Tesla’s „2020 Annual Shareholder Meeting and Battery Day“ took place on 22^nd September 2020 in Fremont, California and was broadcast live by Tesla. The YouTube video can be divided into three topics in terms of content. This is the transcript of the first part of the video (minute 0:07 – 20:00), the „Shareholder Presentation“. The parts Battery Day Presentation (1/2), „Battery Day Presentation (2/2)“ and „Q&A“ will follow and will then be linked here. To read the German translation, please click on the link.

Elon Musk: (0:07) Everyone. Well, I mean, this is definitely a new approach. We’ve got the Tesla drive-in movie theater, basically. It’s good to see everyone. It’s a little hard to read the room with everyone being in cars, but it’s the only way we can do it. So hopefully, it’s cool. And hopefully, you can hear me. Can you guys hear me? (hooting)

Okay. All right. Great.

Well, thanks for coming. I think it’s been an incredible year, and I’d like to just thank you for your support through tough times, good times. It’s been great. Really appreciate everyone who’s put their heart and money into Tesla, and I think it’s worked out pretty well. This has been a good year. And I think there’s many good years to come. So I’ll go through the shareholder presentation fairly quickly because the real main event here is Battery Day. And really, I’m just going through a recap of what’s happened over the past year or so.

In terms of our ability to create a factory, huge kudos to the Tesla Shanghai team for being able to go from literally a dirt pile to volume production in 15 months. It’s like, damn. Yeah. And I think something that’s really quite noteworthy here is, Tesla’s the only foreign manufacturer to have a hundred percent owned factory in China. So this is often not well understood or not appreciated, but to have the only hundred percent owned foreign factory in China is a really big deal, and it’s paying huge dividends here.

So we really wouldn’t have the results that we have had this year without the great efforts of the Tesla China team, so I’m super appreciative of that. And we’ll see the Shanghai factory continue to scale quite a bit from where it is right now. I think we really could expect that to be, over time, a factory that produces over a million vehicles a year. (hooting)

Yeah, it’s cool. So let’s see. So we also reached in the past year of volume production of the Model Y, and this was the smoothest launch that we’ve ever had, so I think we’re definitely getting better at new vehicle launches and building factories, and scaling production. As you’ve heard me say before, the hardest thing is scaling production, especially of a new technology. It’s insanely difficult.

Making a prototype is relatively easy. And if I think, like, what is the real achievement of Tesla in sort of car company terms, it’s like it wasn’t making sort of exciting prototypes. It was that Tesla was really the first company in about a century in the U.S., the first U.S. company in the U.S. to reach volume production and be sustainably profitable. The crazy thing is this has really not happened in a hundred years. That’s the actual super hard part, and we now have four vehicles in volume production: S, 3, X, Y (SEXY). Also, the toughest joke, I think, maybe ever. It was a very difficult joke to make.

We also introduced the lowest cost solar in the U.S. – it’s only $1.49/Watt. We really just simplified the whole value chain, so reduced sales and advertising, got rid of a bunch of unnecessary costs, and really are just relying upon the fact that it’s just the lowest cost, most efficient solar in the U.S., providing both a retrofit and the solar glass roof, which I think is a really great product – a hard product to make work – that will be a major product line in the future.

And we also got four consecutive quarters of GAAP profitability, which was very difficult. Yeah. And certainly, a testament to the hard work of people at Tesla. I mean, to do this in extremely difficult times against a wide range of adverse circumstances was insanely hard (5:00), but we got it done. And I think the future is looking, I think, very promising from a sort of an annual profitability standpoint.

So in order to sort of do well financially, you really need economies of scale, and you need ideally the best technology, and I think we’ve had the best technology for a while, but now we are also achieving economies of scale. And we’re also rapidly improving autonomy, which is a massive value add to each car. So, I think the value of Tesla is going to be like total, just on the vehicle side, total vehicles produced times the value of autonomy. That’s a way to think about the future value of Tesla.

We also have consistent free cashflow generation. This is really important for growth. A key element here is tightening up the time from when a car is ordered to when it is built and delivered. So for a company that is growing rapidly, it’s extremely important to tighten the supply chain and to have, from when parts arrive, put it into a car very quickly and deliver the car very quickly to the customer. And if you can do that inside sort of ahead of your payables timeline, then the faster you grow, the more cash you have.

Or conversely, if you’re unable to do it within your payables timeline, the faster you grow, the less money you will have, which is obviously bad for capital intensive situation. So just tightening up and having the parts move very quickly to the factory, put it in a car, get it to a customer makes a massive difference to cashflow generation.

That’s why it’s extremely important to have a factory on each continent because if you don’t at least have a factory in the continent, it isn’t impossible to achieve this. So having a factory in China that’s able to serve China, and then soon many other countries in the region will be key to us tightening that total sort of chain of cashflow, and getting… essentially the faster we grow, the more cash. This is really important. That’s also why it’s important to have Giga Berlin complete because then we’ll have a factory in China, a factory in the U.S., and soon a second factory in the U.S. in Austin, and a factory in Europe.

I mean, even if for Giga Texas in Austin – even if we had exactly the same cost as in California, it would still be advantageous to do it there because it’s roughly two-thirds of the way across the U.S., so in terms of delivering cars to the central U.S. and to the East Coast, it’s just faster, it costs less, and it fundamentally improves our economics. So I think this is also maybe something that’s not fully appreciated of just how important it is to have a factory at least on the continent or reasonably close to where the end customers are, so you can tighten that whole chain.

Industry performance. While the rest of industry has gone down, Tesla has gone up. And so I’d like to thank all the customers for taking a chance on Tesla and buying our product and really hope you’re enjoying it. This is really –  our sales, as I was saying, it really grew by word of mouth. So this is really, I think, very pure in the sense that it’s growing on the basis of existing owners recommending it to others, to new customers. This is, really, I think, a good way to grow.

So, and then in 2019, we had 50% growth, and I think we’ll do really pretty well in 2020. Probably somewhere between 30-40% growth, despite a lot of very difficult circumstances. I mean, there’s so many… pandemic, wildfires – it’s a whole bunch of difficult production issues, but thanks to the hard work of the Tesla team and a lot of innovative approaches to overcoming issues, we’re able to still see significant growth in one of the most difficult… in fact, I’d say probably the most difficult year of Tesla’s existence.

We also published our extended Impact Report. At Tesla, we try very hard to do the right thing. If the right thing does not happen, it’s just because we maybe made a mistake or weren’t aware of it. But we always try to do the right thing (10:00) to the best of our ability. And then we published the extended impact report to show, you know, just a sort of self-examination of, okay, what are we doing right, what are we doing wrong, what can we do better in the future? We’re definitely trying to accomplish the most good, and so if we occasionally make a mistake, we work quickly to fix it and do the right thing.

So it’s worth looking at the average life cycle of emissions in the U.S. and just how much better a Tesla is or electric car than any kind of gasoline car, and what we’ll talk about in the Battery Day is also just how much the grids around the world, and actually especially in the U.S., are greening. It’s actually much faster than I think people realize, the U.S. is moving towards sustainable energy.

And so as we move more and more to sustainable energy, then effectively you end up building the solar factories and the car factories themselves with solar or with sustainable energy. Over time, you will even mine with sustainable energy, and eventually, it will get to an effective emissions of zero, so that’s where things will end up. Yeah.

So, we also have safety at the core of our design. The Tesla cars are the safest cars ever designed. We have the lowest probability of injury of any cars ever tested by the U.S. government. And that’s just passive safety. When you add active safety into that, it’s even better, so it’s really … If safety is important to you, which obviously it is, the safest car you could drive is a Tesla. So, I think some people aren’t aware of this, but it’s really safety is paramount. It is actually the number one design objective when we build a Tesla is safety.

Our factories are also becoming safer, and if you look at the sort of accidents per vehicle, total vehicle made, it’s dramatically better than in the past, and it’s already better than industry average, and we’re confident we can get it to the best in the auto industry.

Autopilot functionality continues to improve, and you can see it in the safety report that we publish every quarter. It’s just getting better and better. The U.S. average for collisions is at roughly 2.1 per million miles, and with autopilot engaged, it’s 0.3. I mean, this is a profound difference, really massive, and this will get even better. So we’re confident that over time we can get the probability of an accident, especially the probability of injury, to 10 times better than the industry average, like an order of magnitude better. So that’s a lot of lives saved and a lot of injuries avoided, so that’s a huge priority for us.

On the autopilot front – I think it’s kind of hard for people to judge the progress of autopilot. I’m driving… As a matter – of course, I’ve always done this – I drive the bleeding edge alpha build of autopilot, and so I sort of have insight into what is going on. Previously, about a couple of years ago, we were kind of stuck in a local maximum, so we’re improving, but the improvements kind of started tailing off and just not getting where they needed to be. I call this sort of getting trapped in a local maximum. So we had to do a fundamental rewrite of the entire autopilot software stack and all of the labeling software as well.

So we are now labeling in 3D video. So this is hugely different from the previously where we were labeling essentially a bunch of single images from eight cameras, and they would be labeled at different times by different people, and some of the labels – you literally can’t tell what it is you’re labeling. So it basically made it in some cases impossible to label, and the labels had a lot of errors.

Now with our new labeling tools, we label it in video. We actually label entire video segments. And the system… so you get basically a surround video thing to label with the surround video and with time. It’s now taking all cameras simultaneously and looking at how the image change over time and labeling that (15:00). And then the sophistication of the neural nets in the car and the overall logic in the car has improved dramatically.

I think we’ll hopefully release a private beta of autopilot, of the full self-driving version of autopilot in, I think, a month or so, and then people will really understand just the magnitude of the change. It’s profound. Anyway, so you’ll see it. It’s just like a hell of a step change. But because we had to rewrite everything, labeling software, just the entire code base, it took us quite a while. The sort of new … I call it like 4D in the sense that it’s three dimensions plus time. It’s just taken us a while to rewrite everything, and so you’ll see what it’s like. It’s amazing. Yeah. It’s just clearly going to work.

At Tesla, the core competencies – we’ve got engineering, obviously, but also manufacturing. I think manufacturing is underappreciated in general. The difficulty of designing the machine that makes the machine is vastly harder than the machine itself. So the designing, like making a Model 3 or Model Y or Cybertruck prototype, is really quite trivial compared to designing the factory that makes it. Especially if it’s new technology, and you want to use new manufacturing methods, it’s just at least 10 to 100 times harder to do the factory than the prototype.

And that’s why you see a lot of companies out there or startups; they’ll bring out a prototype, but they just can’t get it over the hump for manufacturing because manufacturing – of new technology especially – is the hardest thing by far. Basically, the prototype is at best 10% of the difficulty and probably closer to 1%.

And then software. Tesla is both a hardware and a software company. So a huge percentage of our engineers are actually software engineers. You can think of our car as kind of like a laptop on wheels. So software is incredibly important, actually, not just in the car, but also in the factory. So the factory software is extremely important – just software in general. I mean, these are fundamental. These are the three critical areas that are needed to make for an awesome company.

We’ll soon have three new factories incremental on – well, we have one already – on three different continents. Shanghai – we’re expanding the Shanghai with the second phase. Berlin is making rapid progress, and Texas is making even faster progress. With each factory, what we’re trying to do is also improve the manufacturing technology, so in some cases, like the Model Y made in Berlin might look the same, but it actually is made in a much more efficient way. We’ll talk about that later in the battery presentation.

We launched Megapack. It’s three megawatt hours all-in-one energy storage solution, so it’s been great overall.

And I think that’s basically it, right? Well, thanks, everyone, for coming, and we’ll be back in a little bit to go through the battery stuff. And there’s a little bit more in addition to the battery stuff, we’ve got a few extras as well. So I think you’ll really like what we have to say on batteries. The battery stuff we’re going to talk about is truly revolutionary and essential to Tesla’s goal.

The fundamental good of Tesla, it’s like, if you look back in history and say, “What good did Tesla do?” The good will be by how many years did we accelerate sustainable energy? That’s the true metric of success. It matters if sustainable energy happens faster or slower, and so that’s really how I think about Tesla and how we should assess our progress. By how many years did we accelerate sustainable energy? And what we’re going to talk about with batteries and a few other things will really explain how we’re going to make a step-change improvement in the acceleration of sustainable energy. Thank you. (20:00)