Tesla Inc ($TSLA) Q2 2024 Earnings Call

Thank you. So, to recap, we saw a large adoption acceleration in EVs, and then a bit of a hangover as others struggled to make compelling EVs. So, there have been quite a few competing electric vehicles that have entered the market, and mostly they have not done well, but they have discounted their EVs mostly financially, which has made it a bit more difficult for Tesla. We don't see this as a long-term issue, but really as fairly short-term. And we still obviously firmly believe that EVs are best for customers and that the world is headed for a fully electrified transport, not just the cars, but also aircraft and boats. Despite many challenges, the Tesla team did a great job executing, and we did achieve record quarterly revenues. Energy storage deployments reached an all-time high in Q2, leading to record profits for the energy business. And we're investing in many future projects including AI training and inference and infrastructure to support future products. We won't get too much into the product roadmap here because that is reserved for product announcement events. But we are in fact going to deliver a more affordable model in the first half of next year. The really the far the biggest differentiator for Tesla is autonomy. In addition to that, we have scale economies and we're the most efficient electric vehicle producer in the world. So, while others are pursuing different parts of the AI robotic stack, we're pursuing all of them. This allows for better cost control, more scale, quicker time to market, and a superior product. Applying not just to autonomous vehicles but to autonomous humanoid robots like Optimus. Regarding full self-driving and robotaxi, we've made a lot of progress with full self-driving in Q2 and with version 12.5 beginning rollout, we think customers will experience a step change improvements in how well supervised full self-driving works. Version 12.5 has five times the parameters of 4.4 and will finally merge the highway and city stacks. So the highway stack is still at this point pretty old. So often the issues people encounter are on highway, but with 12.5 we're finally merging the two stacks. I still find that most people don't know how good this system is and I would encourage anyone to understand the system better to simply try it out. Let the car drive you around. One of the things we're going to be doing just to make sure people actually understand the capabilities of the car is when delivering a new car and when picking up a car for service to just show people how to use it and just drive them around the block. Once people use it at all, they tend to continue using it. So, it's very compelling. And then this I think will be a massive demand driver even unsupervised full self-driving will be a massive demand driver. And as we increase the miles between intervention, it will transition from supervised full self-driving to unsupervised full self-driving and we can unlock massive potential in V3. We postponed the sort of robotaxi or the sort of product unveil by a couple months where it's shifted to 10/10, so the 10th of October. And this is because I wanted to make some important changes that I think would improve the vehicle, the robotaxi, the main thing that we're going to show and we're also going to show off a couple of other things. So moving back a few months allowed us to improve the robotaxi as well as add in a couple other things for the product unveil. We're also nearing completion of the south expansion of the Gigafactory in Texas, which will house our largest training cluster to date. This will be an incremental 50,000 H100s plus 20,000 of our hardware 4 or AI 5 Tesla AI computer. With Optimus, Optimus is already performing tasks in our factory. And we expect to have Optimus production version one in limited production starting early next year. This will be for Tesla consumption. It's just better for us to iron out the issues ourselves. But we expect to have several thousand Optimus robots produced and doing useful things by the end of next year in the Tesla factories. And then in 2026, ramping up production quite a bit and at that point we'll be providing Optimus robots to outside customers. They'll be production version two of Optimus. For the energy business, this is growing faster than anything else. We are really demand constrained rather than production constrained. So, we're ramping up production in our US factory as well as building the Megapack factory in China. That should roughly double our output. Maybe more than double our output. Maybe triple potentially. So, in conclusion, we're super excited about the progress across the board. We're changing the energy system, how people move around, and how people approach economy. The undertaking is massive, but I think the future is incredibly bright. Yeah, I really just can't emphasize just the importance of autonomy for the vehicle side and for Optimus. All of the numbers sound crazy. I think Tesla producing at volume with unsupervised FSD, essentially enabling the fleet to operate like a giant autonomous fleet, and it takes the valuation, I think, to some pretty crazy number. ARK Invest thinks on the order of $5 trillion. I think they're probably not wrong. And long-term Optimus, I think, achieves a valuation several times that number. I want to thank the Tesla team for strong execution, and looking forward to exciting new things.

With respect to the Roadster, we've completed most of the engineering. And I think there's still some upgrades we want to make to it, but we expect to be in production with Roadster next year.

I guess that's really just a question of when do I expect the first, when can we do unsupervised full self-driving? It's difficult. Obviously, my predictions on this have been overly optimistic in the past. So, I mean, based on the current trend, it seems as though we should get miles between interventions be high enough that it should require enough of a success of humans that you could do unsupervised possibly by the end of this year. I would be shocked if we cannot do it next year. So, next year seems highly probable to me based on the points of the curve of miles between intervention that trend exceeds humans for sure next year. So, yeah.

I think we want to limit product announcements to when we have a specific product announcement event rather than earnings calls.

Yeah, so Dojo. I should preface this by saying I'm incredibly impressed by Nvidia's execution and the capability of their hardware. And what we are seeing is that the demand for Nvidia hardware is so high that it's often difficult to get the GPUs. And I guess I'm quite concerned about actually being able to get steady Nvidia GPUs when we want them. And I think this therefore requires that we put a lot more effort on Dojo in order to ensure that we've got the training capability that we need. So we are going to double down on Dojo. And we do see a path to being competitive with Nvidia with Dojo. And I think we kind of have no choice because the demand for Nvidia is so high and it's obviously their obligation essentially to raise the price of GPUs to whatever the market will bear, which is very high. So I think we've really got to make Dojo work and we will.

Optimus is a generalized humanoid robot with a lot of intelligence. So it's like saying what kind of accessories would be offered with a human? It's just really designed to be able to be backwards compatible with human tasks. So it would use any accessories that a human would use.

We will do some advertising.

Well, we currently are focused on Giga Mexico. I think we need to see just where things stand after the election. Trump has said that he will put heavy tariffs on vehicles produced in Mexico. So it doesn't make sense to invest a lot in Mexico if that is going to be the case. So we need to kind of see where things stand politically. However, we are increasing the capacity at our existing factories quite significantly. And I should say that the robotaxi will be produced here at our headquarters at Giga Texas. And as well Optimus, towards the end of next year for Optimus production version two, the high volume version of Optimus will also be produced here in Texas.

There are a few major OEMs that have expressed interest in licensing Tesla full self-driving. And I suspect there will be more of it over time. But we can't comment on the details of those discussions.

I should say that Tesla is learning quite a bit from xAI. It's been actually helpful in advancing full self-driving. And in building up the huge Tesla data center. With regarding investing in xAI, I think we need to have a shareholder approval of any such investment. But I'm certainly supportive of that if shareholders approve it. I think we need to vote on that. And I think that there are opportunities to integrate Grok into Tesla software, yes.

Yeah, I mean, I think you're referring to a very old article regarding GPUs. It was six or seven months old. Tesla said we had no place to turn them on. So, it would have been a waste of Tesla capital because we would just have to order H100s and have no place to turn them on. So, it wasn't a big xAI over Tesla. The Tesla data centers were full. There was no place to actually put them. We've been working 24/7 to complete the south extension on the Tesla Gigafactory here in Texas. That's our, the south extension is what will house the 50,000 H100s. And we're beginning to move the H100 server racks which place there. But we really needed that to complete physically. You can't just order GPUs and turn them on. You need a data center. It's not possible. So, I want to be clear that was in Tesla's interest, not contrary to Tesla's interest. Does Tesla no good to have GPUs that can't turn on? The split second that Tesla was able to take GPUs, which is really just this week, we're moving GPUs in there and we'll bring them online. With regard to xAI, there are people that only want to work on AGI. So, what I was finding was that when trying to convince people to come to Tesla, they would only, they'd been working on AGI, not Tesla's specific problems. And they want to start a startup. So, it was a case of either they go to a startup and I'm involved or they would do a startup and I'm not involved. Those are the two choices. This wasn't a case of, oh, they wouldn't come to Tesla. They were not going to come to Tesla under any circumstances. So, yeah.

Yeah, and once again, I want to just repeat myself here. I tried to recruit them to Tesla. Including to say like you can work on AGI if you want, and they refused. Only then was xAI created.

I don't want to get into the details of product announcements. And I'm going to have to be careful of the Osborne effect here. So, you know, if you start announcing some great thing, it affects our near-term sales. We're going to make great products in the future just like we have in the past. End of story.

Yeah, I mean as I've said a few times that I think the long-term value of Optimus will exceed that of everything else that Tesla combined. So, it's simply, you simply consider the usefulness, utility of a humanoid robot that can do pretty much anything you ask of it. I think everyone is going to want one. There's 8 billion people on Earth. So, that's 8 billion right there. Then you've got all of the industrial uses.

Which is probably at least as much, if not way more. So, I suspect that the long-term demand for general-purpose humanoid robots is in excess of 20 billion units. And Tesla has the most advanced humanoid robot in the world. It's also very good at product manufacturing, which the other companies are not. And we've got a lot of experience, the most experience with the world leaders in real-world AI. So, we have all of the ingredients. I think we're unique in having all of the ingredients necessary for large-scale, high-utility, generalized humanoid robots. But that's why I think my rough estimate long-term is in accordance with the ARK Invest analysis of a market cap on the order of $5 trillion, and maybe more for autonomous transport. And it's several times that number for general-purpose humanoid robots. I mean, at that point, I'm not sure what money even means. And so, in the benign AI scenario, we're headed for an age of abundance, where there is no shortage of goods and services. Anyone can have pretty much anything they want. It's a pretty wild future we're headed for.

Yeah, distributed compute. That seems like a pretty obvious thing to do. I think the way that distributed compute becomes interesting is with the next-generation Tesla AI chip, which is hardware 5.0, which we're calling AI 5. From the standpoint of inference capability, it's comparable to an NVIDIA V100. And we're aiming to have that in production at the end of next year and scale production in '26. So, just think, if you've got autonomous vehicles that are operating for 50 or 60 hours a week, there's 168 hours in a week, so you have somewhere above 100 hours of computing. Because GPU means graphics processing unit. So, there's 100 hours plus per week of AI inference compute from the fleet, from the vehicles. And plus some percentage from the humanoid robots. That it would make sense to do distributed inference. And if there's a fleet of, at some point, 100 million vehicles with AI 5 and beyond, you know, AI 6 and 7 and whatnot. And there may be billions of humanoid robots. That is just a staggering amount of inference compute that could be used for general purposes. That computing doesn't have to be used for the humanoid robot or for the car. So, I think that's just a pretty obvious thing to do. It's more useful than having it do nothing.

Yes. The auto industry does not move fast. There's not really a sensor suite. It's just cameras. But they would have to integrate our AI computer and have cameras with a 360-degree view. And at least the gateway, like what talks to the internet and communicates with the Tesla system, with that unique kind of gateway computer too. So, it's really gateway computer with cellular and Wi-Fi connectivity, the Tesla AI computer, and seven cameras, or enough cameras to get a 360-degree view. But given the speed at which the auto industry moves, it would be several years before you would see this in volume.

I think it depends on the OEM. I would guess they would be happy either way. Yeah, it depends on what kind of agreement we enter into. A lot of those things are not items resolved yet. So, we'll make that determination as and when we get to that point. And the kind of deals that are obviously relevant are only if some OEM is willing to do this in a million cars a year or something significant. It's not if it's like 10,000 or 100,000 cars a year. We could just make that ourselves.

I mean, our solution is a generalized solution. Like whatever else has, if you see like Waymo and whatnot, they have a very localized solution that requires high-density mapping. That's quite fragile. So, their ability to expand their fleet is limited. Our solution is a general solution that works anywhere. It would even work on a different Earth. So, if you rendered a new Earth, it would work on a new Earth. So, it's this capability. I think in our experience, once we demonstrate that something is safe enough or significantly safer than human, we find that regulators are supportive of deploying that capability. It's difficult to argue with if you've got a large number of, yeah, if you've got billions of miles that show that in the future unsupervised FSD is safer than human, what regulator could really stand in the way of that? They're morally obligated to approve. So, I don't think regulatory approval will be a limiting factor. I should also say that the self-driving capabilities that are deployed outside of North America are far behind that in North America. So, with version 12.5, and maybe it's 12.6, but pretty soon, we will ask for regulatory approval of the Tesla supervised FSD in Europe, China, and other countries. And I think we're likely to receive that before the end of the year. Thank you. It would be very helpful to have a human driver in those regions, obviously.

Yeah, to that end, Vishay, it's like, we can go as humans to other countries and drive with some reasonable amount of assessment in most countries. And that's how you design the FSD software.

Well, obviously the real reason that they canceled it is because GM can't make it work, not because of regulators. They're blaming regulators. That's misleading to do so. Because Waymo is doing just fine in those markets. So, it's just that their technology is not up to par.

Well, we're fixing the sunglasses thing. It's coming soon. So, you will be able to have sunglasses on and have the car drive. Yeah. But, you know, this particular number of times I've talked with smart people who live in New York or maybe downtown Boston and don't ever drive and then are asked me about if it's, you know, like just get a car and drive it. And if you're not doing that, you have no idea what's going on.

This would just be the Tesla network. You just literally open the Tesla app and summon a car to pick you up and take you somewhere. And we will have a fleet that's on the order of 7 million dedicated to local autonomy soon. In the years to come it will be over 10 million, then over 20 million. This is immense scale. And the car is able to operate 24/7 unlike the human drivers. So, the capability to, like, there's basically instant scale with a software update. And now this is for a customer-owned fleet. So, you can think of that as being a bit like Airbnb. You can choose to allow your car to be used by the fleet or cancel that and bring it back. It can be used by the fleet all the time. It can be used by the fleet some of the time. And then Tesla would share in the revenue with the customer. But you can think of the giant fleet of Tesla vehicles as like the giant sort of an Airbnb equivalent fleet. Airbnb on wheels. I mean, then in addition we would make some number of cars for Tesla that would just be owned by Tesla and be as a fleet. I guess that would be a bit more like Uber. But this will be a Tesla network. And there's an important clause we've put in every Tesla purchase which is that the Tesla vehicles can only be used in the Tesla fleet. They cannot be used by a third party for autonomy.

I guess I'm not maybe I'm not conveying this correctly. The entire Tesla fleet basically becomes active. You know, this is obviously maybe there's some number of people who don't want their car to earn money, but I think most people will. It's instant scale.

Yeah. Yeah, we only find customers that they can sort of put together a hodgepodge solution. And so and then sometimes they'll pick that solution and then that doesn't work. And then they come back to us.

Yeah. I think people don't understand just how much demand there will be for storage. They're really just underestimating this demand by probably orders of magnitude. So, the actual total energy output of say the US grid is, if the power plants could operate at steady state, is at least two to three times the amount of energy a country produces. Because there are huge gaps, there's a huge difference from peak to trough in terms of power generation. So, in order for a grid to not have blackouts, it must be able to support the load at the worst minute of the worst day of the year, the coldest or hottest day, which means that for the rest of the time the rest of the year it's got massive excess power generation capability but it has no way to store that energy. Once you add battery packs you can now run the power plants at steady state. Steady state means that basically any given grid anywhere in the world can produce in terms of cumulative energy in the course of the year at least twice what it is currently producing. In some cases maybe three times.

I guess there would be like some impact but I mean I think it would be devastating for our competitors but it would hurt Tesla slightly. But long term probably actually helps Tesla if it would be my guess. But I've said this before and I suppose the value of Tesla overwhelmingly is autonomy. These other things are in the noise relative to autonomy. So, I recommend anyone who doesn't believe that Tesla will solve vehicle autonomy should not hold Tesla stock. They should sell their Tesla stock. If you believe Tesla will solve autonomy, you should buy Tesla stock. And all these other questions are in the noise.