Ladies and gentlemen, thank you for standing by and welcome to Tesla's Q4 2019 financial results and Q and A webcast. At this time, all participants are CORNELISON Listen only mode. After the Speaker presentation, there will be a question and answer session to ask a question during the session. You will need to press Star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker, Mr.

Martin Vitka, Senior Director of Investor Relations. Please go ahead, sir. Thank you, Sherry, and good afternoon, everyone, and welcome to this fourth quarter twenty nineteen Q&A webcast, I'm joined today by Elon Musk, Zachary Kirk kirkorian and a number of other executives. Our Q4 results were announced at about 1:00 p.m. Pacific Time. In the update deck, we published at the same link as this webcast. During the 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 FCC. During the question and answer portion of today's call, please limit yourself to one question and one follow up. Please press star 1 now if you'd like to join the question queue. But before we jump into Q&A, evil has some opening remarks. Thanks one.

So Q4 was not a strong quarter for the company. Deliveries reached over one hundred twelve thousand vehicles in a single quarter. It's hard to think of a similar product with such strong demand that it can generate more than $20 billion in revenue with zero advertising spend. That's where we do say that from time to time and it's often overlooked. But to have the highest demand electric vehicle in the world with no advertising spent is, I think, quite remarkable and speaks to the nature of pride and the fact that the product itself is compelling enough to generate that demand without without much advertising.

At a Fremont factory, we were producing at a rate roughly the same as the NUMMI factory did in its record year of 2006, and obviously we'd expect to to exceed that significantly this year. This rate of production was cheap before we even started to produce the model Y out of Fremont. So there's a lot of potential to go beyond that number. Well, the Shanghai factory, I'd like to say congratulations again to the team in Shanghai on launching well, let's see, last quarter and chip the first liveries earlier this year.

I'm really excited and optimistic about the potential for the Shanghai factory. I think it's going to be an incredible asset to the company. And we also broke ground on the model. Why factory in Shanghai. So there's a lot of good progress there. Regarding model life, it was only 10 months ago that we revealed a model Y prototype. And now in January of this year, we started producing Model Y in limited volumes already. This was thanks to a great effort of our engineering team.

We managed to achieve by far the highest energy efficiency of any electric SUV ever produced at four point one miles per kilowatt hour, which means model like four wheel drive got an EPA rating of three hundred and fifteen miles. This improvement is reflected on the configurator as of today. This is above what we previously stated, a pretty significant margin and just that with great acceleration, top speed, it's really just incredible specs or around for the cyber truck. A few months ago we revealed that I was to reveal the cyber truck that was that went viral and we tried to build the product that a product is superior in every way without any preconceptions of how such it should look.

So it really just from a standpoint of what's the most bad ass futuristic armored personnel carrier that kicks ass with any pickup truck. Basically, that's the goal. And the you know, we want it to look like something that just came out of a sci fi movie set from the future. And there has been incredible. We've never seen actually such a low level demand at this. We've never seen anything like it. Basically, I think that we will make us about as many as we can sell for many years.

So, yeah, we'll sell as many as we can make. It's going to be pretty nuts. So I think actually that the product is better than people realize, even though they don't even have enough information to rise, just the awesomeness of it. It's just great. So. And then stepping back in 2018, our financial standpoint, we were free cash flow rate was break even in twenty nineteen. We managed to generate more than a billion dollars free cash flow while building a factory in Shanghai in record time and while building parts of motorway production.

So I think to fresh to have this level of free cash flow while making massive investments in capacity while developing new products while improving the core engineering is a testament to the incredible forman's of the Tesla team and I'm just so proud to work with such a great team. I like to think the whole test team for their ongoing work on cost control. This was what has allowed us to get to this compelling financial numbers. Well, seven-time growing company and then Kirpal face an equation when I think of what we have in front of us.

The next couple of years we got Model Y Your Digable and tell the Semien Solar Glass Roof cyber truck some very exciting improvements in back battery technology to the self-driving car. The next gen roadster and a bunch of other products will work out with some numbers. Well, time growing company at an incredible pace at your equation. When I think of what we have in front of us the next couple of years, we've got Model Y Digable and tells them I sold grass, roof, cyber truck, some very exciting improvements in back battery technology to the self-driving car, the next gen roadster and you know, a bunch of old products will look up with too.

It's hard to think of another company that has more exciting products and technology roadmap so super fired up about where Tesla will be in the next 10 years. If you look back 10 years from today to 2010, we will produce approximately a thousand times more cars in 2020 than we've produced in 2010. Eight thousand. And we have also sold barson and sold retrofit and Powerwall Powerpack. It was other things, too. So where will we be in 10 years?

Very exciting to consider the prospect. Thank you very much, Ilana Zacchaeus, some opening remarks as well. Yeah. Thanks, Martin. This past year was truly trans-fat transformational for Tesla. And I want to thank everyone who's been a part of making this happen. I'm twenty nineteen. A few key points I'd like to highlight on demand. While we've mentioned this a few times, it's worth highlighting. Once again, over the course of the year we've transitioned entirely from generating model three orders from a reservation backlog to generating new and organic demand.

We've also seen a stabilization of Model 3 Espy's even increasing slightly in Q4. And we've seen an increase in ASPs of US and X after the launch of the longer-range versions in Q2. With respect to capacity expansion, we've greatly learned from the development and launch of Model 3 in Fremont and Reno. As a result, we've been able to bring new production capacity onboard faster and with less cost. This is evidenced by the launch of Model 3 in Shanghai as well as model line Fremont programs that were both launched in under one year financially.

We have demonstrated multiple quarters of strong cash generation and able to hire volumes. Improvements to capital efficiency, progress on working capital management, and continued improvement in our product and operational costs. And we are able to achieve positive gap in net income in both Q3 and Q4 for many of the same reasons that enabled strong cash generation. We've also made progress on recurring and software based revenue with the implementation of premium connectivity and the beginning of upgrades available for purchase via the Tesla mobile app.

Finally, on stock based compensation, an increase sequentially by 82 million, driven almost entirely by an expense related to the next tranche of the CEO grant. This is a result of our improve expected financial performance of the company, which the CEO top grant is tied to. As we look ahead to 2020, this again will be an important year for the company. Our task ahead is to execute on the next phase of growth while managing cash flows to support that growth model.

Why? We expect first deliveries in limited quantities later this quarter and we'll ramp over subsequent quarters. As mentioned previously, we are forecasting higher gross margins on model like content to the Model 3 this year for the Shanghai built Model 3. We expect to achieve runway production and delivery rates. In addition, we expect to have completed the majority of planned supply chain localization at the factory or in the region. This is one of the most important components to achieve lower production costs for the site.

We are also seeing strong order rates for the locally built Model 3 and remain focused on continuing the production ramp and managing costs. We also anticipate significant progress on factory construction of the Shanghai and Berlin built Model Y, which will result in continued increases in capital spending on operating expenses. I expect an increase over the course of the year to support our growing product, pipeline and international footprint. However, OpEx growth should increase at a lower rate than top line revenue.

Overall, we believe this will set us up for our strongest annual financial performance yet with sufficient forecasted cash flows to support investments related to our growth and further strengthening of our balance sheet. For Q1, please keep in mind that the industry is always impacted by seasonality. Additionally, we are in the process of ramping two major products Model 3 in Shanghai and bottom line Fremont, which I expect will temporarily weigh on our margins. We are also in the early stages of understanding if and to what extent we may be temporarily impacted by the Corona virus.

At this point, we're expecting a one to one and a half week delay in the ramp of Shanghai built Model 3 due to a government required factory shutdown. This may slightly impact profitability for the quarter, but is limited as the profit contribution from Model 3. Shanghai remains in the early stages. We are also closely monitoring whether there'll be interruptions in the supply chain for cars built in Fremont. So far, we're not aware of anything material. But it's important to caveat that this is an evolving story.

However, we have more than sufficient cash to continue our expansion plans while further strengthening the balance sheet. Thank you again for your support. And we will turn to questions. Thank you. We are going to take the first questions from retail investors compiled by Slate Technologies. So the first retail investor question is that since solar is required for all new home constructions in California. Do you have any substantial orders for solar glass roofs from any of the large California homebuilders that you can share?

Was the 2020 targets for the number of solar glass roof installations in California? Well, I think we do. We asked for a front loaded promise from a small base. Exponential growth in. And output for solar. Put solar glass roof so it's able to predict what will be this year. Except that the demand is very strong and we are. We're working also not just through talent source, but also through your home builders and through just the roofing industry in general.

You know, in North America on the order of four million new roofs per year. So we see a lot of interest. And so it's it's just a question of refining the installation process, getting lots of crews trained to do the installation. But over time, I would expect a significant percentage of our new roads to be something to use solid glass in one form or another. It's really going to be a choice of do you want a roof that is alive with power or dead without?

And I think people will want a live roof that generates power and looks good. And last long time and it's the future we want. So it will be a significant product. But because it is a new and quite revolutionary product and that there's a lot of challenges to overcome, but they will be overcome. And this will be a major product line of Tesla. And the Buffalo factory is doing a great. Thank you. Now, a second question from retail shareholders is some.

Will you release their teszler wild hailing network app before full autonomy and change the terms of Tesla insurance to allow owners to be drivers on the network? If so, when will this happen? My boys want to talk. My goal to target California airports first. Also a good place to add superchargers. Sorry. I think more question than one. Yeah. There is a bit of a bundle here. Well, I think it's probably will make sense to have the to enable car-sharing in advance of the sort of giant rover taxi fleet.

Because the car-sharing can be done before a full self-driving is approved by regulators. So it's probably something that we would enable before it. BPT Full sort of private taxi fleet is enabled and so it's public or some other questions bundled in their superchargers of airports? Oh, sure, yeah. It probably will have to trust in airports, but I'm sure superchargers wherever we see that there is a need for Superchargers. And then on the insurance part of the question, it is our intent to allow people to put their cars into ridesharing or the f_f_t_ network using Tesla.

That's not currently the case, but by the time that this is available, I intend to get that ready. Yes. Thank you. The next question from retail investors is how many California owners are currently insured with Tesla insurance? What's the target for Tesla insurance in 2020? When will you start significant? To significantly leverage the data you have from the fleet to lower the cost of your coverage. Will we get premium discounts of certain friends? Yeah. Go ahead.

Yeah. Tesla Insurance is currently available in California. A couple of things that we're working on on this front. The first is to expand it to other locations and we're preparing the regulatory processes, preparing our processes to go through the regulatory processes in this location. We're also working on the processes to continue to adjust our rates in California, which also have to go through regulatory processes as insurance is quite heavily regulated. And that's where we're spending our time focusing on Tesla insurance right now.

There's a significant amount of innovation, as we've discussed before in this space. Exactly getting to the intent of what the question here is and using our technology to reduce rates. And this will be rolled in over time, because the last part of the question was, will there be a discount for using autopilot with our cars? Oh, yeah, yes, yes, there will be. The red card for California. Tesla insurance already considers the safety features associated with autopilot.

Right. But I think it would make sense for us to close the loop on, you know, higher. You sort of powerfully reduces the interest costs to lowers the property of injury. So I think insurance is going to be, I think, quite a major product of Tesla over time. The amount of money that people spend on car Carterets is it's like a remarkably big percentage of the cost of the car that you can we say model three right now for $100 a month.

But a typical owner in California will be paying between 100 and 200 dollars a month in a truck. So we're talking about something which is a quarter to half of the cost of the lease of the car is insurance. And a lot of that insurance costs is just because insurance companies don't have good information about the drivers and that there's no good way to provide feedback where, you know, it's it's it's a very poor feedback mechanism in terms of insurance rates versus of the actual way that the cars been driven.

Whereas we can do that in real time. It's a fundamental information advantage that insurance companies don't have. Thank you. The next question is, do you set expectations that you would be feature complete on the first day by the end of twenty nineteen? Can you please provide an update on when will we see this with end users? Where are you being retrofitting the FSA computer to older models? Well, I mean, to be precise, I said I was hoping it would be complete with FASB by the end of last year.

We got pretty close. You know, it's looking like we might be a future complete in a few months. Physical beat just means like it has some chance of going from your home to work, let's say with that, with no interventions. So that's just me. The futures are working well, but it means it has some, you know, above zero chance. So I think that's looking like maybe it's gonna be a couple months now. And what what isn't obvious regarding an auto pilot and full self-driving is just how much work has been going into improving that the foundational elements of autonomy at the core auto pilot Tesla or fortified software and and a team is just it's a very, very strong and making great progress.

And we're we're really only beginning to take full advantage of the autopilot hardware, that FSD hardware. So I think it's the the the apparent progress as seen by consumers will seem to be extremely rapid. But but actually, what what's really gone on my head seems like that is just isn't having the foundational software be very strong, having a really strong foundation and then a really fundamental thing is moving to body or training. So in terms of labeling, labeling with video and all all eight cameras simultaneously, this is a really key in terms of labeling efficiency, arguably like a three order of magnitude improvement in labeling efficiency for those who know about this, extremely fundamental.

So that that's been great progress on that. Thank you. And the last retail investor question comes from Kendall Parsons. Most retail investors seem to understand Tesla better than analysts and are risking a larger part of their own personal wealth on Tesla. Doesn't that make sense to take mostly questions on these earnings goals from us via say? Do you even have to take questions to answer questions from Alice? Well, I guess we we don't have to. I do think that a lot of retail investors actually have a deeper and record insights than many of the big institutional investors.

And that's what may get better inside than many analysts. You know, it's it seems like it if people really looked at some of the smart retail investor analysts and you know what, what some of us want smaller retail investors predicted about the future of the Tesla. Would you probably get the highest accuracy and remarkable insight from some of those predictions? OK. So now let's switch to institutional CHIRLA questions. The number one question is. You have spoken previously about Shanghai and your gut being.

Sixty five percent lower CapEx per unit of capacity. Have you learned to do anything better or different from an offer OpEx perspective? Yes. What kind of impact might we expect on the long term gross margin? Sorry, guys. Yeah, mean, the Shanghai factor is quite remarkable. Cost experience across all line items of cogs for the Model 3 that we have talked a lot about the CapEx punitive capacity being lower. You can basically run down the entire list of cogs between labor cost, a material cost due to localization opening up suppliers that would not have made economic sense from the states.

Localizing the supply chain flows in to inbound logistics and outbound logistics costs as well. So we're not shipping cars from California over to China and then that has a corresponding savings on or an import related costs. And there's a slide in the shareholder letter that shows the layout comparison between Fremont facility here in California and also the Model-T factory in China. And the simplification in terms of the flow is pretty evident from that layout and that cascades itself into all sorts of savings for the operations of the facility.

And so, you know, if you add all of this up, our internal estimates are a pretty significant reduction in the cost of policy in China relative to Fremont. But I think it's also important to keep in mind that the cost of the standard plus in that we're selling out of Shanghai is also lower than that of the similar car coming out of Fremont from price perspective. And so I said to some previous earnings calls, I think it's fair to expect the margin coming out of the Shanghai facility to match the same margin for the vehicle in Fremont.

Yeah. Course, there's a pretty big fundamental efficiency gain that Tesla has by just making cars, especially affordable cars. Three on the white list on the continent where the customers are. You know, it kind of makes sense. But all we're doing will happen during the past was pretty silly. And making cars in California and then shipping them halfway around the world to Asia and Europe and that this created a lot of costs because if you're got to ship those cars.

So they've got a little bit of skirt's sitting on on the order or waiting at the port or going through customs tariffs on transport. They're good at it's. And then the factory complexity in in California is very high because you've got different regulatory requirements. And in China, North American and Europe, sort of three different types of cars that being built. It's very complex. And and just having a factory in China, a factory in California, a factory in North America, factory in Europe.

Just that alone is a massive improvement in our fundamental operating efficiency. I think just may not be fully appreciated. And also on working capital. Yeah, absolutely. Where did you see OpEx here in China? Okay. The next question from institutional investors is given the recent rise in the share price. Why not raise capital now and substantially accelerate the growth in production? I build the Gigafactory investment in supercharger and customer service. Well, we're actually spending money as quickly as we can spend it sensibly.

So if there's any sensible way to spend money, we are spending it. There is no artificial hold back on expenditures. Anything that I see, that is what looks like. It's got good value for money. The answer is yes. Made it so that we're spending money, I think efficiently and we're not artificially limiting our progress. And then despite all that, we are still generating positive cash. So, you know, in light of that, it doesn't make sense to, you know, to raise money because we expect to.

The bank executives there. I completely agree with that. I think some of our learning during the Model 3 launch period where we grew too quickly and with too much complexity and it held back our ability to continue to scale. And part of the journey that we've been on in twenty nineteen is to unwind a series of unintended unintentional that processes that kind of accumulated in the company over time. And so that's kind of what contributes to the reduction in OpEx over the year as we get smarter about that.

And now we've laid a good foundation. I think I agree with you on that. We're not holding back on the growth. We have two products, two vehicle products launching right now and and that will consume much of the business of the company to stabilize those over the course of the year. And then looking into next year, we have more products launching factories there. And so we want to be smart about how we spend money and grow in a way that's sustainable.

So we don't fall victim to the mistakes. I think we made a year and a half or so ago. Yeah, absolutely. The next question we've already answered regarding auto pilot timelines. So the following question would be, can we please talk about cost control and OpEx, just sustainability in terms of growth versus gross profit growth? How did we achieve the recent OpEx trends and how should we think about OpEx needs as we grow both vehicles and geographic workloads?

You know, I commented briefly on this in my opening remarks, we did see an increase in operating expenses from Q3 to Q4, even excluding the portion of that attributed to stop this compensation. And when you double click into that growth, it's supporting the model wide program and also Shanghai program as well. So I think we as a company are now at the point where we've learned a lot on cost efficiency, as I've just mentioned, and we've unwound a number of the processes that went on in the right place, including automating the things that need to be automated and we'll continue on that journey.

And I think we're at a point now where offense will start to take up, at least if you look annually from 2019 to 2020 to support our international footprint. And then the growth in the company. You know, our job is to grow that significantly slower than the pace of growth in revenue to improve the operating leverage, which we're very focused on. Okay. And the last question from investors is to say also, if Model S and X have stayed flat for similar quarters, the main reason is that they still use 18 650 batteries.

When we'll s a mixed use 21 70 batteries, manufacturing capacity of 86, 650 may be used for battery storage systems. Since that, I'm sure we'll actually beat the core chemistry inside that 650 cell has improved many times over the years. So it's always the form factor as opposed to a core technology. So it's yeah, I think we're we're pretty happy with where the you know what the energy onto the cell and the big improvements in efficiency of the vehicle.

B, you know, we're rapidly approaching a 400 mile range or model S, for example. So this is it won't be long before Model S is 400 mile range. Is anything other than to say that dated 650 lines? I've been running smoothly for a really long time. And in a world where s supply is fueling growth, like we're part of the feel of growth, I don't see a reason to turn that sales by office. Yeah, I actually look at the model S and X, I actually have more range than we are currently stating on the website.

We just haven't gotten around to updating the EPA. So sort of bad number, but the actual range of the model S next or above what the website says there are. Yeah, you have existing cars that are. So if they're being made naturally then that way for some time. Yeah. Must be in somewhere the 380s like that. Yeah. Thank you very much. Shari, let's go to the Q&A on the phone. Thank you again, ladies and gentlemen, to ask a question.

Please press star one. And we ask that you please limit yourself to one question and one follow up. Our first question comes from Adam Jonas with Morgan Stanley. Hi, everybody. And I actually agree that I have like the retail questions or were excellent, actually. So, Ilan, do you see potential for Tesla vehicles to be fitted with user terminals that are compatible with the Starlink constellation in the near or medium term future? Well, it's certainly something that could be happen in coming years if there's applies throughout this year.

The folks of Starlink is really for high bandwidth, low latency connectivity for homes and businesses and, you know, I guess aircraft and boats and that kind of thing. But the antenna for that high bandwidth, well, it and soothing is about the size of medium pizza, which you could put our car. But I think it's more bandwidth than you really need. Technically, you could buy one and just take on the car. Yeah, it'll it'll work phase.

Right. Well maybe just a follow up for my follow up. How would assuming that we get the antenna form factor and cost down to a point where that that could be integrated into the roof of the car, for example, cost effectively and aerodynamically, etc.? How would compatibility with the Starlink architecture theoretically improve the Tesla customer experience or the capability that network? I think actually it most possible. We're just use cellular connectivity. Just use 5G. Would be your recommendation to me and like any cities or something like that.

But if you're out in the countryside and there's not good cell connectivity, then maybe you could connect with the Starlink antenna and you wouldn't need you know, you don't need to like have like gigabit level or level connectivity. You probably know 20, 30 megabits. Fine. You can have much more antenna. So, yeah, I guess it could be good for you to make sure that connectivity and outside of major cities, that kind of thing. But I mean, that's a sort of it's a relatively obtuse.

You know, don't think about it very much, to be honest. Thank you. Let's go to the next question. Thank you. Our next question comes from Dan Gals with Wolfe Research. Hey, good afternoon. Thanks. I'm hoping you could give us some guidance on what CapEx is going to be this year. And kind of as I look to model out the business long term, is there a rule of thumb that we can use for capital expenditures per per unit of production capacity or some sort of rule of thumb like that?

Mm hmm. I do not want to tell you. I think we want to say what our CapEx is going to be this year. Yeah. It's early, except to say that, like I said earlier, we're we're we're spending money as fast as we can spend money in sensible ways. So this works, this definition not artificially limited. And, you know, we will spend a lot of money this year for sure. If the charge comes in like finding efficient ways to actually put capital.

That's the hard part then and sort of deciding on a cap ex no. Really? Yeah. And I think we'll always find ways to become more capital efficient. Are you. Exactly. Yes. We should challenge that seems to always become more efficient. And so we see a reduction per capita. Per capita. Absolutely the right metric. Yeah, it's it's good. Yeah. But there's so much tells or whether the core technology is improving radically that maybe you wouldn't necessarily notice as an end customer or something where you'd notice somebody wouldn't fit.

It's just. There are these things that have a big effect on the efficiency of a company like our total applications team that catapults the Tesla into the operating system and it proves sort of core automation of the company that makes a big difference to our productivity. But you wouldn't necessarily you would see it effectively and in healthy financials, but you would definitely notice that as an end customer. Okay, got it. Maybe I could follow up. I mean, you're you're kind of operating cash flow.

You because is annualizing at four and a half billion right now. You know, as I look out to the future, you know, I'm kind of guessing that that could fund somewhere around 200 to 250 thousand units of capacity a year, which would be maybe a 30 percent keg or over five years. I mean, I mean, is that is that's something that's feasible for you guys to to execute on on a consistent basis? You know, a level of capacity building that large.

I mean, I think we're having for more than 30 percent. Yeah, I think than that. I'm not sure the math that you've done, but I think internal plans are faster. And just back on your first question, we will have additional detail on CapEx in the 10-K. But back to the growth rate. I mean, one thing to keep in mind is that the Shanghai facility, we do have a loan facility in place to support that growth.

So that helps. And then as our production funds increase, that generates more cash from the business as well. That allows us to continue to fund additional factory. So I wouldn't necessarily view it as limited as you just did a few years ago. I said I think I know where it was. But years ago I said in my estimate was that tells you we're growing at an average co-manage. All right. Average rate of in excess of 50 percent.

By soul holds that fully. Thank you. Let's go to the next question. Our next question comes from Gene Munster with Leupp Ventures. Yes. And congratulations on the progress. First question related to cyber Chuck, you mentioned you'll sell as many as you can make. Can you remind me how many you think you can make? And any thoughts on the costs of production for making those Cybertron? I think we we don't comment on the those detailed numbers, except the demand is just far more than we could reasonably make in the space of, you know, I don't know, three or four years or something like that.

So the thing we're gonna be really focused on is increasing battery production capacity, because that's very fundamental, because if you don't improve battery production capacity, then you end up just shifting unify you from one part to another. And you haven't actually produced more electric vehicles. So, you know, that's that's the reason why we have not, for example, really accelerated production of the Tesla satellite because it does use a lot of cells. And unless we've got a lot of battery cells available, then that's say like it's already production of the Tesla Semien would necessarily mean making a pure model 3 or model white cars.

So we've got to really make sure where we get a very steep ramp in that battery production and continue to improve the cost per kilowatt hour of the batteries. This is this is a very fundamental and extremely difficult so that, you know, we could do that kind of a battery day just to kind of explain or about this what our plans are. I think probably it makes sense to do that after the end of this quarter, because I think it's going to be a kind of an intense end of quarter as it was last quarter.

So, you know, tentatively sort of in the April timeframe, we'll do a battery day and and kind of go through what the challenges are. How do you how do you get from here to a couple thousand gigawatt hours a year or something? I'll look forward to that battery day. You know, you also mentioned in your prepared comments about other products that may come up in the only vehicle not announced for master plan. Part two is a high passenger density vehicle.

Any light that can give us regarding that project? Yeah. You know, going back to what I just said, that the we we've got to improve the total battery capacity. Otherwise we add complexity, but we do not improve the number of vehicles on the road. So what we do know, some sort of high capacity vehicle at some point, probably. But we we need to make sure we got the batteries at two big cars that we've already battery properly.

And it just generally true. Let's see some some thank so sensible comments by our co-invest. You know, we're pointing out that really people do prefer to drive in their cars mostly by themselves and like the average. I mean, the average number occupants in a car, I think is like one point two. And maybe with autonomy, maybe it'll go to 1.4 maybe. But I'm not sure that even if it even goes there. So, yeah, well, it makes sense just for us to do it sort of a minivan or, you know, sort of spread like that at some point.

Probably. But like I said, we're gonna solve this battery. We got to scale battery production to crazy levels that people cannot even fathom today. That's a real problem. Thank you. Let's go to the next question, please. Our next question comes from John Sango with Evercore ISI. Hey, guys, thanks for taking my call. I want to talk about the differences between the Model 3 and the model why beyond the sort of 10 percent rule of thumb just around cargo and size.

Are there other features that are going to differentiate the two models? And then as far as a follow on to that, you've talked in the past about how auto sales group with the introduction of Model X. So are you planning on setting up your production facilities to align with that thesis that essentially Model 3 sales will expand alongside the introduction of Model Y? You know, we're not we're not quite sure what's going to happen with it, but it is true that Model X production model X actually increased model sales because we would come in and look at the model X and they said, OK, you know, I'd prefer the Sudan.

And we're worried that that X sales would cause our sales to drop. That actually could increase. So, you know, from better for us that when we're not too worried about demand, we're worried about production. You know, make sure we get that production ramp gone and reach volume production as soon as possible with the model line. And talk to the Toysmart, predict what that missed that is that the the exponential part of the s curve of production production pretty much always follows those s curve all its kind like a herky jerky s curve.

And you know, you can predict what it's going to be like in the beginning because woe is predict what's gonna be like at the end, but that intermediate fortunately s curve is vertical to predict. So that's it. A massive amount of hard work and and just reacting fast to issues that arise. So yeah, I think it would work. We're just gonna go as best we can with the model Y and make sure it's great product. I think there are some things that will differentiator, but not just.

Sorry about call. And I think you know, when they do what people do a tear down the bottle y, I think they'll be impressed about some of things they see. And just to add to that, I think it's important to keep the model I launch in context of the next 18 to 24 months. What we're working on here between Berlin and Shanghai and Fremont is to have three and why locally produced in all locations. Yeah. And so Model 3 is expanding.

Its model is expanding and maybe ups and downs, various factories. As we get to the journey of having these products and all the major continents. Yeah. Also the rule of thumb of 10 percent. I think you need to see it. When you see the car, you realize that it's not just a 10 percent different car. It's it's it's not just that there's more change happening, like to the customer's perspective as well. Car language. Thank you.

Let's go to the next question, please. Thank you. Our next question comes from Colin Rusch with Oppenheimer. Thanks so much, guys. Can you speak to the pricing strategy in light of the China price reductions as well as the mission to increase TV adoption? Is there a target for gross profit or operating profit on a per vehicle basis that we should be thinking about? Or how should we really frame that versus. Yeah. I mean, we're trying to get the cars as portable as possible as fast as possible while maintaining reasonable.

Well, well, soaping at least a little bit profitable and growing like crazy and having good free cash flow and accumulate the cash balance back I think. Oh, I think that's fair. Yeah. Auto right supports the pricing that we have right now. We're working very hard to reduce costs and expand production because it made me feel from the dead. It's pretty clear that there's a lot of interest in our products. And so as we're working on is to increase production, increase of LBA availability of the products with time and that price reduction on China kind of the first step towards this global localization and more accessible price.

And we'll continue to work on cost reductions in China as we do in Fremont and grant production. Yeah. I mean, the thing that's really going to I think you just have a profound effect on our financials is because high volume and high margin, obviously, and that high margin part comes from autonomy. So do people buy the full self driving package or not? And do they buy it worldwide or only in certain places? For example, art autonomy is not as good in China as it is in the US.

So fewer people, but a very small percentage of people buy the FSD package in China. But as we as we fix that, they will see a much higher percentage of people buying. And as we get closer to full self driving, that's just going to come more, more compelling. So that that that's from a financial standpoint, that's the real mind-blowing situation is high volume, high margin because of autonomy. Okay. And then just shorter-term, you know, there's significant discussion and industry around moving to higher voltage on the power train.

And then, you know, some challenges around the supply change preparedness to support that, you know, separate from the battery pack since. Well, we'll talk about that in a couple of months. Can you speak to the areas of focus on powertrain technology driven cost reduction over the next twelve to 24 months? So we should be thinking about. Well, Hawtrey is pretty damn good. I mean, it's way better than anything else out there by a country mile.

You know, it's worth noting, for example, at the the Model S has like 100 kilowatt hour pack that Tatum has. One hundred real like ninety five kilowatt hour pack. The Model S is steadily approaching 400 miles range to take and has total miles range. So we must be using that energy pretty efficiently in the powertrain is a big part of that. I would just say the focus is on cost on the powertrain loomer themout technology innovations. It's how do we how do we continue to drive the cost down?

Yeah. And you know, that's true. Voltage is maybe one angle, but there's certainly others that just enable more power density in lower cost. Applied protrayed is like mind blowing. I think. Yeah. Coming out later this year and at the airport. That's our get a power train up in a year and then it's going to be like this was like alien technology. It's insane. I don't even think we could do it. Yeah, I mean, I that it was no way to kick ass.

Engineering team. Tell us a little about hard core engineering. Great. Let's go to the next question, please. My next question comes from Emmanuel Rosner with Deutsche Bank. Hi. Good evening, everybody. So in your slide deck, you've had the commentary on average selling price being stable or thereabouts in 2020, maybe walk through some of the puts and takes. How you see it should affect that metric as well. Obviously you have the model Y, which probably would have initial higher pricing.

Then the China model threes at a lower price. So I guess what are the puts and takes for what you see is sort of like stable in 2020? I'm not price. Very, very low value. I don't have what I would call about prices and so I know or adjust according to what the demand looks like, like right now, looks pretty good. Maybe that'll change your nose. Yeah, but I think the way you describe it is fair.

I mean, relative to the current Model 3, China Model 2, pricing is slightly lower. And our model line pricing is public on the website. So you can see that it's clearly slightly higher than than what Model 3 is out of 3 might not have a mix of those 3 products and that's out over the course of the year. We'll see. I think it's probably fair at the moment to assume the mix of those is fairly stable in terms of the average them together.

Mean the affordability of our car and try to improve radically because of, you know, very, very high tariffs mostly going away, which is tax exemption, local supply, not having to spend a bunch of money to transport it over the ocean so that the affordability is nine day or Corrigin. Thank you. Let's go to Mexico, please. Thank you. Our next question comes from Dan Lady with Credit Suisse. Hi. Thank you. Good evening.

Thank you for taking the questions. Just want to follow up on the question on capital raise, given the cheaper cost of capital and this is a real competitive advantage for others. Why wouldn't it make sense to raise capital to either pay down debt or to pursue acquisitions, especially bolt ons? I could help you accelerate capabilities in autonomous or better technology. Nobody acquisitions. We love to hear about them. Yeah, sure. Sounds great. Herstory. Well, I it given the importance of autonomous, I imagine that this is an area that you would want to accelerate if you view it as a as a crucial competitive advantage.

We're not aware of any one that would want to acquire and debt debt down. Polluting company to pay down debt. Doesn't sound like Weizman. OK. I think the broader there's been a couple of versions of this question over the course of the call. I think what we're saying more broadly is that as we look forward on the cash generation from the business relative to what our plans are, we are not constrained yet. We're going to pay down the debt just, you know, as time goes by, I would pay down have half a billion dollars with the debt last quarter.

So we'll just keeps steadily patted it down and. Yeah. So. Yes. Yeah, I don't think we have any more say on that front. OK. Thank you. Let's go to the next question, please. Thank you. Our next question comes from Peter Faragher with New Street Research. Stay. Thank you for taking my question. I wanted to come back home on batteries and if I could get to the end of the show, you should have a good plan in its capacity forecast.

That's odd because of that extra minute. And then just the storage business, it means you may not have 60 DIY specialty production capacity. So where do you stand now and how do you get there? And then it looks like your competitors, others who would like to compete with you seem to be struggling. Choo choo choo choo to grow that capacity. So, again, just take us through what you're doing differently. Why do you have confidence you can do that?

I mean, it's like nobody has. Well, you know, I guess, you know, a lot of people sort of made fun of us for not like, you know, being good. You know, both cars and full capacity. And it's like now that turns out actually even the pros have trouble with it. You know, it's pretty hard. So, you know. But the fact is, we've already demonstrated massive growth and so production capacity at our Gigafactory, Nevada.

And, you know, you have to go from the cells to the modules to the pack. So it's hard to sell capacity, but also module and pack capacity. So we've just gotten pretty good at that. We've worked well with key partners like Panasonic Push. Chip has been excellent. They've been a great partner with us for many years. We've added some additional partners at at a smaller scale with LG and CSL. And, you know, we'll have more talk about this in detail in battery day, except probably in probably April.

We've got a very compelling strategy. I mean, we are super deep on sell through or to sell sell through battery. So model battery dryers if you want. Thanks. These are super deep. Me. It's a rabbit hole. Rabbit hole goes down pretty far seven days and we were down as soon as we got through production, man. Do we know? Look at these now. I think I can keep that going. The one thing I would add is, you know, we do have a decade plus of experience of not just like what a cell should be, but how to integrate into the product.

And that's really. Yes, absolutely. And how to manage the cell and the module battery and through different weather conditions and different bimodal and different charge regimes. And wow, we really, really know a lot about batteries. Next level. OK. Thanks. And get it quick on Monday. Put up for you. Got the rights. Can you give us a sense of the impact of the ramp of Shanghai on your in Q4? Yeah. We weren't big enough just margin on the products that we built in Q4.

But the team in China I think can a great job managing costs during the launch. And so there wasn't a slight track associated with it, but not terribly significant. OK. Let's go to the last question, please. Thank you. Our last question will come from Joseph Osho with GMP Securities. Further to the conversation around cell technologies, wonder if you can comment on what the plants are for the Maxwell technology that you acquired as a capacitor or Driesell or what have you.

Thanks. Well, like I said, we're going to talk about this battery day, which is probably April, and then a lot of these questions will be answered. I think it's gonna be a very compelling story that we have to present. I think it's going to actually blow people's minds. It blows my mind. And I am you know, I know it. So it's pretty cool. Maxwell Maxwell, that that ultra cap technology is kind of part of the part of the plan.

It's a it's an important piece of the puzzle is things like some of this this sort of retail investors of MASH put together several pieces of the puzzle that seem to have the most insight. I shall have to read the blogs more. Thank you. You're welcome. Thank you very much for everyone for all of your questions. And we will speak to you in another three months. Thank you. Thank you. Thank you. Ladies and gentlemen, this concludes today's conference call.

Thank you for your participation. You may now disconnect.