WEBVTT - Instant Reaction: Tesla Earnings Miss Despite A Sales Surge

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. This is a breaking

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<v Speaker 1>news update from Bloomberg. Instant reaction and analysis from our

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<v Speaker 1>three thousand journalists and analysts around the world. Tesla earnings.

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<v Speaker 1>The company posted third quarter profit that fell short of

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<v Speaker 1>Wall Street's expectations despite record EV sales. It's a sign

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<v Speaker 1>of the pressure that automakers are facing from shifting federal

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<v Speaker 1>policies and rising costs. I want to bring in Ed Ludlow.

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<v Speaker 1>He's the cost of Bloomberg at Tech on Bloomberg Television.

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<v Speaker 1>He joins us from our San Francisco bureau. Really interesting

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<v Speaker 1>number when it comes to cash flow, free cash flow

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<v Speaker 1>ED third quarter free cash flow three point nine to

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<v Speaker 1>nine billion dollars. The estimate was for one point two

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<v Speaker 1>five billion dollars. Why.

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<v Speaker 2>How funny? I just posted the IB on the Bloomberg terminal. Hey, team,

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<v Speaker 2>free cash flow so much higher? Why question mark answer

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<v Speaker 2>from editors and other reporters energy storage question mark that's

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<v Speaker 2>to say, don't know. I mean, I've read so much

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<v Speaker 2>of the deck already.

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<v Speaker 1>Well, I want to I want to help us out.

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<v Speaker 1>Add because Thomas Thornton over at Hedge funt Ptelemetry sending

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<v Speaker 1>an ib to me during the simulcast. He said, inventory

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<v Speaker 1>cleared out with EV subsidies ending, that's why cash flow

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<v Speaker 1>was strong. Was this about inventories?

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<v Speaker 2>Remember that the number from the third quarter, which was

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<v Speaker 2>josh Shi of five hundred thousand vehicles, was heavily influenced

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<v Speaker 2>by the expiry of the federal tax credit on consumer evs.

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<v Speaker 2>In part, Tesla did additional promotional activity around that. So

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<v Speaker 2>you know elsewhere on the bottom line, you know, if

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<v Speaker 2>it's EPs or other metrics, they've missed on part because

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<v Speaker 2>of those factors, right, you know, the discounting and other

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<v Speaker 2>promotion they did. Inventory will be a factor. We've been

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<v Speaker 2>tracking a build up in inventory that Tesla had going

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<v Speaker 2>into that period. But remember they also saw an inventory

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<v Speaker 2>build up ahead of the cheaper model Y Model three

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<v Speaker 2>standard coming out, with some consumers holding off because they

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<v Speaker 2>knew that some kind of product was going to be

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<v Speaker 2>unveiled in the month of October. But what I would

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<v Speaker 2>say is that when we talk about the bottom line broadly,

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<v Speaker 2>Tesla is listing a very long laundry list of impacts here,

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<v Speaker 2>branking from tariffs, fiscal policy, R and D costs, the

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<v Speaker 2>mix of vehicles they sell, but this isn't severe by

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<v Speaker 2>any means, right, you know, this is the market selling

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<v Speaker 2>news basically.

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<v Speaker 3>Well, what's interesting is both you and our Dana Hall

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<v Speaker 3>on our Live Tesla blog pointing that out. You know,

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<v Speaker 3>it is difficult to measure the impacts of shifting global

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<v Speaker 3>trade and fiscal policies and the automotive and energy supply chains,

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<v Speaker 3>our cost structure, demand for durable goods and related services.

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<v Speaker 3>As you say, they are reminding everyone that the business.

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<v Speaker 3>I mean, there's a lot of factories, of factories, factors

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<v Speaker 3>that are going to involve that are going to impact

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<v Speaker 3>their business. I feel like they're managing and maybe with

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<v Speaker 3>some negative tone going forward.

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<v Speaker 2>Yeah. I mean one sort of specific example is that

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<v Speaker 2>when you introduce a new product and you have to

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<v Speaker 2>install the assembly line for that product, there are downtime

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<v Speaker 2>and installation costs associated with that. It impacts how you

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<v Speaker 2>produce other products. That shows up in financials. In this case,

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<v Speaker 2>they haven't really given us a big picture outlook for

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<v Speaker 2>their growth for this calendar year or next year or

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<v Speaker 2>going forward. They have told us that they are doing

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<v Speaker 2>things like ramping the standard models of the three and

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<v Speaker 2>the why and now they've installed the assembly line for Optimus,

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<v Speaker 2>the humanoid robots. So like I'm talking about in factories

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<v Speaker 2>in Texas and I'm assuming elsewhere down the line, they're like, Okay,

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<v Speaker 2>we've got to find space to build an assembly line

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<v Speaker 2>here for a humanoid robot, and that will have an impact.

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<v Speaker 2>But the way I've summarized it in the blog is

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<v Speaker 2>there are two paragraphs in the deck that are explaining

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<v Speaker 2>to us the macro environment is changing and fiscal policy

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<v Speaker 2>is changing, and Tesla is trying to say, we're kind

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<v Speaker 2>of in transition here, bear with us.

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<v Speaker 1>What where are those I want to know what those like?

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<v Speaker 1>What is the transition that's happening right now? This is

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<v Speaker 1>a macro and this is the context too, ad is

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<v Speaker 1>this is somebody who was very close to the president

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<v Speaker 1>and was very close to you know, during the election,

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<v Speaker 1>before the election, and then after the election for a

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<v Speaker 1>good time as well. Well.

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<v Speaker 2>The direct answer is that tariffs have had an impact.

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<v Speaker 2>They've listed it in the negative column on profit, so

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<v Speaker 2>that's across both the consumer ev business and the energy

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<v Speaker 2>storage business, you know. As it relates to that free

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<v Speaker 2>cash flow question, they do say in the free cash

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<v Speaker 2>flow section of the deck that not only did they

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<v Speaker 2>have record deliveries in that court of gone energy products

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<v Speaker 2>were more higher volume, but policy is not really supporting

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<v Speaker 2>that right now, at least not in the United States

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<v Speaker 2>right So I think for them, it's just this idea

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<v Speaker 2>that the world, the direction of travel we were moving

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<v Speaker 2>towards for sustainable energy, you know, transition from gas engine

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<v Speaker 2>or combustion engine TV. It's not there right now. And

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<v Speaker 2>what they explain in those two paragraphs is they're trying

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<v Speaker 2>to invest into it. A lot of R and D

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<v Speaker 2>costs for these future products are robots and rotos?

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<v Speaker 1>Is there an appetite for that?

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<v Speaker 2>Is there?

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<v Speaker 1>I mean, are they building a product that people want?

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<v Speaker 1>I know that you Steve Jobs famously was talking about

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<v Speaker 1>building products that people didn't know that they wanted, but

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<v Speaker 1>then ended up wanting them when they saw them. But

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<v Speaker 1>do we want do we want here? Do we need

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<v Speaker 1>these humanoid robots? Is there a market for this? So?

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<v Speaker 2>Elon Musk and Tesla are once again behind their prior forecast.

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<v Speaker 2>If you guys remember, the original Optimus forecast was that

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<v Speaker 2>by the end of this year there would be meaningful

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<v Speaker 2>volumes of them working within Tesla facilities, and that doesn't

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<v Speaker 2>appear to be the case. Yet the way that they

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<v Speaker 2>are pitching it is a way that the rest of

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<v Speaker 2>the humanoid roble industry pitches it at least, which is

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<v Speaker 2>that we have a labor deficit in some industries, heavy industry, agriculture,

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<v Speaker 2>and that economically, at a macro level, optimist is going

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<v Speaker 2>to fill that void. So to answer your question, Tim,

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<v Speaker 2>they would say that the demand is justified or evidenced

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<v Speaker 2>by the lack of labor in certain workforces. Whether a

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<v Speaker 2>consumer wants to go out and buy one for tens

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<v Speaker 2>of thousands of dollars, that bit we just don't have

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<v Speaker 2>the answer to yet.

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<v Speaker 1>I want to bring in Ross Gerber. He's the president

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<v Speaker 1>and CEO of Gerber Kawasaki Wealth and Investment and Management

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<v Speaker 1>got more than three billion dollars in assets under management.

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<v Speaker 1>He joins us from Santa Monica, California. Ross, you now

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<v Speaker 1>have about eighty million dollars of Tesla shares, down from

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<v Speaker 1>one hundred million earlier this year. At your peak, how

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<v Speaker 1>much Tesla stock did you own?

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<v Speaker 4>I think we had about one and a half times

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<v Speaker 4>more than we have today, so that's not that much more.

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<v Speaker 4>You know, We've got our position by sixty percent, so

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<v Speaker 4>that's that's fairly large.

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<v Speaker 1>Are you Are you buying or selling today or buying

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<v Speaker 1>or selling right now?

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<v Speaker 4>Neither neither. You know, you know Tesla as a hold

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<v Speaker 4>for us. You know, the people who are holding the

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<v Speaker 4>stock at our firm, our clients very much believe in

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<v Speaker 4>Tesla and don't want to let go of their shares

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<v Speaker 4>at all. And then you know, the clients that don't

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<v Speaker 4>want to own Tesla don't own Tesla anymore. But we're

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<v Speaker 4>not recommending to buy Tesla or per Se more likely

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<v Speaker 4>recommending to sell Tesla for investors up at these prices

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<v Speaker 4>because you're getting such a premium valuation. But in general,

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<v Speaker 4>we've just been holding the stock because you know, we're

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<v Speaker 4>kind of stuck with our position right now.

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<v Speaker 1>What about you, we because we check in with you

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<v Speaker 1>quarterly and you you've really changed your position on the

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<v Speaker 1>company in recent years in recent quarters, and your position

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<v Speaker 1>on Elon Musk too. Are you a believer in the

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<v Speaker 1>company right now?

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<v Speaker 2>Yes, and no.

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<v Speaker 4>I still own Tesla stock as well personally, not a lot,

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<v Speaker 4>but you know, I like to have some because I

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<v Speaker 4>bought it at a dollar a share or a dollar fifty,

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<v Speaker 4>so it's like fun to have in my portfolio still.

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<v Speaker 4>But that said, you know, I don't know what's going

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<v Speaker 4>to happen with full self driving. I just don't think

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<v Speaker 4>it works, and I think vision only systems don't work.

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<v Speaker 4>And I'm very sure of this now. Even though I'm

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<v Speaker 4>not an engineer, I can explain to you how humans drive.

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<v Speaker 4>And I don't think Elon gets how humans work. I

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<v Speaker 4>think he gets how machines work. And so I think

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<v Speaker 4>that Tesla's in a pickle. If they can solve full

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<v Speaker 4>full self driving, like I could get in my car

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<v Speaker 4>right now and push a button and it drives me home,

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<v Speaker 4>Like I can get in a weaym right now and

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<v Speaker 4>it'll drive me home no problem. Then I think Tesla

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<v Speaker 4>has a reason to buy the stock because now they've

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<v Speaker 4>got their products working and they can grow from there.

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<v Speaker 4>But as far as waiting for robots and cabs to

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<v Speaker 4>pay off, it doesn't matter if full self driving doesn't work.

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<v Speaker 4>And full self driving doesn't work, so nothing's going to

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<v Speaker 4>get me excited about Tesla until it drives me home.

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<v Speaker 3>All right, good stuff, we're talking with Ross Gerber and alone.

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<v Speaker 3>I know you're reading over stuff. Come on into the

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<v Speaker 3>conversation with Roth.

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<v Speaker 2>Yeah, I mean you know, just going through the deck.

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<v Speaker 2>The way that Tesla explains it is that they had

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<v Speaker 2>lower FSD revenue recognition in this quarter because of the

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<v Speaker 2>timing of previous generation releases of FSD in the same

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<v Speaker 2>period a year ago. You know, I'm not a Tesla shareholder,

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<v Speaker 2>as you guys know, but I do drive a Model

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<v Speaker 2>Y in fact, and I use FSD every day for

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<v Speaker 2>about sixty miles thirty miles to work thirty miles back.

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<v Speaker 2>I'm not on version fourteen yet. But Ross is speaking

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<v Speaker 2>to the question, which is always there. Explain the jump

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<v Speaker 2>or the steps to the end result, the end state.

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<v Speaker 2>The end state is robotaxi, right if Tesla is to

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<v Speaker 2>be believed, And right now, you know, the streets seems

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<v Speaker 2>kind of split on whether we understand how we go

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<v Speaker 2>from a software platform that consumers pay for as a

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<v Speaker 2>one offer a subscription package to a world where the

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<v Speaker 2>vehicles built on a common software platform or iterations of

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<v Speaker 2>that platform power a rope proprietary ride hailing robotaxi service.

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<v Speaker 2>You know, it's difficult to see the jump, and Ross

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<v Speaker 2>can speak for himself, but just in the reporting, that's

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<v Speaker 2>what we hear all the time.

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<v Speaker 4>Yeah, I mean You're one hundred percent right in that

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<v Speaker 4>these are completely different businesses, right, Like selling cars that

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<v Speaker 4>drive themselves is an Apple business model, And that's why

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<v Speaker 4>I always love Tesla. When I first found Tesla, I

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<v Speaker 4>was like, this is the Apple of cars, right, Like

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<v Speaker 4>you build hardware and with great software, and then you

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<v Speaker 4>make money on services, right And that's really where Tesla's

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<v Speaker 4>making a ton of money right now is on services

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<v Speaker 4>and energy storage, which are still great businesses for Tesla.

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<v Speaker 4>But when you talk about building an Uber like platform,

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<v Speaker 4>this is an extremely difficult thing that it took Uber

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<v Speaker 4>almost a decade or more to make money doing, and

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<v Speaker 4>Uber is very very good at this now, and the

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<v Speaker 4>only way they've been able to make money is by

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<v Speaker 4>charging substantially more for the because Uber is not cheap

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<v Speaker 4>anymore and they had to subsidize rides for a decade

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<v Speaker 4>just to build that business. So when you actually think

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<v Speaker 4>about Tesla scaling, if there was no competition, that'd be

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<v Speaker 4>one thing. But there's already several cab services I can

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<v Speaker 4>take right now, whether it be Uber, Lyft or waimup

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<v Speaker 4>that are all very good at what they do. So

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<v Speaker 4>you know, even if Tesla gets this to work, it's

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<v Speaker 4>still a tough business. And the second thing I would

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<v Speaker 4>just say, a you use full self driving a lot.

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<v Speaker 4>Obviously you probably if I asked, do you feel comfortable

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<v Speaker 4>turning it on and going into the backseat of your

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<v Speaker 4>car and letting you drive that full thirty miles home.

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<v Speaker 2>I've never done that or attempted it, and I think

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<v Speaker 2>you know, I post quite a lot on X my experiences,

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<v Speaker 2>like I say today, this is what happened. You know,

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<v Speaker 2>I would never get in the back of the car

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<v Speaker 2>and turn it on. I also would not put my

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<v Speaker 2>little baby boy in it either. But the way that

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<v Speaker 2>I've tried to track it is generation by generation. How

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<v Speaker 2>has it improved on the route that I take every day?

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<v Speaker 2>The one area is really struggled, as with the toll

0:12:05.360 --> 0:12:08.320
<v Speaker 2>boobs on the Golden Gate Bridge. You know that can

0:12:08.360 --> 0:12:10.360
<v Speaker 2>be precarious and you can see my posts on that

0:12:10.640 --> 0:12:14.440
<v Speaker 2>on your point in the in the AI graph of

0:12:14.559 --> 0:12:17.520
<v Speaker 2>the shareholder deck. The way that Tester explains it is

0:12:17.559 --> 0:12:20.679
<v Speaker 2>that the latest version of FSD, they say, has a

0:12:20.720 --> 0:12:24.240
<v Speaker 2>substantial amount of the source code in the Robotaxi version,

0:12:24.559 --> 0:12:27.000
<v Speaker 2>and by putting it out into the real world, it

0:12:27.040 --> 0:12:30.480
<v Speaker 2>gives them valuable real world data to help them improve

0:12:30.480 --> 0:12:33.400
<v Speaker 2>a future robo taxi service. Don't I don't weigh in

0:12:33.440 --> 0:12:34.959
<v Speaker 2>on that one way or the other. I'm just saying

0:12:35.160 --> 0:12:38.679
<v Speaker 2>that's Tesla's explanation on the link between the two, the

0:12:38.720 --> 0:12:42.280
<v Speaker 2>consumer facing FSD and the same code base that will

0:12:42.280 --> 0:12:45.000
<v Speaker 2>be used to power a future robotaxi service.

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<v Speaker 1>Hey, ed Ross made the point that he doesn't believe

0:12:49.040 --> 0:12:54.319
<v Speaker 1>vision only FSD or vision only self driving works. Can

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<v Speaker 1>you talk a little bit about that technology that Tesla

0:12:57.360 --> 0:13:04.200
<v Speaker 1>uses versus the other companies, namely Weima and Amazon Amazon

0:13:04.200 --> 0:13:05.240
<v Speaker 1>subsidiary as well.

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<v Speaker 2>Yeah, so very simple. When we say vision based system,

0:13:09.559 --> 0:13:13.240
<v Speaker 2>the inputs for the vehicle are only cameras on a Tesla.

0:13:13.720 --> 0:13:18.640
<v Speaker 2>The cameras capture optical data from around the vehicle and

0:13:20.080 --> 0:13:24.599
<v Speaker 2>use the underlying algorithm to make an onboard decision interpreting

0:13:24.600 --> 0:13:28.600
<v Speaker 2>the world around them. The opposite academic view is that

0:13:28.679 --> 0:13:31.400
<v Speaker 2>you need to paint a richer digital picture of the

0:13:31.440 --> 0:13:36.400
<v Speaker 2>world using other forms of data gathered by lidar, radar,

0:13:37.480 --> 0:13:39.920
<v Speaker 2>and in some cases even going beyond that. You know,

0:13:40.000 --> 0:13:43.320
<v Speaker 2>like there are varying degrees of lydar spinning or stationary

0:13:43.600 --> 0:13:44.079
<v Speaker 2>or static.

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<v Speaker 1>Sorry.

0:13:45.400 --> 0:13:48.120
<v Speaker 2>The economic argument that Tesla and Elon must have always

0:13:48.200 --> 0:13:52.280
<v Speaker 2>made is that having a vehicle that has multiple sensors

0:13:52.320 --> 0:13:55.720
<v Speaker 2>on it is not scalable. You know, there is no

0:13:56.000 --> 0:13:58.480
<v Speaker 2>end result where the vehicle could be affordable for a

0:13:58.559 --> 0:14:03.200
<v Speaker 2>consumer or fitotable for an operator of that system to run.

0:14:04.120 --> 0:14:07.280
<v Speaker 2>The other robotaxi companies like Weymoa or Zeukes, who do

0:14:07.440 --> 0:14:11.480
<v Speaker 2>have multiple sensors and custom versions of them, say that

0:14:11.880 --> 0:14:14.600
<v Speaker 2>you have to have them for redundancy. So if one

0:14:14.640 --> 0:14:18.679
<v Speaker 2>of those digital pictures fails, i e. The vision one,

0:14:18.760 --> 0:14:22.480
<v Speaker 2>the cameras fail, or the ID or radar fails, you

0:14:22.560 --> 0:14:25.280
<v Speaker 2>can still be safe because you have a rich enough

0:14:25.320 --> 0:14:27.960
<v Speaker 2>digital picture of the world around you for the vehicle

0:14:28.440 --> 0:14:31.800
<v Speaker 2>to make a decision based on the circumstances presented in

0:14:31.840 --> 0:14:32.320
<v Speaker 2>front of it.

0:14:32.400 --> 0:14:34.560
<v Speaker 3>All right, Lola, we know you've got some stuff to do.

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<v Speaker 3>Offer these earnings, so appreciate your input throughout the day

0:14:39.320 --> 0:14:42.360
<v Speaker 3>today and certainly off of Tesla's earnings. Ross, thank you

0:14:42.400 --> 0:14:45.000
<v Speaker 3>so much. Ross Gerber, President, chief executive officer of Gerbert

0:14:45.080 --> 0:14:48.160
<v Speaker 3>Kawasaki Wealth and Investment Management, more than three billion in

0:14:48.320 --> 0:14:50.800
<v Speaker 3>assets under management, and they own about eighty million dollars

0:14:50.840 --> 0:14:51.960
<v Speaker 3>worth of Tesla's shares