal team.
2:31:19Karn BudhirajThank you not just for coming, but
2:31:22Colin Campbellbeing investors now we have.
2:31:25Karn BudhirajWe have an active and engaged board and management team.
2:31:28Colin CampbellWe've met with you and today is the culmination of that.
2:31:31Elon MuskWe've heard you, which is why we're excited to share this investor day with you.
2:31:36Tom ZhuNow, you will hear more from our
2:31:37Elon Muskboard at the appropriate time.
2:31:39Karn BudhirajBut for now, I'm excited to introduce
2:31:41Colin CampbellLori Shelby, who's going to discuss sustainability and our employees. Laurie.
2:31:50Laurie ShelbyThank you, Brandon. Hi, everyone. My name is Laurie Shelby and I lead the environmental, Health, Safety, Security and sustainability team. I've been with Tesla for five and a half years, so I'm going to talk about Tesla's impact.
2:32:08Laurie ShelbyAnd of course, that starts with our awesome team members. So you've heard a lot today about our amazing products, our process, our software. You've seen lots of numbers and lots of graphs.
2:32:22Laurie ShelbyYou've also heard a common theme. And that common theme is that Tesla's team is what drives our success and makes a difference. Whether you're in our factories, our sales, service and delivery centers, our warehouses, or in the field, you can see and you can feel the collaboration that's happening.
2:32:44Laurie ShelbyAnd you also can see the pride that everyone has in working for Tesla. So before I go on, I want to give a big shout out and a thank you for our Tesla team globally.
2:32:58Laurie ShelbySo let's.
2:33:06Laurie ShelbyThat was great. That was great. Thank you. So we are creating a lot of meaningful work through our jobs. We're a huge employer and we're growing every day. We're at 129k and more than half of our team works in vehicle manufacturing.
2:33:26Laurie ShelbyAnd almost 60% of our team is based in the US. People want to join our mission and we need to grow and we need to hire the best people.
2:33:44Laurie ShelbyEngineers want to work for Tesla. Look at number one and number two, SpaceX and Tesla. In 2021, we got 3 million applicants. 3 million. That's incredible. And our culture, our culture at Tesla is anyone at any time can raise an idea or make an improvement suggestion across safety, people cost, production, quality, because we have a very simple process called take charge.
2:34:24Laurie ShelbyAnd take charge is really employee engagement. And as take charges go up, as you can see in this graph, injuries go down. And you know why? People who do the work.
2:34:36Laurie ShelbyThe people who do the work know how to improve the work. Sustainability. Sustainability is everything. It's our mission. You've heard about it all day. Part of our master plan.
2:34:49Laurie ShelbyBut at Tesla, we don't just tick boxes to meet a requirement. We really focus on the impact that our products and our software will deliver. In 2021, our customers avoided 8.44 million metric tons of greenhouse gas.
2:35:12Laurie ShelbyThat's equivalent to taking 1.7 million ICE vehicles off the road for a full year. Yes. Yeah. We're also focusing on doing really good work and driving sustainability into our operations.
2:35:35Laurie ShelbyWe have year over year reduction in our water use, in our waste, and we're growing and building a renewable energy program within our operations. Just like supercharging, as you heard.
2:35:50Laurie ShelbySo it's not just about our products, it's the way we make our products, both phases. Tesla, our company is solving both sides of the clean energy equation. We've got the clean generation, the clean storage.
2:36:07Laurie ShelbyWe also have zero emission transport. As this slide shows, from 2012 to 2021, our products generated more energy that was consumed by all Tesla vehicles and our factories. It's amazing.
2:36:26Drew BaglinoYeah, I like the clap.
2:36:27Laurie ShelbyYeah, I'll take claps. So our vehicles use less emissions than gas powered vehicles. Even in the worst case scenario, 100% coal grid, the Model 3 has less emissions than the average ICE car.
2:36:49Laurie ShelbyAnd we're only going to get better. You heard about that today. Every product we make is more efficient. Every factory we build is more sustainable. So it's only going to get better and better.
2:37:04Laurie ShelbySo as we build our zero emission future, we've been talking with our stakeholders with our shareholders about how do we improve our reporting framework. And we are aligning with the tcdf.
2:37:24Laurie ShelbySo tcfd. So we're aligning with the tcfd, which I know many of you have been asking us about. I also want you to stay tuned because there's going to be much more coming in our impact report.
2:37:39Laurie ShelbySo thank you all. And up next is Zach Kirkhorn.
2:37:51Colin CampbellThank you.
2:37:54Zach KirkhornThank you, Laurie. All right, so this is our last section of our prepared remarks today. We'll kind of take what we've discussed today and summarize it at the corporate level for our financials.
2:38:10Zach KirkhornMaybe before I jump into the details here, we've never done an Investor day as a company. We've never brought our leadership team out and asked them to talk about the things that they're working on.
2:38:20Zach KirkhornSo, you know, I feel very fortunate to be able to work alongside this group of people and support their teams. And I also just want to thank them. They're in a room in the back listening to this, for all of the work that they put into today and getting the company to where it is today.
2:38:34Zach KirkhornSo thank you to the Tesla team.
2:38:44Zach KirkhornWhen we were preparing for today, folks were asking, well, Zach, what should we talk about? And really the only guidance we gave folks is, well, talk about the things that you're working on and talk about it in the context of the master plan.
2:38:58Zach KirkhornAnd what did almost everybody talk about today in great detail? All of the work that they're doing to take cost out. Because in this industry, in this business, you survive or you die based upon the ability to manage your costs.
2:39:13Zach KirkhornAnd so I'd like to talk about cost as well. If we look at our longest running scale production product, this is the Model 3, we reached 5,000 cars per week, which was our design capacity in mid-2018.
2:39:30Zach KirkhornAnd since then, we've taken 30% of cost out of this product.
2:39:33Pete BannonProduct.
2:39:35Zach KirkhornAnd there's two points I want to make about this. The first is that cost reduction, as you have heard throughout the course of the day, is deeply ingrained in our culture.
2:39:44Zach KirkhornAnd I think one of the most important reasons why we are here today as a company. The second point that I want to make is that when we're working on cost reduction, it's easy just to take cost out and make our products worse, but we have to take cost out and improve our products at the same time.
2:40:02Zach KirkhornThis is the hard thing to do, but it's the necessary thing to do to continue to move forward. And if you look at a version of a Model 3 that we've built today and you compare it back to a Model 3 that we built in 2018, there's a long list of improvements that we put into the car while also taking cost out of the product.
2:40:22Zach KirkhornCost reduction doesn't just come from one place. There's no silver bullet here. And we pushed the boundaries on volume with the Model 3 program increasing volume 3x over this period of time, we've improved productivity.
2:40:35Zach KirkhornSo in our Fremont factory, we are twice as productive now as we were in mid 2018. We've made a lot of progress on overhead efficiencies and product improvements as we've discussed, and a long list of other things including localization.
2:40:48Zach KirkhornOur factory in Shanghai and as we ramp up volume and as we find efficiency, we work with our suppliers to do the same. And that leads to material cost reductions that improve the affordability of our products.
2:41:02Zach KirkhornAnd as we look forward to our next gen vehicle, our target Is to reduce 50% of cost. And we've talked about that a bit earlier today. From going from the Model S and X platform to the 3 and Y platform, we took out 50% of cost.
2:41:16Zach KirkhornSo the task here is to do it again. And this is very important because as we improve affordability, the number of customers who have access to our products dramatically increases.
2:41:28Zach KirkhornAnd as we link this back to our master plan, it enables an exponential growth in our volume with linear reductions in the cost of our products. The second point I'll make here is that, and again, cost reductions don't come from any single one place.
2:41:44Zach KirkhornAnd so you can see the buckets here on the vehicle side, battery and powertrain manufacturing cost reductions and others. These buckets are relatively equal in size. And so in order to take 50% of cost out of the product, we have to go through everything.
2:42:01Zach KirkhornBut more importantly than just the cost of the car up front. When we're transitioning to a sustainable economy, particularly with vehicle ownership, it's really important to think about the lifetime cost of a of the products.
2:42:17Zach KirkhornAnd this chart here is showing what the total cost of ownership per mile is over the course of five years. And we have to think about financing costs, insurance costs, the cost of power.
2:42:31Zach KirkhornDrew talked a little bit about that with the plants that we're doing in Texas, wear and tear and maintenance on the cars, etc. And we're already at a place today in the US where a base Model 3 on a cost per mile basis is less than a Toyota Corolla, which is the highest selling car in the world.
2:42:47Zach KirkhornAnd as we move towards our next gen platform, we will continue to reduce this. And as we work on robo taxi variants of this platform, this cost will come down even further.
2:42:58Zach KirkhornAnd so this is a product that has that we expect to have substantially lower cost per mile than the highest volume products in the world. The next thing on cost reduction I want to talk about is operating expenses.
2:43:11Zach KirkhornWe spend a lot of time on our earnings calls talking about gross margins and product cost. We don't spend a lot of time talking about opex, but I think this is one of the really important parts of our story.
2:43:21Zach KirkhornSo since 2018, we've reduced our non GAAP OPEX 60% as a percent of revenue and 75% on a per delivered car basis. This is quite staggering. And I want to go into the details about how we've done this.
2:43:36Zach KirkhornThe first component of opex, which is R and D, the single most important thing here is that we constrain the number of programs that we work on. So minimizing the number of programs that we're running in parallel.
2:43:49Zach KirkhornAnd the key here is to maximize the revenue and cash generated from every program that we work on and also maximize the technology sharing between the programs. So we talked a little bit about how power electronics in our energy business is shared with power electronics and our vehicle business.
2:44:07Zach KirkhornIf we look at the SGA side of this, I think the story here is pretty dramatic. So we're showing here a comparison of SGA per car delivered compared to the traditional auto industry, which is both an OEM and the dealership network.
2:44:21Zach KirkhornAnd our estimates are that we're 60 to 70% lower on a per car basis. And if you turn this into dollars, this is many thousands of dollars per car.
2:44:30Zach KirkhornThis is part of the reason why on the last earnings call I made the comment that we think about operating margin more so than gross margin as a company, because the integration that we have here on the SGA side, particularly with vertical integration into our dealership network, this provides efficiencies that give us a competitive advantage from a cost structure standpoint relative to other companies.
2:44:55Zach KirkhornThe other thing that I'll note here is that this wasn't always the case and it wasn't that long ago where these bars would be inverted. And if we go back a little bit in time and we talk about when we launched Model 3 in the Fremont factory, we went from 2,000 cars per week, which was S&X, adding 5,000 a week to that for Model 3 got us to 7,000 cars a week.
2:45:17Zach KirkhornYou've heard some folks here today Talk about production hell. What I don't think we've ever talked about as a company is back office operations hell, which also happened at the same time.
2:45:27Zach KirkhornAnd 7,000 cars a week, 350,000 cars a year, we want to go to 20 million cars a year and we're struggling at 7,000. And we're saying to ourselves we have to completely rethink the way that we're managing our back office operations if we have any hope of efficiently scaling this company.
2:45:46Zach KirkhornAnd so this began a process that we're still continuing to work on today, but it's something that we refer to as the Tesla operating system. So in the same way that we're vertically integrated into the software that manages our cars, we've also vertically integrated into the software that runs our company.
2:46:01Zach KirkhornAnd all of our major departments in the company are using, not all of them yet, but almost all of them are using our in house software. Most recently we removed third party recruitment recruiting software and we're now running our own recruiting software as a company.
2:46:16Zach KirkhornAnd this matters a lot because rather than having a complex web of third party systems that are generic solutions that take a lot of effort to customize for our particular needs, we've been able to put in place with an in house applications engineering team, dedicated lightweight software that does only what we need it to do and nothing more.
2:46:35Zach KirkhornAnd that team works very closely with product process improvement teams that sit within the business who are looking through all of the processes that we're managing as a company and following the exact same process that Tom mentioned in the manufacturing space to look at our processes, delete process steps that we don't need, simplify process steps that are existing and automate what's remaining.
2:46:57Zach KirkhornAnd the results of this have been quite staggering, to be frank. I think it's exceeded our expectations as well. On the left side of this chart are some examples of the efficiency improvements that we've seen within our SGA areas.
2:47:11Zach KirkhornAs a result of the strategy, the North American Sales team is four times more efficient now than they were in 2018. Order operations team, financial services. I mean these levels of improvement are large.
2:47:23Zach KirkhornAnd I don't. There's not enough pixels on the slide here to list out everything. So it's just a couple of examples. And then in the same way that when we look to take home cost out of our products, we want to feature up the product or improve the product while taking cost out.
2:47:37Zach KirkhornThe same has been true with the use of Tesla operating system. And that integration with our process improvement teams within the company. And so we've increased performance and added capabilities while also dramatically reducing cost on a per car basis.
2:47:53Zach KirkhornThere's a list of self service functionality that we've put in place which customers like and it also simplifies our operations behind the scenes. We've used the Tesla operating system to expand into our captive insurance space which we are fully vertically integrated into.
2:48:06Zach KirkhornWe run our own in house software, we have our own agents, our own claims software and claims folks who run our insurance business. This is also very important because as a technology company, data is very important and we use these systems and the access to the data in those systems to pull out extremely granular and targeted reporting that enables us to see every aspect of our business in real time so we can make adjustments to our operations as needed.
2:48:34Zach KirkhornAnd there are sometimes examples where we say, man, I wish we were tracking this piece of data. Well, you know, it's a teams meeting away from the applications engineering team to make a request and then we can start tracking that data and make those changes.
2:48:46Zach KirkhornAnd so the feedback loop associated with process improvement inside the company is pretty astounding. The last thing I'll just mention here, which is something I'm personally quite proud of, we've made a lot of progress in our close processes within the finance team getting our 10Q and 10K filed.
2:49:03Zach KirkhornIt's amongst the fastest of the 20 largest market cap companies. So great work to the finance team here. So all of this work on cost reduction is extremely important because we have a lot of money to spend ahead of us to achieve our goals within the master plan.
2:49:22Zach KirkhornSo we've mentioned over the course of the day today, 20 million annual vehicle production as our target, 1 terawatt hour of annual energy storage production and then expanding cell production service and charging in line with the growth of those other businesses.
2:49:36Zach KirkhornAnd so we've estimated what we think the total cost to get there will be and there's certainly error bars around these numbers as we continue to progress and innovate.
2:49:45Zach KirkhornBut of this, we've spent about $28 billion of that so far in the history of the company. And maybe this total investment looks large, I actually think it's quite small relative to our ambitions.
2:49:57Zach KirkhornAnd if you look at our 2022 operating cash flows and you just say, well, let's assume some modest growth to that, maybe not all that much
2:50:08David Lauif
2:50:09Zach Kirkhornyou're being conservative, but the ability to pay for this level of investment from the forecast that we have is very achievable for us. I'm often asked about capital Allocation.
2:50:23Zach KirkhornI think our strategy here is very straightforward. I touched upon it a little bit in our last slide. But just to be explicit about it, obviously the priority here is to ensure that we're using capital to run the day to day operations of the business.
2:50:37Zach KirkhornThis is a working capital intensive business and this has to be managed very carefully. And so, you know, over the course of a quarter there can be multi billion dollar swings in our cash balance up and down just depending upon the timing of when we build and deliver cars.
2:50:52Zach KirkhornSo we obviously have to have money set aside for that. Downside protection is another really important area where we have money set aside for that. And over the last couple of years, throughout the pandemic, I think this just highlights why being ready for downside protection is important.
2:51:07Zach KirkhornPreserving daily operations is the engine that then generates cash that allows us to reinvest into the growth of the business. And I'm very proud that over the last couple of years, despite the ups and downs in the macro environment and interruptions to supply chains, we have never once pulled back on our investments in growth.
2:51:26Zach KirkhornSo that remains, remains a huge priority for us. We do then after investing in growth, we look at opportunistic ways to spend our cash. These are more financially oriented where if a return exceeds a hurdle, then we can place cash in that.
2:51:41Zach KirkhornThis is part of our story of cost reduction in the Fremont factory. And then on the excess side, you know, this is where, you know, the board meets on a regular basis and thinking about what our cash flow projections are looking forward and whether it makes sense to do buybacks or dividends.
2:52:01Zach KirkhornSo to wrap up the finance portion of the presentation today, a couple of key messages I just want to leave you all with here is that we use innovation at an intense level to drive costs down and improve the efficiency of the business.
2:52:19Zach KirkhornAnd the reason this is so important is it allows us to improve product affordability. This is particularly the case when we move to our next generation platform. Improving affordability allows us to comfortably make investments that grow volume.
2:52:34Zach KirkhornThat volume generates cash that then allows us to make more investments. And as we integrate that going forward, it's our belief as a leadership team here at Tesla that we're going to achieve unprecedented scale in the manufacturing space.
2:52:51Zach KirkhornAnd this is what's ultimately required to accelerate the world's transition to sustainable energy. So with that, this completes the prepared portion of today. We're going to take a short break and then we'll resume with a live Q and A.
2:53:09Zach KirkhornThank you all very much.
2:54:02Colin CampbellSa.
2:54:27Elon MuskIt.
2:59:59Zach KirkhornIt.
3:02:07Franz von HolzhausenSa.
3:03:07Drew BaglinoOh, I can talk.
3:03:23Colin CampbellAll right, so.
3:03:23Zach KirkhornSo,
3:03:27Elon Muskwell, let's see. So this is probably the most significant announcement of the day is that we're excited to announce that we are going to be building a gigafactory in Mexico.
3:03:45Elon MuskSo yeah, and we'll have obviously a grand opening and you know, groundbreaking and whatnot. But we're excited to announce that the next Tesla gigafactory will be in Mexico near Monterrey.
3:04:02Elon MuskSo super excited about it.
3:04:08Elon MuskNow I do want to emphasize we will continue to expand production at all of our existing factories, so including California, Nevada, here in Texas obviously and Berlin, Shanghai. So we intend to increase production at all factories.
3:04:24Elon MuskSo the Giga Mexico would be supplemental to the output of all the other factories. So this is not to be clear, moving, moving output from anywhere to anywhere. It is simply about expanding total global output.
3:04:39Elon MuskYeah, so going to be good. So Peanut gallery. Anyway, so I think that's. Yeah, we're quite excited to announce that. In fact, I believe the governor is here. It's hard to see.
3:05:01Elon MuskWelcome.
3:05:09Elon MuskSecretary of State, I believe. Anyway, so anyway, it's, we look forward to it and having a big event too for the great groundbreaking and, and opening. So let's see.
3:05:19Elon MuskWith that we can move to, I guess, Q A. We've obviously got significant bench strength here. Should probably have like a bench. And anyway, we maybe have too many people on stage, but we'll try to answer questions within reason.
3:05:41Elon MuskThis is meant to be kind of more of a long term sort of discussion as opposed to, you know, what will be the production for the rest of the quarter type of thing.
3:05:55Elon MuskSo let's try to orient our questions towards long term value creation. And with that, fire away,
3:06:05Zach KirkhornRob.
3:06:10Mike SnyderHi, it's Rob Lash with the Wolff research. Very exciting plans about the next generation
3:06:17Drew Baglinovehicle and powertrains and batteries.
3:06:20Mike SnyderI was hoping you can maybe talk to us a little bit about the
3:06:23Drew Baglinotime timeline for deploying this.
3:06:25Mike SnyderAnd it sounds like it's more than just a vehicle.
3:06:28Drew BaglinoThis is a kind of a paradigm change on how vehicles are assembled, how batteries are put together and everything.
3:06:35Mike SnyderAnd does that also just get reconfigured
3:06:39Drew Baglinointo everything that you do? So the model Y's that are being
3:06:43Mike Snyderbuilt here will be built very differently in the future. Maybe just give us some feel for
3:06:47Drew Baglinowhat happens from here. And what's the timeline for implementation?
3:06:52Elon MuskWell, I'll talk a little bit about that, but broadly speaking, the most profound architectural changes will be in future vehicles. Retooling a factory means bringing the factory down for an extended period of time and that's Preferred not to do that, I think.
3:07:17Elon MuskBut there are variants in how model Y is produced, so we've got variants where there's rear casting, where there's a front and rear casting, and we have the structural battery pack.
3:07:31Elon MuskAnd then there are a number of smaller improvements that occur. But I think for really, really big changes, those would be future vehicles.
3:07:40Mike SnyderYeah.
3:07:41Laurie ShelbyI don't know.
3:07:41Elon MuskYou guys want to add Lars, maybe? Me?
3:07:46Mike SnyderYeah.
3:07:46Elon MuskSo, I mean, as far as I
3:07:48Lars Moravyagree with you, 100, Elon, it's, it's. It's really easy to put innovations in new vehicles, but long term, we'll obviously bring them back.
3:07:55Elon MuskWe've always talked about that, but we
3:07:57Lars Moravydon't want to take our factories down as far as the timeline goes. You know, we're going to go as fast as we can, left to right as always. You know, Elon alluded to the fact that Mexico will build our next gen vehicle, but we will also be doing that in our other plants.
3:08:11Lars MoravyAnd so it's really about getting them all up and running. We expect that to be a huge volume product.
3:08:16Elon MuskAnd yeah, we're going to move that
3:08:19Lars Moravyquickly over the next couple years.
3:08:28Zach KirkhornLet's go to Adam.
3:08:30Pete BannonThanks.
3:08:31Drew BaglinoFirst in Nora Buena, Mexico.
3:08:34Mike SnyderThat's great. Congratulations. Elon, a question on applying first principles,
3:08:42Drew Baglinothinking and innovation to an area that up to now has seemingly been outside
3:08:47Mike Snyderof your control, and that is on mining and extraction of some of the key materials. I believe a couple years ago you had a patent on sodium chloride to
3:08:57Elon Muskextract lithium from some.
3:08:59Mike SnyderFrom some clays and spodumene clay and
3:09:01Elon Muskthings of that nature.
3:09:03Drew BaglinoAny how does that fit into the
3:09:05Mike Snyderplan of maybe bringing real innovation into
3:09:08Drew Baglinoa mining sector that could use a
3:09:09Mike Snyderlittle, you know, maybe waking up and getting those costs down?
3:09:12Drew BaglinoBecause that could be a real gating factor, it seems.
3:09:15Elon MuskWell, we're going to address whatever we think the limiting factor is at any point in time. So we would like to do the least amount possible. So we don't want to get into the mining or refining sector.
3:09:31Elon MuskWe will do that if we have to. I do think the focus really should be on refining capacity. You know, we need to make just a very giant amount of anode cathode, lithium, lithium hydroxide, lithium carbonate.
3:09:54Elon MuskIt's really the refining capacity that is the biggest choke point. Yeah. So that's why we're building a lithium refinery in Corpus Christi
3:10:09Drew Baglinoin terms of the mining companies that are out there and looking at that part of the value chain. So we do have large suppliers of lithium right now, and we.
3:10:21Drew BaglinoThey are aware of, you know, how we're approaching the Corpus refinery and the technologies we're trying there. And the reason we're making them aware of it is because we think they're fundamentally more scalable.
3:10:32Drew BaglinoAnd as we prove them out, we plan to, to share that with them because as Elon says, like, it's not really like we want to do these things, we're doing them because it's not happening fast enough.
3:10:41Drew BaglinoSo if, if we can prove that it can be done faster, the intention is to transfer that knowledge to our large, our current suppliers. And the same is actually true.
3:10:50Drew BaglinoIt was actually a clay process that we're playing with and we continue to work on same is true on that. So we've worked with our suppliers as well on trials and we're sharing knowledge there.
3:11:01Drew BaglinoAnd the intention is just to help the whole world do this better. And ultimately the, this here is getting the lithium out or whatever it is out of the or,
3:11:12Elon Muskand we're obviously building a cathode processing facility just adjacent to this, this building. So a little further down the road you'll see another large construction that's for cathode refining.
3:11:29Elon MuskBut like I said, we'd really prefer if others did that. We're doing it because we have have to, not because we want to.
3:11:35Franz von HolzhausenYeah.
3:11:35Drew BaglinoAnd, and in that case, there just isn't really any large scale cathode production in the United States and it needed to be done. And, and again, if we're going to do it, we're going to try to do it from a first principles perspective.
3:11:45Drew BaglinoSo we're, we have tried a bunch of new things there. We're confident that they will work. And as they prove out again, we want to bring them back to our suppliers so they can build new facilities more quickly with less investment.
3:12:00Pete BannonAll right, let's go to Ben.
3:12:02Elon MuskHi, Ben.
3:12:02Roshan (Tesla)California.
3:12:03Lars MoravyBaird.
3:12:03Elon MuskSo similar on the renewable side. Is there more that you can do in Tesla to nudge the rest of the renewable industry to speed up since it's such a big pillar of the Master Plan 3.
3:12:21Elon MuskWell, I mean, I don't know what more we can do, but
3:12:25David LauI can
3:12:26Elon Musksay that if there's like entrepreneurs out there that want to have like a guaranteed chance of success, it would be refining lithium or anode and cathodes or any, any materials whatsoever for lithium ion cells as no brainer.
3:12:47Elon MuskYep, I think we're doing everything we can.
3:12:52Drew BaglinoSo yeah, on the, on the renewable energy thing, the thing that, that we can do, Tesla, is the more we reduce the cost of storage, the More we reduce the cost of stationary storage and the more we bring like flexible load to the grid in the form of like cars charging at the right times, the more valuable renewables are.
3:13:11Drew BaglinoBecause in like Texas right now. I wasn't joking. Like there's a lot of wind and at night wind is, there's like almost too much wind because they don't want to turn the nukes off or whatever.
3:13:21Drew BaglinoSo, so, so, so, so bringing really low cost storage onto the grid makes renewables more valuable, which ultimately will accelerate their deployment. So that, that's how we focus on it, I guess.
3:13:36Colin CampbellYeah.
3:13:47Zach KirkhornThank you. It's Jeffries. I've got two questions. The first one, when I think about in this industry, everybody wants to be Tesla. Every car maker is trying to emulate what you're doing.
3:13:59Colin CampbellWell done.
3:13:59Zach KirkhornThe one thing they don't do is focus on having as much growth as possible with as few models as possible. So I'm just trying to understand as you aim for 20 million units in 2030, how many models do you think you need to get there and how does it fit into your drive to hyperscale?
3:14:22Zach KirkhornHow do you manage this? And also the fact that probably consumers at some point don't want to see a Tesla or the same test at every street corner. So I'm just trying to get your sense of that.
3:14:33Zach KirkhornAnd my other question is on, on bidirectional.
3:14:37Elon MuskI mean you talked a lot about
3:14:39Zach Kirkhornmaking a world more renewables and better usage of cars. I think bi directional charging is one way of better using cars, but you seem to have been reluctant about doing
3:14:50Colin Campbellthat in the past.
3:14:50Zach KirkhornSo I'm just wondering what your latest views are on the topic.
3:14:57Drew BaglinoSure. On bi directional.
3:15:04Drew BaglinoWasn't like a conscious decision to not do it. It just wasn't a priority at the time. I think is maybe the way to think about it as we looked, as we continue to improve the power electronics in our vehicle, we've found ways to bring broader actionality while actually reducing cost of power electronics in the vehicle.
3:15:21Drew BaglinoAnd at all things Tesla. The goal is usually to get more for less. And so we are in the middle of kind of like a power electronics retool. I would say that will bring that functionality to all of our vehicles over the next, you know, two years, let's say.
3:15:38Drew BaglinoBut, but it's. Yeah, I guess that's how I'll say there.
3:15:43Elon MuskYeah, I don't think very many people are going to use bidirectional charging unless you have a powerwall. Because if you unplug your car Your house goes dark and this is extremely inconvenient.
3:15:57Drew BaglinoYeah, most of the value comes in charging the car at the right time. It's not really about sending energy the other way.
3:16:04Elon MuskYeah, I mean if you have a powerwall that can take the house load, then you can use your car as a supplementary energy source to the powerwall and then you know, you're not going to drive everyone crazy by unplugging your car car and having the house go off.
3:16:21Elon MuskSo I think there's some value there as a supplemental energy source down the road where if you have a power wall, you've not diminished the convenience of the people in the house.
3:16:38Pete BannonAnd the question of number of models.
3:16:42Elon MuskSorry, the what? Oh, how many models?
3:16:44Drew BaglinoVehicle models?
3:16:45Elon MuskNot that many really.
3:16:48Franz von Holzhausen10?
3:16:48Elon MuskI don't know, not that many. I mean what's happened with conventional cars is people have run out of things to do. So you run out of things to do, they just end up reshuffling the deck and you have pretty much the same.
3:17:03Elon MuskI mean, how many variants of car are there on the road? Feels like hundreds. But are they good variants? No, mostly not. They're just variants for the sake of variants.
3:17:18Elon MuskBut look at how have things converged with the phone. I mean there used to be hundreds of flip phones. Now what do we have? It'll be like that.
3:17:32Tom ZhuGeorge, George Genarigas from Canacord Genuity just
3:17:37David Lauhad a question about your plans to
3:17:39Elon Muskgrow market share in China and also
3:17:42Mike Snyderwhether or not the political tensions between
3:17:45Elon MuskUnited States and China impact your long term ambitions there.
3:17:49Franz von HolzhausenThank you.
3:17:53Elon MuskI don't know. Hey Tom, not to. Don't sweat too hard.
3:18:01Drew BaglinoYeah, well,
3:18:05Tom Zhuwell, we're still growing our market share in China quite strongly actually. Especially early this year we had this price adjustment. After that we actually generated a huge demand, more than we can produce really.
3:18:21Tom ZhuAnd as Elon said, as long as
3:18:24Colin Campbellyou
3:18:26Tom Zhuoffer a product with value at affordable price, you know, you don't have to worry about demand. That's basically the philosophy that we follow. We try everything to cut cost from supply chain from, improve the efficiency in the factory and pass down that value to our customers.
3:18:47Tom ZhuI think as long as we continue to do that, I'm not too concerned about the market share in China. And the second part, geopolitical. No one else. We do our best.
3:18:58Tom ZhuWe actually create a lot of jobs to community and we also, at our suppliers, factories, we'll create a lot of jobs as well and we'll contribute a lot to the local economy.
3:19:17Tom ZhuI think, you know, as long as we're needed in this country. I, I don't see there much of the risk of that.
3:19:25Karn BudhirajColin.
3:19:26Drew BaglinoColin Rush from Oppenheimer. You know, one of the things I was struck by in the presentation was the operational efficiency metrics that you guys are talking about. Can you talk a little bit about the velocity of learning cycles and how you guys track that and think about that as an organization as you work into a variety of other areas from an innovation perspective.
3:19:51Elon MuskAnyone want to try that?
3:19:52Drew BaglinoI mean, I'll say one very high level thing, which is you can't improve something you don't measure. And we're like ruthless measurers at Tesla. And once you start measuring things that contribute to operational efficiency, you actually have a path to doing something about it.
3:20:09Drew BaglinoSo I guess the key is a good measuring stick.
3:20:15Colin CampbellOkay.
3:20:18Elon MuskIt's something I should say with respect to demand, which I've said a few times over the years, but it sometimes needs to be said again, which is the overwhelmingly the.
3:20:35Elon MuskThere's the desire for people to own a town. Tesla is extremely high. The limiting factor is their ability to pay for a Tesla, not do they want a Tesla.
3:20:46Elon MuskIt's, it's easy for people in this room to lose sight of that. If your income is far in excess of what a car costs, then you look at value for money, but you do not consider affordability.
3:20:58Elon MuskBut for the vast majority of people, it is affordability driven. This is why we cannot simply double the price of the car. Or you could say think about things in the limit where if you had an, you know, infinitely desirable car, but it costs $10 million, it wouldn't matter because people do not can most people do not have that.
3:21:21Elon MuskSo demand is very much a function of affordability, not desire. Very important. One of the things we weren't sure about was, was the price elasticity of demand for Tesla.
3:21:36Elon MuskSo like as we lower the price, how much does demand increase? And we found that even small changes in the price have a big effect on demand. Very big.
3:21:50Elon MuskSo that was a good thing to learn. Yeah. And then as the autonomy question is very, very big, because you could potentially have, I don't know, five times the utility of the asset that you currently have.
3:22:10Elon MuskSo if passenger car is 10 or 12 hours a week of usage plus a lot of parking expenses, an autonomous car could be 50 to 60 hours a week or something like that
3:22:27Laurie Shelbyand
3:22:27Elon Muskyou could get rid of a lot of parking expenses. So you know, if this, if this is true, then as autonomy is effectively turned on for the fleet, it may be the probably will be the biggest asset value increase in history overnight.
3:22:50Pete BannonEmmanuel,
3:22:56Elon MuskThank you so much. Emmanuel Rosner from Deutsche Bank. So as you start launching this next generation vehicle and ramping up volume, what will be your nearest term priority in terms of segment or vehicles focus?
3:23:11Elon MuskThe slide that you showed with two vehicles on the wrap seemed based on focus form factor. One of them maybe looks like a van, another one looks like maybe like a smaller vehicle, like potentially a Model 2, I guess.
3:23:22Elon MuskWhat is the nearest home focus for you in terms of ramping up the next gen vehicle? And how do you make sure that by lowering the price point so much because the cost is going down 50%, you're not cannibalizing demand, you know, for your existing vehicles.
3:23:45Elon MuskI mean, demand for our vehicles in terms of desire to own them may as well be infinite. It's indistinguishable from infinite at this point. Affordability is what matters. So as you make the car more affordable, we will have demand go crazy.
3:24:02Elon MuskBasically the issue is how do we build the cars? The hard part is building the cars. I can't emphasize that enough. The hard part is building the cars and the entire supply chain that goes with the cars.
3:24:14Elon MuskThis is a logistics challenge of extraordinary difficulty. All the things that have to go into a car have to scale with the car while everything is doing an exponential ramp.
3:24:31Elon MuskAnd if you miss even one of those things, doesn't matter why. Earthquake, flood, fire, revolution. I thought I've heard them all. Any part of that supply chain gets interrupted, you're now you have a seizure.
3:24:53Elon MuskThe hard part is building the cars by far and the supply chain that goes with it. Do you guys want to talk about supply chains though? They might, I think.
3:25:07Karn BudhirajYou know, in the presentation I'd mentioned, perfection is a passing grade. We really need everything to happen perfectly. And the strategy for mitigating the different risks, some of which were anticipated and some weren't, is really bespoke to the situation.
3:25:21Karn BudhirajAnd really the unique subject matter expertise and a deep knowledge of the particular supply chain you're managing to come up with those strategies. So we've seen everything from as Elon mentioned, you know, first the tariffs that flew back and forth, then the ocean logistics issue, the chip shortage, Covid floods.
3:25:41Karn BudhirajThere was a fire and a fab in Japan that knocked down. There was a massive Covid spike in Malaysia where a lot of the chips at the back end of the, of a lot of chips was down there.
3:25:53Karn BudhirajAnd more. This was one that Elon was involved with as well. And yeah, that's, it's nerve Wracking, but somehow it works.
3:26:04Pete BannonYeah.
3:26:04Roshan (Tesla)And although it's difficult, I think we have been laying the foundation to be as intimate to our all the tiers of the supply chain, building that control and you know, directing the different tiers of supply chain.
3:26:20Roshan (Tesla)That's the way we are trying to mitigate the risks that come with it. You know, again, dual sourcing, triple sourcing, having redundancy is the way we've been trying to mitigate for it.
3:26:35Lars MoravyYeah. On that point, when we think about vehicles, when you think about 3Y as an architecture, SX as an architecture, our next generation platform is more than one segment and really we're thinking about all the segments that are available that we haven't captured and where the market would be and designing it with our supply chain partners so that we can go quickly through those segments for where we need.
3:26:54Lars MoravyBut to Elon's point, if you make a car desirable and affordable, you know, oftentimes it doesn't necessarily matter what segment it's in because it's one that you want. And we've seen that with Model 3, when a lot of people thought the sedan was not going to be a great hit, but we sell tons of them.
3:27:12Lars MoravySo the next generation platform is not one vehicle, it is, it is multiple. And it's on the segment that we will, you know, really try and focus on that affordability and desirability point moreover than where we started.
3:27:26Elon MuskYeah, I mean there's like, I think it's an old saying, like battles are one with tactics, wars are one with logistics. The logistics challenges here are enormous. And when you start like being a very significant percentage of an industry, you can't over capacitize.
3:27:44Elon MuskIt's not realistic. And some of these things like you say, well, dual source or triple source, you can do that maybe for small things, but you can't do it for big things because if you're triple sourced and one of it's like having a plane with three, three engines where if any of the three engines fails, you crash.
3:28:05Elon MuskIt's like, you know, so you have to either over capacitize which drives your capex up and has idle suppliers somewhere and big warehouses, or you design to some overage that's, you know, reasonable and then you have expedite costs because inevitably something goes wrong somewhere and you've got to fly things around.
3:28:33Elon MuskSo it's really just the rate of progress is the rate at which we are able to scale a 10,000 logistics problems. Most significant of those is the cell production.
3:28:47Elon MuskAnd so we Actually deliberately try to overdo cell production or cell supply to have that exceed what is needed in vehicles. Because if it goes below what's needed in vehicles, then with the factories stall.
3:29:08Elon MuskSo but then what do you do with all these extra cells? It's like well, okay, so the much easier thing to scale up and down is powerwall and megapack output stationary storage.
3:29:19Elon MuskSo we can then over capacitize in cells and packs and scale production of stationary storage, which is much easier to scale than vehicle production. So that's strategically I think a good thing.
3:29:37Elon MuskYeah, I mean the capex for megapack is tiny compared to capex for vehicles. And also Megapack on depending demand is quasi infinite. It it basically as long as we are competitive with utilities, we can sell as many mega mega like it's, it's yeah quasi infinite demand for that really.
3:30:00Elon MuskOr multi many terawatt hours and we got a long way to go to get to many terawatt hours per year.
3:30:08Pete BannonThen go to Dan.
3:30:13Colin CampbellThank you.
3:30:14Zach KirkhornDan Levy, Barclays.
3:30:16David LauI think we know competitive dynamics differ significantly by region.
3:30:22Franz von HolzhausenYou know, cost dynamics differ by region.
3:30:23Zach KirkhornWe saw that with your China gigafactory.
3:30:26Drew BaglinoFar superior cost to what you had a few months.
3:30:28Zach KirkhornI realized it was a new factory.
3:30:29Tom ZhuBut they're clearly different dynamics.
3:30:31David LauSo to what extent are the cost
3:30:34Zach Kirkhornstrategies that you've laid out today, do
3:30:36Drew Baglinothey differ by region or is there
3:30:38Zach Kirkhornmore of a global one size fits
3:30:40Elon Muskall approach on reducing cost?
3:30:51Tom ZhuYeah, I think we're pretty consistent under the strategy here. We'll try to as much localize it as possible. Like in China, 95%, over 95% of our supply chain are localized all the way from the first tier, the second tier into the third tier.
3:31:08Tom ZhuAnd that give us generate a tremendous savings on Cox. And we also have a very localized labor force and we have access to skilled labor force in the region and Yangtze Delta region in Shanghai.
3:31:27Tom ZhuI'm particularly referring to and among over 30,000 of employees in China, we have probably less than 20 expats. So it's very deep localization we have done there to be able to have such cost structure.
3:31:46Tom ZhuAnd we try to replicate this approach elsewhere in different gigafactories. Of course, you know, supplier base are different. The you know, labor market are different region by region and country by country.
3:32:02Tom ZhuBut we try our best to, to localize. Yeah. And, and I think that's, that's absolutely give us advantage to compete with the other ems, um, around the globe. Um, another thing is, you know, we have this direct selling mode like Zach Said, you know, we save a tremendous money on OPEX as well.
3:32:26Tom ZhuWe have full control over all the expenditures across the the company and you know, we don't spend money on marketing or advertising. Everything we saved will become, you know, the value we can offer to the, the consumers.
3:32:46Tom ZhuSo on that part we also follow pretty consistent strategy over the years.
3:32:54Lars MoravyI mean certainly the manufacturing stuff that Colin, Pete and myself talked about, whether you make it here or you make it in Europe or you make it in Asia, it applies everywhere.
3:33:01Lars MoravyWe think about that, from the ground up, not specific to any region.
3:33:07Zach KirkhornYeah, just one thing I would add to Tom's point about localization and to Lars point here, I would actually say that we're moving in a direction of more standardization in terms of our factories and our processes and our cost reduction approaches.
3:33:20Zach KirkhornSo as we've been thinking about the next generation platform, we've been thinking about the volume that we aspire to build against that, how many individual factories do we need to build and what is the fastest possible way to expand that footprint around the world.
3:33:37Zach KirkhornWhat we've done with Model Y is each factory is an incremental improvement of the previous factory which requires engineering hours, engineering spend for each factory design and then you end up with factories that are slightly different from each other.
3:33:49Zach KirkhornAnd as we move towards the next generation platform, I think the term you use Lars is copy paste. So to get it right from the first time, you know, certainly there will be things that we learn and we replicate and we make adjustments to, but try to have as much standardization and commonization as possible which allows us to go as quickly as possible with expansion on this side.
3:34:19Elon MuskThanks. Two questions, one for Zach, one for shock. So for Zach, how do you think about a long term growth and operating margins for the business? And when we look at 150, 275 billion in capex is the remaining balance of that?
3:34:36Elon MuskIs that essentially the capex guidance through 2030 for Ashok, the multi trip reconstruction that you highlighted, how is that different from what mobileye does with the REM map that they have?
3:34:49Elon MuskAnd can you give us any color on the AP4 hardware?
3:34:57Zach KirkhornSo with respect to operating margins, you know, we intend to continue to improve operating expenses as a percentage of revenue over time. And we're continuing to take cost out of our products and try to keep gross margins at a place that's healthy as well.
3:35:13Zach KirkhornAnd so you know, from the hardware perspective of the business, you know, it's our expectation that we'll continue to stay in a health, healthy place over time and Then there's a software portion that's added on top of that.
3:35:25Zach KirkhornAnd so Elon has commented on this many times about the impact that full self driving software can have on the economics of the business. And in that space, you know, profitability, operating margins would be impacted dramatically.
3:35:38Zach KirkhornSpecifically to your point about CapEx guidance, you know, the intent of that slide was not to provide specific guidance, but to just be transparent. Transparent about internally what our rough estimates are and to provide context that we think getting to 20 million vehicles per year and 1 terawatt hour of energy storage is very feasible relative to our expected cash generation for the business.
3:36:00Zach KirkhornThat's a number that will move as we learn we may choose to vertically integrate more into things, we may find efficiencies elsewhere. To the whole conversation we were having earlier about do we do mining, do we not do mining?
3:36:12Zach KirkhornBut the entire point is to say that this is something that's entirely possible based upon our forecast.
3:36:20Ashok ElluswamyRegarding the multi trip reconstruction, my point I was trying to make was that we want to auto label most of the data and we can collect data from the fleet and then reconstruct local areas that can act as supervision for those clips.
3:36:33Ashok ElluswamySince we want to build a scalable self driving system, we don't want to really rely on HTMAPs or anything, even though we could like trivially build something using the same technology.
3:36:42Ashok ElluswamyBut this is mostly for auto labeling and this provides like precise 3D labels for all the video sequences involved in the reconstruction.
3:36:54Elon MuskSomething that's. I don't know if we touched on this much, but in terms of training, we have one of the biggest neural training systems in the world and that we expect to increase that capability by an order of magnitude by the end of this year and probably another order of magnitude by the end of next year with some combination of Nvidia and dojo.
3:37:21Elon MuskSo by much of the scale of that is quite daunt on people. It's enormous.
3:37:31Pete BannonMaybe the final two questions, one from Alex and one from Chris.
3:37:40Drew BaglinoOkay, Alex Potter with Piper. So I definitely want to ask Drew or anybody else up there for an update on dry battery electrode.
3:37:50Franz von HolzhausenRight.
3:37:50Drew BaglinoSo if you're trying to over capacitize towards cells scale a lot of this. Clearly there's a lot of moving pieces and it's a complex sort of orchestra with the supply chain, but a lot of it comes down to dry battery electrode, at least to me.
3:38:05Drew BaglinoSo how are you trending? That was the most fascinating part of
3:38:08Colin Campbellthe factory tour for me and looking
3:38:09Drew Baglinothrough that window and seeing that this is clearly not a science project, but anything that you're willing to disclose yields progress where you are today versus where you thought you were going to be.
3:38:21Franz von HolzhausenYeah.
3:38:21Colin CampbellThanks.
3:38:26Rebecca TinucciSure.
3:38:29Drew BaglinoYeah. I mean, as you saw, right, like, this is a real factory making a lot of dry electrode in an automated fashion. We've made a lot of progress. It's a spectrum.
3:38:43Drew BaglinoLike, we're perfectionists, and we have clear end goals. And we are, every week that goes by making progress towards those end goals, whether it's speed of the tool, yield of the.
3:38:57Drew BaglinoOf that process, or the downstream process. We haven't stalled out yet on the rate of progress either. And that's both on the anode and the cathode side. And I think the great thing about where we are with the overcapacity that Elon mentioned is it's giving us the opportunity to experiment as we go rather than just being, like, stuck to something that we happened to kick off a year and a half ago.
3:39:25Drew BaglinoAnd it is here something that Elon has said to the team many times is it's okay to scrap equipment or money. It's not okay to scrap time. So the way we've been approaching it is probabilistically, what do we think is the most likely thing to succeed?
3:39:41Drew BaglinoAnd even actually in. In the factory here, you saw more than one anode line. They are actually operating two slightly different versions of the final process step of the powder entering the tool.
3:39:52Drew BaglinoAnd it's a competition, you know, which is going to be higher yield, which is going to perform better. And we have the luxury to be able to do that.
3:39:59Drew BaglinoAnd we're taking full advantage of it to advance the technology as quickly as possible.
3:40:05Elon MuskThe dry electrode problem is really quite a hard problem. I mean, we acquired Maxwell really just for the dry electrode technology. But this just illustrates what a gigantic gap there is between something working at small scale and at large scale.
3:40:22Elon MuskAnd we've had an extremely talented team of engineers working on scaling the dry electrode process and having it be reliable and consistent. And we've been grinding hard, literally and figuratively on this for quite a while.
3:40:43Elon MuskIt seems likely that we will be able to scale it to volume this year.
3:40:48Drew BaglinoYeah, yeah. I mean, we're. We're basically increasing the output week over week. Like roughly 1k a week per quarter is our internal target. And we're, you know, we're tracking to that.
3:40:59Drew BaglinoI think the. What you saw is effectively like a ton of material per hour per tool. It's kind of like, hard to, like, rationalize, like, what that really means, but it's it's, it is, it's different than like, oh, something works in a lab.
3:41:18Drew BaglinoIt's like, well, when it's tons of material per hour, there's just different kinds of problems. Like even if you have like 0.1% escape of like fines into the enclosure that your equipment is in now, you have a dust problem and you and like that could short out some electronics.
3:41:34Drew BaglinoIt's like just things like this where when you're on a lab scale, you don't even notice it. But when you're doing thousands of tons over the course of months, it's like, oh, a new failure mode we found and that's where we're at.
3:41:45Drew BaglinoBut we're knocking those out though. And the team is grinding through, through it but progress every week.
3:41:56Pete BannonAnd the last question from Chris.
3:41:59Karn BudhirajThanks for taking the question. I have a few follow ups on
3:42:02Drew Baglinothe next gen vehicle.
3:42:03Karn BudhirajFirst, when do you think we'll get
3:42:05Pete Bannona look at it?
3:42:06Drew BaglinoMaybe a prototype.
3:42:08Karn BudhirajSecond, are there any details that you think you can share in terms of
3:42:12Drew Baglinothe size, the content, the performance? And then third, I think you mentioned
3:42:16Karn Budhirajthat you would produce it in other plants in addition to Mexico. Should we take that to mean that
3:42:21Pete Bannonyou can launch it at an existing
3:42:23Karn Budhirajplant before you're finished constructing the new plant in Mexico?
3:42:28Elon MuskI think we'll actually have to probably decline that answer. We will have a proper sort of product event. But it would be jumping the gun if we answer your questions.
3:42:42Elon MuskMaybe another a question if that's. Yeah, yeah. I don't know anyone
3:42:49Mike Snyderwill.
3:42:50Pete BannonDanof,
3:42:54Elon MuskI have two questions. This has really been a very impressive afternoon. Thank you so much. Elon, I'm curious as you've doubled and you'll double again, how what you've learned
3:43:04Lars Moravyabout sort of managing a larger enterprise and what you might have have to,
3:43:08Elon Muskyou know, do to manage a bigger enterprise.
3:43:12David LauAnd then secondly, I'm curious on your
3:43:13Elon Muskthoughts on how, you know, generative AI and you know, these rapid breakthroughs in AI in the last months could help you make cars sort of, you know, less hard to make.
3:43:28Franz von HolzhausenThank you.
3:43:32Elon MuskI don't see AI helping us make car anytime soon. At that point, I mean, at no point any of us working big problems, we'll just chill out. I mean, I'm a little worried about the AI stuff.
3:43:55Elon MuskI think it's something, I don't know which we should be concerned about.
3:44:04Elon MuskI don't know. I think we should need some kind of like regulatory authority or something that's overseeing AI development and just making sure that it's operating within the public interest.
3:44:13Elon MuskAnd, you know, it's quite a dangerous, quite dangerous technology. I fear I may have done some things to accelerate it, which is. I don't know. So, I mean, some of the AI stuff I think is just obviously useful, like what we're doing with self driving, which is, you know, some people think is an AGI type problem.
3:44:44Elon MuskI don't think it's quite an AGI problem, but it's certainly requires very sophisticated neural nets because the road system is designed for eyes and biological neural nets. So naturally the analog to that is cameras with digital neural nets.
3:45:08Elon MuskAnd the other thing we found is just there's a. If you actually look at our neural net architecture in the car, it's kind of insane, frankly. Nets upon nets upon nets upon nets.
3:45:23Ashok ElluswamyThe visualization tool crashes when you open. Yeah, it's like so complicated that no one can visualize this right now.
3:45:29Elon MuskYeah, it's hard to visual.
3:45:30Pete BannonYeah.
3:45:30Elon MuskJust like literally it looks insane. So I guess something like that's happening in our brains while we drive around, which is pretty wild. So, you know, I don't know,
3:45:49Elon MuskLike Tesla's doing good things in AI.
3:45:56Elon MuskI don't know. This one stresses me out, so I don't know what to say about it, you know.
3:46:04David LauOkay.
3:46:04Pete BannonGiven it's seven o', clock, I think that's all the time we have. Thank you very much for coming and.
3:46:09Elon MuskAnd thank you.
3:46:10Drew BaglinoI'll see you later.
3:46:35Colin CampbellSa.