Tesla Q4 2023 Earnings Call Transcript

Operator

Good afternoon, everyone. And welcome to Tesla's Fourth Quarter 2023 Q&A Webcast. My name is Martin Viecha, VP of Investor Relations, and I'm joined today by Elon Musk; Vaibhav Taneja, and a number of other executives. Our Q4 results were announced at about 3 PM Central Time in the update deck we published at the same link as this webcast.

During this call, we will discuss our business outlook and make forward- looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC.

During the question-and-answer portion of today's call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue. But before we jump into Q&A, Elon has some opening remarks. Elon.

Elon Musk

Chief Executive Officer at Tesla

Thank you, Ric. So the Tesla team did an incredible job in 2023. We achieved record production and deliveries, up about 1.8 million vehicles in-line with our official guidance. And in Q4, we are producing vehicles at an annualized run-rate of almost two million cars a year. So it's really a phenomenal achievement.

Looking at just the Fremont factory alone. We made 560,000 cars. This is a record. In fact, it's the highest output of automotive plants in North America. People often surprised that be the highest output factory carburetor North America is in the San Francisco Bay area, it's a good counter-intuitive perhaps.

And the it's really how to incredibly positive impact on the entire area. What would have been a rundown strip all is the highest productivity car plant in in the Americas,think about that. It was derelict wondering when we got it announced most productive plant. And this entire part of the world.

And its enriched the community and so many different ways. It's. It's really a jump. So I'm super crowded with the people who work there.

Model Y, became the bestselling vehicle globally. As predicted, domestic selling pick anytime, not just electric vehicles with over 1.2 million units delivered. The energy storage business delivered nearly 15 gigawatt hours batteries in 2023 compared to 6.5 gigawat hours the year before. So tremendous year-over-year growth triple-digit.

And. Yeah, I think what to continue to see very strong growth in storage as predict right. I've said for many years that the storage business will grow much faster than the car business and that is Doing that. Free cash flow remains strong at $4.4 billion and 2023 in spite of record spending on future projects. So at record CapEx, its as well as record R&D. This brings us 2024 there's lot to look-forward to in 2024 at Tesla is currently between two major growth waves. We're focused on making sure that our next growth wave driven by Next Gen vehicle and storage full self-driving other project is executed, as well as possible. For full self-driving, we released version 12, which is a complete architectural rewrite compared to prior versions. This is end-to-end artificial intelligence. So now but nets basically photons in and controls out. And it really, is quite a profound difference. This is currently just with employees and a few customers, but we will be rolling out to or to. All those for all customers and USU request for driving in the weeks to come. That's over 400,000 vehicles in North America. So this is the first time AI's use, not just for aggregate perception before path planning and vehicle controls. We replaced 330,000 lines of C++ code with neural nets. Truly quite remarkable. So, as a side note, I think Tesla is probably the most probably the most efficient company in the world for AI inference. Out of necessity. We've, we've actually had to be extremely good at getting the most out of hardware, it's hardware three at this point is. Several years-old. So I don't, I think we're quite far ahead of any other company in the world in terms of AI inference deficiency, which isn't going to be a very important metric in the future in many arenas. So, so the new Model 3 is now available globally. So we didn't updated about 3. While the look similar, a lot of work has done into vehicles make it better in every way. It is significantly quieter, more refined, better equipped as longer-range and many other improvements, and I recommend taking ports Australia, but we have not driven the Model 3 in a long-time. I should really try to one. So, steady improvements. And we're very far along on our next-generation low-cost vehicle. This is an earnings call a product announcement. So, no, not be many questions, but try to ask us about new product, new products coming, but we reserve product announcements, product announcements, not only calls. So that it, but we're very excited about this and this is really going to be profound and not just in its design of the vehicle itself, but in the design of the manufacturing system. This is a revolutionary manufacturing system, significantly. In a far more advanced than any other automotive manufacturing system in the world. Like by a significant margin. Several years ago, I said the the perhaps the most important competitive characteristic Tesla in the future will be manufacturing technology and you will really see that come to bear with our NextGen vehicle. The first manufacturing location for us will be Gigafactory headquarters in Austin, Texas. And then we'll follow that up with other locations around the world probably our, both in Mexico will be second, and then we'll be looking to identify that location passed by the end of this year or early next outside of North America. In conclusion, we had a great year with record production record deliveries and a strong free cash flow in-spite of a very-high interest-rate environment. And we are focused on exciting new projects that will, I think ultimately, if we execute on all these things and it is very hard-to-do. All these things at a sure thing, but I do see a path. We're Tesla, could one day be the most valuable company in world. I Duane size that is run easy path that a very difficult one. But now instead of possible outcomes and previous would not have thought set of outcome. And thank you again to all of our investors, our employees and our suppliers for a strong year and looking-forward to a great 2024 and years to come. Thank you.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you, and our CFO, Vaibhav with opening remarks as well.

Vaibhav Taneja

Chief Financial Officer at Tesla

Thanks, Martin. Good afternoon, everyone. As Elon mentioned, we had a record year in terms of both production and deliveries for auto business as well as record deployments in our energy business. This was achieved, despite 2023 being a challenging year in terms of interest rates and higher inflation.

Big, thanks to our customer, for being with us through this challenging period. I would also like to thank the whole Tesla team for the resolve and dedication throughout.

In terms of 2023 financials. We ended the year with over $96 million of revenue and generated $4.4 billion of free cash flow, to-end the year with over $29 billion of cash and investments on at. On 2023 Cabinet income was impacted by the recognition of one-time non-cash benefit of $5.9 billion from the release of valuation allowance on certain deferred tax assets. This was due to our recent history of sustained profitability and as similar to several other companies, who have recently gone through a similar change in their account.

Currently, starting with Q1. Our book-tax rate will now be more in-line with other companies in the S&P 500.

In our Vehicle business, we continue to see improvements in our per unit cost, despite us being in the early phase of Cybertruck. As a result, auto margin improved sequentially. That said, predicting auto gross margins is extremely challenging. So there are many moving parts to this equation, some of which are out of our controlled, like the change in tariffs or local incentives to name a few.

Once the teams are focused on cost reductions. We are approaching the limits within our car Black Rock's. On the demand front. As promised, we've made investments in digital campaigns in 2023. We fully appreciate the importance of customer education. As we are still in a customer acquisition phase.

Our data suggests that around 90% of our vehicles in 2023 never on the Tesla before. We are being creative in figuring out ways to bring in new customers and educate them about the benefits of owning a Tesla versus [Indecipherable].

The key among them being total cost of ownership. This concept is mostly I look for just the upfront cost. We will be rigorous in evaluating our campaigns, curating the content and optimizing spend accordingly to support our ultimate.

There are two additional things I would like to mentioned two less to the US market. First, customers who qualify for via credit. We now offer that as a point-of-sale benefit from all of what. Which means an immediate reduction of 7,500 at the time of purchase to bank Tesla.

Secondly, we continue to offer very attractive lease rates for Model 3 and Y using apartment leasing program. Note that the sales under this program are recognized upfront revenue and reported within automotive sales.

And energy storage business had another record year with deployments, more than doubling and revenues increasing by more than 50%. This business as opposed to again surpass our auto business in terms of growth rate in 2024. This has been in the works for quite some time with us, laying the foundation, a few years back. We're building our bank of factory, and that's.

I would like to thank the whole Tesla Energy team for their efforts to make this a reality. Our services and other business also started contributing meaningfully to our results. And our fleets freeze goals as we explained the fee-based revenues from supercharging used cars and services to continue to increase.

For 2024, our focus is to continue growing our output, continuing our cost- reduction efforts and increasing investment in our future growth initiatives. Accordingly, we are currently expecting on capital expenditure, but only '24 to be in excess of $10 billion. We believe this will be critical in helping us lay the foundation for the next phase of growth.

Once again, I would like to thank everybody Tesla, our investors and our suppliers for being with us in this journey, we can open it up to questions, Martin.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. Let's go through investor questions. Question number one is from Michael. Given that you moved to start of the next generation compact vehicle production to Austin. Has the timeline improved, so that we might see the next generation platform vehicles in 2025.

Elon Musk

Chief Executive Officer at Tesla

We, will certainly save, save things with that should be taken with a grain salt. I'm often optimistic with, I don't want to put your minds brand up and optimistic regarding time.

But our current schedule shows that we will start production towards the end of 2025. So sometime in the second half.

Unidentified Speaker

at Tesla

Let's just what our current schedule says there's a lot of lot of new technology like tremendous amount of new revolutionary manufacturing technology here. The reason, I want to put that this new revolutionary manufacturing line at giga Texas was because we really need the engineers to be living on the line. This is not, sort of a off-the-shelf you know Just just works type of thing. And it's just lot easier for Tesla engineering to live in line if it's in Austin, versus elsewhere.

So, but we are currently expecting to start production second half next year. That will be a challenging production ramp. Like as I kind of camps sleeping online practically impact practically, we will be. But, I am confident that once it is going it will be head and shoulders above any other manufacturing technology that exists anywhere in the world. This next level.

So it's always difficult to predict what that S-Curve of manufacturing looks like always start-off real slow and then it grows exponentially. So, predicting that intermediate S-curve is difficult, but you know so I don't know, it's hard to say what the unit volume would be next year, we're not going to make any predictions on that front. But it does seem quite likely that we'll start production next year.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. The next question is from Michael again. What has been the barrier to ramping 46A, T-Cells into multimillion cells per week rafe. And when do you expect to get there.

Unidentified Speaker

at Tesla

Yeah, first. I just want to allay any concerns regarding 4680, limiting the Cybertruck because I've seen some people commenting about that. Today 4680 production is ahead of the ramp. We've actually weeks of finished inventory. And the goal is to keep it that way, and not only for cyber. But for our future vehicle programs and as Elon said, it isn't as to like, it's hard to predict these things, but I am just describing our goals.

Elon Musk

Chief Executive Officer at Tesla

It's a hard problem like their entire companies were all they do is, make battery cells, that's like the all they do. Indeed, we do a lot of other things. And we've got a lot of you know breakthrough technologies, but that take time to figure out, but it's 46. Not just that, it's a 46 millimeter diameter by 80 millimeter cross-sell. That that's just the time that shows that dimensioned. This not new technology in the cell. So and manufacturing exactly.

Unidentified Speaker

at Tesla

And just regarding what the team was able to do in Q4, Texas successfully swapped line one from the Model Y design of the cells to the Cybertruck out- of-the cell, which was the 10% cell energy increase I mentioned before and as with any major new product introduction, the factory and engineering teams collaborated to ensure quality of the new design and the process changes as the first priority and our focus returns to cost and production ramp in Q1.

And iIn terms of what we're doing, we're currently running one production line one assembly line using two assembly lines in addition for yield and rate improvement trials and we have a fourth in commissioning. And four more will be installed starting in Q3 this year. So, definitely this is a big year for ramping for.

Elon Musk

Chief Executive Officer at Tesla

But we also do want to emphasize that. We also expect to ramp orders from our suppliers. So this is not about replacing our suppliers, it's about supplementing our suppliers.

Unidentified Speaker

at Tesla

Yes.

Elon Musk

Chief Executive Officer at Tesla

So we are very appreciative of our suppliers you know Panasonic, obviously is our longest supplier there amazing company. We've got CTL gut LG, you know and NPYD.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. The next question is from Adam, should retail shareholders be concerned that Elon has [Technical Issues]. It should resolve as shareholders be concerned Elon has stated that he is uncomfortable expanding AI and robotics at Tesla if it doesn't have 25% of voting.

Elon Musk

Chief Executive Officer at Tesla

Yeah. I guess, let me explain why what my concern is here, which is that. You know I see a path to creating an artificial intelligence and robotics juggernaut of truly immense capability and power. And my concern would be, I don't want to control it, but if I have little influence over the company at that stage, that I guess sort of be bird it out by some sort of random shareholder advisory firm. We've had a lot of challenges with institutional shareholder services, ISS, I called them ISS. And Glass Lewis. You know which his blood of accurate that, based infiltrate those organizations and have you know strange ideas about what should be done. So, it does so, I want to have enough to be influenced. Like, if we could do it dose dual-class stock that would be ideal. I'm not looking for additional economics. I just want to be an effective steward of very powerful technology. And the reason I just sort of roughly pick, approximately 25% was that.

That that's not so much that I can control the company even if I go bonkers. And it sounds like mad, they throw me out but it's enough that I have a strong influence. That's what I'm aiming for is, a strong influence, but not control. This some way to achieve that, that would be great.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. The next question is, what is your expectation for automotive gross margin ex regulatory credits for the full-year.

Unidentified Speaker

at Tesla

Like I said in my opening remarks, we're focused on reducing the cost of a vehicles. This is very extensive and involved exercise, where we whereby we look at not just the component costs down. But down to the packaging used to get the materials for the production flop. Each element of the cost scrutinized to optimize for a few pennies saved the sub component level, whether through engineering redesign offer many other things, which I mentioned these two cost-reduction.

This is a constant exercise and we just have to chase down every penny possible. We have a strong team, which is hyper-focused on this. However, this is a very difficult thing to predict. Precisely, because there are lot.

Elon Musk

Chief Executive Officer at Tesla

We don't have a crystal ball, so it's difficult for us predict this with precision, If the interest rates come down quickly. I think margins will be good and if they don't come down quickly, there won't be that good. Yeah. Is important to remember that the vast majority people buying a car is about the monthly payment. It's not that people don't want we have tonnes of we have less once by a car, it's simply cannot afford it. And and that as interest rates drop and that monthly payment drops, then they are able to afford it and thereby the car, it's pretty straightforward. And there are no tricks around. Did you get around this.

Martin Viecha

Vice President, Investor Relations at Tesla

Okay, thank you. The next question is, does the company anticipate 50% volume CAGR to be realized in either 2024, 2025, if not, why not.

Vaibhav Taneja

Chief Financial Officer at Tesla

I think I said in our prior guidance there will be periods where we won't be going at the same rate as before. We are between two major growth phase. The first one began with the global expansion of Model three and Y. And we believe the next one will be initiated with the next-generation platform. In 2024 our volume growth will be you know lower as we have said.

Because we are trying to focus the team on the launch of the next-generation vehicle.

Martin Viecha

Vice President, Investor Relations at Tesla

All right. Thank you very much. The next question is from Michael, when will Tesla start construction on the Giga Nevada expansion and Giga Mexico and when can we expect each of these to produce their first products such as 4680 cell semi and the next-gen vehicles.

Unidentified Speaker

at Tesla

We have recently broken ground for the next phase of Giga Nevada expansion, to incorporate semi and other projects. But as said earlier was regarding Mexico, we want to first demonstrate success with the next-generation platform and Austin for restart construction. Therefore, we have started the long-lead work to get the basic strategy and plan to follow our recipe from the three Y ramp.

Elon Musk

Chief Executive Officer at Tesla

Yeah.

Unidentified Speaker

at Tesla

With Shanghai, where we started with learnings from three Y ramped really quickly.

Elon Musk

Chief Executive Officer at Tesla

Yeah, exactly. It's important to emphasize that. I mean, Model three production was three years of help unsuitable for some of the the West, she wasn't all that frankly. So metal scar issue from that from those three years, as do many. But then in Model Y was you know sort of a variance on Model three, so much much easier situation. And then we able to actually do an improved, but slightly improved bookings of and significantly improved version the Model Y production line The Shanghai and Berlin. And that's the right. I mean, it was said the sensible way to go about things is in some kind of. That figure out the core the core technology of the manufacturing line and then replicated with improvements throughout the world.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. The next question from Michael is. Has there been any progress made with an FSD licensing agreement with another company.

Unidentified Speaker

at Tesla

I, I really think lots of companies should be asking for FSD licenses, but. And we've had, we've had some tentative conversations, but I think they don't believe it's real quite yet. I think that will become obvious, probably this year. And I do want to emphasize that if I were right SEO, but another car company. I would definitely be calling Tesla and asking its license. So as driving technology, it's definitely the smart move.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. The next question from Siddharth. What is the timeline for Optimus first production of volume production line and what are the barriers to getting there.

Unidentified Speaker

at Tesla

Optimus obviously is a very new product. And extremely revolutionary product. It's something that, I think has the potential to the potential to far exceed the value of everything else it Tesla combined. So when you think about economy, the economy is productivity per-capita times capital. What if there is no limit to capital. There's no limit to the economy.

And the technologies that we're the AI technologies were developed for the car. Translate quite well to a humanoid robot because the car is just robot on four wheels. Tesla is arguably already the biggest Robert make in the world. It's just a four-well drilling.

So, Optimus is a in robot with the humanoid robot legs. It's by far the most sophisticated humanoid robot that's been developed anywhere in the world.

I think we've got a good chance of shipping some number of Optimus units next year. If like I said, this is a brand-new product. Lot of uncertainty when you have when there's a lot of uncertainty and I'm trying to territory. It's obviously, impossible to make a precise prediction. But we will be updating the public with progress on Optimus in every few months. And you can see that it's advancing very quickly.

I was just in the Optimus lab actually until late last night. Its like that matters, something. If I left Optimus lab. The team is doing amazing work, that's obviously a case where we want to make sure that Optimus is say especially at-scale. And that does no, it should be impossible for any centralized control to upload malware to humanoid robots.

So we're going to want to, pull then look localized shut-off that cannot be updated from the, from a central server. That that's the case where we really have to thought to safety. But like I said I, I do think it has the potential to be the most valuable most valuable product of any kind ever by far.

Martin Viecha

Vice President, Investor Relations at Tesla

Just to comment on the barrier. I think the barrier. And we've talked about, this is like getting into actually do something useful. But like we can get it to walk around, we can get to do things, but it's like that utility part.

Unidentified Speaker

at Tesla

You can already do some useful thing. But like.

Martin Viecha

Vice President, Investor Relations at Tesla

To making millions of ISA and its like utility kind of get the utility.

Elon Musk

Chief Executive Officer at Tesla

Yeah. Smart robot. That can do that doing tests. This one, it will be in terms of doing moderately specialized tasks. Why can already do that. Just get better through the course of the year. As we improve the technology in the car, improved the technology and Optimus same time. Everyone, same AI inference computer. That's on the car. So in creating technology.

I mean, we're really building a future. I mean the Optimus lab. It looks like set of West world. Literally, that was not a super utopian situation.

Martin Viecha

Vice President, Investor Relations at Tesla

Not the best reference.

Elon Musk

Chief Executive Officer at Tesla

Yeah. Of West while the Nolan, Alastair Nolan brands, our offerings by actually and invited them to come sooner lab. I think well comes out hopefully soon. It's pretty well, especially as suppose sort of sub-system test and where you just got like one like on a test and just doing repetitive exercises and one arm test and pretty wild. Yeah.

Martin Viecha

Vice President, Investor Relations at Tesla

We not entering last all of it.

Elon Musk

Chief Executive Officer at Tesla

Right, right. safety and to have very service solutions.

Martin Viecha

Vice President, Investor Relations at Tesla

Well, thank you. The next question from Norman is, how many Cybertruck orders are in the queue. And when do you anticipate to be able to fulfill existing orders.

Unidentified Speaker

at Tesla

First of all. I want to thank all the hits Cybertruck been holders for their patients. There isreservation to order conversion rate so far has been very- very encouraging. If the trend continues, is very likely to be. We were only sold-out, all the those in 2024. And also we have a new orders come in after the launch numbers keep growing.

So we're now all hands-on deck focused on ramping. So we can fulfill all the demand reduced over time.

Elon Musk

Chief Executive Officer at Tesla

Yeah, it's important that says that this is very much a production constrained situation, not a demand constraint situation. And obviously, we we'd like we could dramatically raise the price, but that doesn't feel right to us to sort of get gas people for before, early delivery.

So but really the demand is Hotdog. So the precise the prices affordable. I mean, I see us ultimately delivering on order. A quarter million, something like $4 million subtext here, not America. But maybe more. But, give or take. Roughly on on that timeframe and it's. Been it's its feature, is it a head turner. Yeah.

Martin Viecha

Vice President, Investor Relations at Tesla

Anywhere you go people look at you.

Elon Musk

Chief Executive Officer at Tesla

Yes,.

Martin Viecha

Vice President, Investor Relations at Tesla

I can give you of.

Elon Musk

Chief Executive Officer at Tesla

Yeah, say it's a refinery that's the future looks like the future. It's just the, therefore, for the other trucks on the road there which I some very good trucks on the road, but if you were to switch out the brand-name, you went Carlino which company meeting which you definitely would now the Cybertruck.

Now, that's what I thought best product ever.

Martin Viecha

Vice President, Investor Relations at Tesla

All right. Thank you. The next question is can we get Tesla Energy volumes reported in the production and delivery release.

Unidentified Speaker

at Tesla

Yeah, we will strive to do so starting from this quarter. And just a brief update from the business perspective. I'm MegaVac continues to see strong demand signals globally, driving consistent growth trajectory through '22 and '25, we want to thank all of our partners who have put their trust in the Megapack team to execute on critical infrastructure around the world and I would like to personally thank the Megapack engineering and production teams for their strong 2023 execution.

Later continues to ramp through 2024, but the operation of the second final assembly line to double capacity from 20 to 40 gigawatt-hours by the end of the year.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. And the last investor question is from Siddharth. What are the preliminary results on the return on investment of your ads and education campaign. Given that many people still lack awareness, the Tesla average prices less than the average, 8not luxury car price of $45,000, will you expand educational.

Elon Musk

Chief Executive Officer at Tesla

As Johan mentioned, that the ultimate solution to increasingly adoption is really addressed the affordability issue. But at the same time, we do theres awareness issue as well. So in Q4, we ran a series of digital campaigns very targeted digital campaigns across different geos and different channel.

The target of these Tesla derivatives for drive awareness

Unidentified Speaker

at Tesla

Ultimately measure the return on investments on those digital channels. The messaging, we're driving, that's really focused on our product and also try to address them misconception of the EV. Such as safety, affordability and one particular awareness campaign we'd run in Texas, reach the audience about $10 billion uynique viewers and done generated close to $0.5 million visits to our website. A large number of these viewers our first time visitors to our site.

The traffic through these digital channels. I'm actually behaved very similar to those organic traffic come to our website. So going-forward, which is going to keep exploring different channels and doing our trials to get a better understanding of the effectiveness of this digital campaigns.

Karn Budhiraj

Vice President, Supply Chain at Tesla

But. I would caution that will be very careful that we don't want to spend on this side. We want to make sure people are aware, but that's why we'll keep tweaking that's methodology about how and where we spend the money. Because we understand the importance of increasing awareness. But at the same token, we don't want to spend a lot of money just creating awareness,

Elon Musk

Chief Executive Officer at Tesla

Yeah. I mean there are some geographies where our market-share is remarkably low like Japan, for example. Now we obviously had to make sure that we have super charges, the right locations and the service centers are there and the product works well Pampa, Japan, the third-largest CarMax were any country.

So and we should at least have a market-share proportionate to say other non- Japanese carmakers like Mercedes or BMW, which we currently have. So I think that's the case. And when I talk to friends in Japan, they're like. Like there is like quite a lack of awareness of Tesla. So that's the case where we definitely need to increase awareness in Countries in regions where there is. Yeah. My thought that much arenas.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. Lets go to analyst questions. The first question comes from Pierre Ferragu from New Street Research.Go-ahead please. Feel free-to unmute. Pierre, can you hear us.

Pierre Ferragu

at Tesla

Okay. Well, it's really tough to find unmute better non-guide, I'm sorry for being late. So, yes, my question would be. You know on like the cost- reduction, you've talked about it already, lot. And if I look at it over the last like five-six quarters on average the cost of car has been coming down more than 2% sequentially on average. So that means you like on a trajectory years best count going down 10% a year. So that's probably like unheard of in the auto industry, I don't think any car manufacturer ever achieved that.

But that's very-very mundane and very, it's a good performance. But it's a very normal performance and a lot of other manufacturing industry like microelectronics. So, Consumer electronics. And so I'd love to hear your folks about. Whether you consider yourself to the latter to like a microwave business where you have the CBD to actually always improve curves, you have more control on how things are pulled together into your 1,000 you see yourself sustainably taking goes down. With that kind of space. Or do you think your ability to take-down cost is actually. Going to become more or less in-line with the rest of the industry over-time.

Unidentified Speaker

at Tesla

I think I've covered this in a pretty limited detail even in my opening remarks and enough previous question.

Vaibhav Taneja

Chief Financial Officer at Tesla

But to just further clarify. We are constantly looking for what we can do to reduce costs. Like I said it's a game of pennies. We've talked about it before as well. And the team lead constantly going and checking, where can we reduce the cost for the. And do I believe that we will have the same pace, which you have seen over the past few years. Probably not, because remember, we were coming out with period within commodity prices were rising.

So then, we did see benefits coming from that. So those are more or less you know taken care off. But there is more, which we're still chasing and you know I would say a big kudos goes to the team out here Tesla, both the engineering team, as well as the supply-chain team, because every time we give them a challenge they go, they go gangbusters to try and figure out whatever they can to take-out for the cost.

But yes, I would like I said, I want to caution that do not project, the previous cost reduction at the same pace completely in the future. Because with our current platform we are getting to a place where you know, there is there are limitations.

Unidentified Speaker

at Tesla

The increased scale, also sort of helps us there. As we introduce new products, we have the opportunity to go renegotiate existing suppliers for better pricing. We're looking at every penny like rather than any line mentioned. Just to give you an example, our inbound logistics cost has come down by 23% year-over-year. And this is because of optimization on using returnable packaging as opposed to you know Cardboard, which is even better for the environment. Optimizing trucking routes negotiating better pricing with shipping companies with trucking companies going full truckloads and just doing that sort of the bigger we become, the more we put far into these things.

And the more efficient we become as a result of so those work streams are going to continue.

Lars Moravy

Vice President, Vehicle Engineering at Tesla

We are also getting into the, tire of supply-chain to see if there are opportunities. Yeah, getting into the you kneo Tier twos Tier three Tier four levels and then negotiate those pricing as well. To get more efficiency out- of-the system.

Vaibhav Taneja

Chief Financial Officer at Tesla

And then on the design side. We're not started, great. Like, especially in areas where the technology is still improving rapidly parallel trials is a great example. We continue to bring improvements there that are like fundamentals sort of driven from the device up that result in constructions generation over generation and only go into the new vehicles. They come to the vehicles as well. So that's closer to what you were talking about was like the microelectronics space, some of that exists in the vehicle.

Unidentified Speaker

at Tesla

And certainly our cars more computer then car in many ways and has a lot of new tech over the last 100 years of automotive production. And it's great pennies from.

Elon Musk

Chief Executive Officer at Tesla

We have a crazy amount of computing that cars anywhere else it's like. Or is a magnitude.

Unidentified Speaker

at Tesla

And we get to ride that down right.

Elon Musk

Chief Executive Officer at Tesla

Roughly a 1,000 times more, it's something that number.

Vaibhav Taneja

Chief Financial Officer at Tesla

I mean, like if I just look at the main microcontroller that makes the motor go for example like when I think about what our cost when we stuck it in around during 2006 phenomenally fastener now because no comparison. So we've definitely been writing that electronics cost.

Unidentified Speaker

at Tesla

And then even on like non which called traditional vehicle side. We do things and no other automakers due to bring cost-down through breaking down you know the way structures are built and the way we put our cars together, and I think that mindset that we have is very much closer to the micro processor or apparel, electronics industry then normal engine.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you, Pierre. Do you have a follow.

Pierre Ferragu

at Tesla

Yes, a quick one. It's you know you mentioned is like phase-in which you are between two bigger gross gross periods. I'd love to hear you about what you consider the size of our addressable market with the portfolio you have today like three to Y the X and Zs. What's your estimate of your addressable markets you are shipping like you about like a $2 million unit run-rate today. And given the price points of this does. What kind of market-share on of what you addressed with cost, do you think you've already achieved today.

Elon Musk

Chief Executive Officer at Tesla

I don't know if anybody actually don't think we have a firm.

Unidentified Speaker

at Tesla

Yeah, like.

Elon Musk

Chief Executive Officer at Tesla

Idea that's hard to say exactly.

Unidentified Speaker

at Tesla

Yeah this. I won't say there is one-way to think about it is, look at the automotive industry as well.You know EVs still contribute a very small market- share. So, yes, our goal is to try and take as much market-share out of that by. But you do I have a specific number to give you. I don't think we can say that with certainty.

Vaibhav Taneja

Chief Financial Officer at Tesla

And it's a growing pie as well.

Unidentified Speaker

at Tesla

Exactly.It's like it's 9% to but it could be 20% in a couple of years are in the future.

Elon Musk

Chief Executive Officer at Tesla

Yeah.

Unidentified Speaker

at Tesla

And certainly, like the way we've looked at and we've always said that it's not about how many EVs, Chris out how many great cars you can sell, how many vehicles sell, and that markets, you know $100 million a year. And you know we're barely 2% of that. I still think there's 98% more to get. You know.

Elon Musk

Chief Executive Officer at Tesla

I mean, it's worth noting that if you look at say the this average selling price of the Other top-selling vehicles in the world, they are much lower- price than the Model Y. Yeah. So like to or kind of Civic kind of thing. There are much lower-price than ours. So people are really stretching their wallets that to be able to afford a Tesla. It's quite a difficult banks comes to do. And remarkable that it's the best-selling car in unit volume, despite being much more expensive than other high-volume cars.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. Let's go to the next analyst. The next question comes from Adam Jonas from Morgan Stanley.

Adam Jonas

Analyst at Morgan Stanley

Hey, everybody. So I can't wait to see the Optimus lab. I'm sure everybody on this call feels the same way, your last AI Day, Elon was September 2022, can we expect Tesla AI Day this year. And seems, it seems like a lot has changed in that realm. And it's is this year. At the time.

Elon Musk

Chief Executive Officer at Tesla

Yeah, it's a good question. We have found that when we do these AI days some of our competitors, but should we look at what we do on a frame by frame basis.

Adam Jonas

Analyst at Morgan Stanley

They do. And then we find these things being copy. Thinking about go.

Elon Musk

Chief Executive Officer at Tesla

Same thing with Battery Day. So we have to be a little cautious about, revealing the exact recipe even secret sauce. But I think some kind of update would be good to do. Let's talk with the team and I think what we might do something later this year.

I mean, go with this AI things is recruiting. So, yes, and just sort of change the perception of Tesla. As you will think Tesla as a car company when they should be thinking of Tesla as an AI robotics coupling.

Adam Jonas

Analyst at Morgan Stanley

Maybe as a follow-up, airline I'd love your thoughts on the topic of China- based OEMs, expanding into Western markets and as the China market, kind of get saturated in those a tremendous growth in the supply, how much success should Tesla investors allow for this competition to achieve in Western markets.

And can you envision a scenario where Tesla could could partner with a Chinese OEM to help accelerate sustainable transports in markets like Europe and the United States. Thanks.

Elon Musk

Chief Executive Officer at Tesla

Well, our observation is generally that the Chinese car companies, the most competitive companies in the world. So, I think they will have significant success outside of China. Depending on what kind of tariffs or trade barriers are established.

Frankly, I think if they're not trade barriers established, they were pretty much demolished. But most the car companies in the world. So, they are extremely good. We don't see an obvious opportunity to partner. Yeah, certainly. We're happy to accept on the the Supercharger front perhaps happy to give any electric car company access to our Supercharger network. We're also happy to license full self-driving perhaps license other technologies and that could be helpful in advancing the sustainable energy revolution.

Martin Viecha

Vice President, Investor Relations at Tesla

Thank you. And the next question comes from Dan Levy from Barclays.

Dan Levy

Analyst at Barclays

Hi, good evening. Thank you for taking the questions. First, I was wondering if you can just walk-through some of the gating factor is required to unlock here next gen platform. You talked about a number of cost initiatives. Back at the Investor Day a year-ago, things in manufacturing and in Powertrain. Maybe you can just give us a sense of where these initiatives stand and do you believe it we know that there is a number of new features and technologies in Cybertruck things like 48 volt architecture really employing 460 batteries.

To what extent do you think Cybertruck is really a proving ground for the next gen platform and is really going to be a gating factor to unlocking the cost reductions needed for the next-gen platform.

Vaibhav Taneja

Chief Financial Officer at Tesla

Now, yeah. I don't, I don't think anything on Cybertruck should be considered for the next-gen platform. We're obviously doing a lot of manufacturing, innovation, Zealand side for next-generation vehicle.

When you do something at that scale, you have to prove it out just throw it on the line and just build it. So we're going through those validation phases for all of this new manufacturing technology is now. I'm sure, 48 volt was definitely something we wanted to carry-forward. And it's something we hope the industry adopts as well. We're also open to partnering for.

Elon Musk

Chief Executive Officer at Tesla

That if everyone wants to do that and Matt, that people who really know that this is like the inside baseball thing, but it meant for your so high time that the water industry moved from 12, the random number of 12 to 48.

Vaibhav Taneja

Chief Financial Officer at Tesla

A number 40, yeah.

Elon Musk

Chief Executive Officer at Tesla

Well, it's much less random.

Vaibhav Taneja

Chief Financial Officer at Tesla

Slightly less based on human injury, but.

Elon Musk

Chief Executive Officer at Tesla

I mean, it dramatically reduces the amount of copper, and he didn't go vertical and necessary moving to sort of higher bandwidth communications. It's sort of Ethernet level communications that versus campus, which is pretty, pretty slow, slow.

So it's really just bringing cars to the 21st century. Yeah, pretty much.

Vaibhav Taneja

Chief Financial Officer at Tesla

So I'd certainly like because, I think that as like normal for a laptop. So certainly bringing like is an evolution in our in our architectures of vehicles, but it's not gating by any means gaming work is just finished the design and manufacturing and the car test amount kind of.

Karn Budhiraj

Vice President, Supply Chain at Tesla

Yeah, programs and execution led, right. Yeah, right. So let's start talking about like doing lead-time. Manufactured accurately factories, the time and executing this program.

Elon Musk

Chief Executive Officer at Tesla

There's lot of because lot of specialized machines that make the machine for our NextGen vehicle. So is not machines. You can just order from anyone actually have to design a machine that has never existed to build a car in a way that has never existed.

Vaibhav Taneja

Chief Financial Officer at Tesla

Yes, so you don't just have like a design validation phase. But you have an equipment design phase as well.

Elon Musk

Chief Executive Officer at Tesla

It doesn't make it very hard to copy us, because you have to copy the machine that makes the machine and makes machine.

Vaibhav Taneja

Chief Financial Officer at Tesla

Learning about tears.

Elon Musk

Chief Executive Officer at Tesla

Yeah, I'd say the DNA, exactly manufacturing exception. So, yeah I just think it's quite a powerful sustainable advantage. Because there is no place to go to order the machines that we make next-gen car that don't exist.

Dan Levy

Analyst at Barclays

Great. Thank you. As a follow-up. released does not mentioned Jojo. So if you could just provide us an update on where Jojo stands and at what point you expect Jojo to be a resource and improving FSD. Or do you think that. You now have sufficient supply of NVIDIA GPUs needed for the training of the system.

Elon Musk

Chief Executive Officer at Tesla

I mean they harder question is. That a deep one. So, we actually hedging our bets here with significant orders of NVIDIA. CPUs or GPUs are wrong word drilling and see there's no it wasn't, isn't. You can't like produce graphics. So sorry grabbing procedure neural networks or something like that.

Vaibhav Taneja

Chief Financial Officer at Tesla

In cloud.

Elon Musk

Chief Executive Officer at Tesla

Yeah, did you a plenty of plenty like digital. So, and a lot of our progress in self driving is training limited. So, it's important we're training, it's much like a human. But more put into training, the less effort you need and [Indecipherable]. So just like a person if you train in the subject sort of cost, 1,000 hours. The less mental effort it takes to do something. If you remember, when you first started to drive. How much of the mental capacity to drive you to be focused completely on driving.

And as you can drive it many years. It only takes a little bit of your mind to drive. And you can think about other things. And so, drive safely. So the more training to do the more efficiencies, at different level. So we didn't need a lot of training. And and we are pursuing a Dual-Path of NVIDIA and Deutsche. But, I would think of Deutschem as a long-shot. It's a long-shot we're taking, because the payoff is potentially very-high. But it's not something that is a high probabilities. It's not like a sure thing and all. Its a the higher-risk high payoff program.

They do a Deutsche is working and it is doing training your hubs. So in dealing it up. And we have plans for Jojo 1.5 times or to judge a 300 and whatnot. So, I think it's it's got potential. The cannab size enough high-risk

Unidentified Speaker

at Tesla

, high. So. I think it's still makes sense given the. Even if it's a lower low probably of success for the -- I think Eric delivering subject. It's a very interesting program. Yeah, it has the potential for put something special. There's also our inference hardware in the car. So we are we're known. What's called hardware Four, but it's actually version two of the Tesla designed AI inference sure. And we're about to complete design of its own the terminologies but confusing. But complete design of hardware 5, which is actually version 3 if it tells us because the version 1 was mobile version 2 with NVIDIA and then version 3 was towards Tesla.

So -- and we're making gigantic improvements with -- from 1 from hardware, 3 to 4 to 5. I mean, this is a potentially interesting play. Where when cars are not in use in the future. That the in-car computer can do generalized AI tests. Can sort of DFT 4, 3 or something like that. If you've got 10s of millions of vehicles out there. Even in a robotaxi scenario whether in heavy use. Over there 50 out of 168 hours. That's leaves. Well over 100 hours of time available of compute hours. Like, it's possible. With the right architectural decisions. That Tesla may in the future have more compute than everyone else combined.

Operator

Thank you. The next question comes from calling Langham from Wells Fargo.

Colin Langan

Analyst at Wells Fargo & Company

Great, thanks for taking my questions. As we're thinking about going into 2024, the press release talks about adding 36,000 or slightly above in Q4. And the comments in the release, talk about approach the Napster limits. And it sounds like you're continuing to try to all that away, but that sort of implies, there's not much left. In addition, you have the hourly wage increase. I guess will add to that into next year. And I thought you said, raw-material costs or kind of that benefit has sort of almost sleep played out.

So is there an opportunity to continue to go below the 36 or should we kind of be modeling that it kind of stays at this level until '24.

Unidentified Speaker

at Tesla

We are definitely aware of the cost increases, which are coming through because of the wage increases. But like I said. We keep looking at the cost opportunities and trying to figure out where else can we cut-down. So there is definitely more opportunity to bring down cost further. I won't specifically guide to a number which we will try and get to, but there's definitely more opportunity there.

Yeah, we're chasing, we're chasing cost opportunities on the design side. So for 2024. North of eight-figure is what we're is worth just in my organization in margins kind of bunch. And then from a commodity perspective, it's such a long.

Long-lead.

Cycle time through the whole material supply-chain that even with what we've already seen to this point. There's more to come on commodities reductions.

And there still some till tailwind left on the commodity.

It doesn't. I mean.

Aluminum and steel.

And that material.

By Bogoso my mind to think that if we make a 1% improvement in cost, that's $1 billion.

Yeah, happened. So it's like on average, if we were to use. Cost by one penny. billion dollars. Flat. And when we started-off. That long ago. That only making like 10 cars a week. And yeah. So. Where does that lead ultimately. With good execution. Like I said. Let's not of not a slam-dunk. But with if we execute very well. I think Tesla, could be the most valuable company in the world.

Operator

Thank you. Colin, do you have a follow-up question?

Colin Langan

Analyst at Wells Fargo & Company

Yeah, just a quick follow-up. The commentary, you mentioned the taxes would go to the S&P 500 level. I think you've been trending slightly below 10% S&P. I think, it's typically 25%. Is that going to, should we expect that to jump right out next year we'll muscle like next year. Or would it be a gradual change over the next few years. And any cash impact from that tax changes as well that we should consider.

Unidentified Speaker

at Tesla

Yeah, so there is no impact on cash taxes. From a from the release of the valuation allowance, which I spoke about. What it does is, it's how you account for taxes on your book. On your books. So it's basically an accounting change. We then there are certain jurisdictions, because we have enough in oils, etcetera. We didn't have to accrued taxes. Now that the valuation allowance has been released and we recognize deferred tax assets on the books. That means your tax-rate immediately goes up.

Okay. I think that's all-the-time we have for today. Thank you so much for all of your questions and we'll speak to you again in three months. Thank you. Bye,bye.