Tesla (TSLA) 24 Oct 192019 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by, and welcome to Tesla's Q3 2019 Financial Results and Q&A Webcast.

At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. We ask that you limit yourself to one question and one follow-up question. [Operator Instructions]

to conference like speaker, to now Mr. would hand over the your I Director Investor Viecha, of Martin Senior Relations. ahead. go Please

Thank you, today Sherry, Tesla's and number good afternoon, everyone, executives. XXXX Zachary and webcast. of Musk, other third and Q&A I'm Elon joined by Kirkhorn a quarter welcome to

were about webcast. QX update Pacific the X:XX Time this results Our we link published as PM in deck at announced at the same

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

one if one one During press star would question you Please the the portion yourself and today's question-and-answer follow-up. question now of to call, like join please queue. to limit

has jump we Q&A, into before But opening Elon remarks. Elon? some

you. Thank

Tesla incredible -- The First thank like to I'd just the about just on was an team execution front. every of for quarter. this outstanding all, job and

an So work a team. great to it's honor with such just

quarter strong obviously And this our we back employee each was would to cost. GAAP shifted part be costs. reduce strong also and able and great flow. very a we're We had record controlling while profitability possible without to free to make cash QX generating deliveries, strides not again, doing their

at is lowest since production level now cost the Our operating Model X started.

production with Giga to four started Regarding and this to from trial at paint, we Gigafactory, assembly. month Shanghai, body, vehicles Shanghai general built

in it. with this a factory equipment tremendous more a amount emphasis -- a of is is this So real

and the under in show literally. While water the January. the It a it lot is outside see below enormous, water people table was factory, essentially was of which

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know, model-wise planning this as will for Shanghai in Shanghai Gigafactory course, well template build Gigafactory to We're to hope future location build of I is Gigafactory. and unprecedented. as in that growth. become Europe announce a to far As And we the a and

will location Gigafactory that we year. before fact, this In of to the announce the end

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it to -- combined. quite think X I it's I my likely outsell think opinion, Model X just will S, Model but Model and

version million Regarding Smart features Summon, importantly, first Smart we Version has a used other and Summon, video and streaming includes karaoke, latest of times. and host Spotify XX Software released includes it Version been the which our new now Most XX, improvements. games which last X the month

taking million So, Smart X be data Summon, version attempts. will releasing the an over we of the in next Smart or of week X those uses it's from Smart now and so Summon improved account million Summon into all

us Autopilot and on Navigator of learning better cases and and these value having to massive it learn corner use So, as a this really allows become just collect did them, street and from freeway. fleet, the because rapidly illustrates the

more beginning is data functionality we So, come. Full get collect as really just and expect of Smart Autopilot a better. to improvements the number in and in Self-Driving this weeks the Summon And

limited in that appear to while this feature-complete -- at going access feature -- of in release be we year. early tight, it does do still will I Full least it's a be Self-Driving

an at year. for for sure, release it on early be fully Self-Driving this not it's to track appears but So, of access the of Full a by least end functional

things lastly, make time. you future happening Gigafactory, in focused three a really worth on we're then, to it's triple output lot geared of something stuff, the opening be ultimately our as more that but output and Yes, a company, to that output. that efficient continents. sort such difference increased per then our than all And actually batteries highly self-driving full other are yeah, and triple will powertrains, noting advanced these a for material time. And of more will decisions with over going Gigafactories effectively to Gigafactories respect it's having And and when out that there interesting consider

last then, Version one that solar tomorrow the releasing is Solar the we afternoon, will roof. item the of Tesla Roof. And panels with X be integrated integrated That's

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so X is think we're product And going scaling production And of Version this tower buffalo be at to roof the Gigafactory. I our up solar incredible.

about But be on which the we'll product official tomorrow launch, afternoon. will talk that more

Thank remarks you think I some Zachary very much. as well. And has

listening in great passion are many for are for to improvements want Yeah, three would QX thank now, aspect you, highlight. the work. like you, employees points I margin terrific your key and business. we We've I nearly a Tesla. hard know Thank every Elon. There your Martin. right realized of yet quarter again, made you and progress, and to thank was I

first expenses automotive gross XX.X% and weighed profit, that our First, the and we items financials returned in to on excluding year. GAAP credits. XX% to the half margin improved of regulatory profitability absence by gross of the in sequentially operating QX, over aided improved one-time negative reduced

logistics, through We and realized warehousing, X delivery labor items. as achieved fixed and better volumes these We production per Model well X, in on cost as other absorption. as improvements costs S, such vehicle Model Model related import improvements enabling hours higher

negotiations with including continued making also are material We progress suppliers. reducing costs, commercial

accounting offsetting Asia, EMEA. mix in ASPs even deferrals Model by North X ASPs and unlimited American increased pricing declined ASPs at Note And quarter, were in action to of with release to we action related mix driven see. flat $XX X that Smart pricing million is the as held the improved, the US, recognize start for took slightly, supercharging. deferred revenue Summon S Model able the to free great of in we revenue. of which

recognize As and to revenue. Smart we we new release markets Summon to expand deferred continue will features, additional additional

services loss programs finally, in Our we which on despite from net expenses hedge. exchange, foreign And further our and yet focus reflecting of the reduced and orders, saw deliveries quarter, don't and improve development. income income, new we business, I operating mentioned efficiency last again, we other to of this area other reduced as and benefits increased

a The the captive increase spend. highlight a and second free leasing that mix want company. to in another demonstrated This increase enabled we free positive to in point I significant is quarter CapEx our of cash has key flows flows despite for cash sequential strong date year

of Our the with same as $X.X increased our cash by ever our quarter we cash balance free amount balance approximately and quarter-ending over cash exited highest billion. just flows, the

material leasing received how warehouse these leases use we've leases, on of a impact our funded. questions through What's of use result, was here QX leases cash flow, and without and captive the We are cash as financing to free captive flow a for is to that negatively substantially This increased our number note cash. material rate allow warehouse important as impact in by and on flow. ABS ABS XX%. sales Specifically, lease

low spending. Model primarily spend increased, are new Gigafactory driven addition, why Y in to compared even on questions multiple of and spending levels, and by In appears though We've projects capital Shanghai launching prior a number CapEx received development. there our

is we've our last quarter capital made great shareholder letter As this in we efficiency. because improving progress quarter, noted the this and on

third growth. around final is My demand and point and

our Our to global increase. are strong at quarter. quarter backlog in been this remains increases higher and orders rate growing, levels, to to continues point date order has Despite significantly last than and order production

X increasing of work we're supply bulk immediate demand. quickly optimization adjustments and involves focused equipment. Model as on Model to we X this better S production of made term, existing targeted also to balance of The continued Model pricing and the We've can. In and as

factories of execution and these increased expansion has Our significantly. capacity on pace

future Gigafactory As production-ready, pull already the strengthen. projects. able our corner in our for for phase phase of growth. We other in investments and the to financial rapid quickly Shanghai Elon programs cost to the major and enables is next we've on growth remain reducing been timeline first which of and Overall, turning mentioned, we focused continues health are

very much. Energy also wanted to you And have Thank our some Girotra Operations remarks. of Kunal Director I think

and fulfillment our name been Energy's for different everyone. Girotra, I on now about deployment Tesla Hi, years working four aspects is Tesla My I've run deploying and energy products. with of teams. Kanal

last Energy teams great our in and businesses. Storage the progress made both the months, Over energy three Solar have

in with XXX of megawatt almost small, over simplifying our last sizes on deck, our Tesla America the Solar three As into grew North Powerwalls we months, large offering you relaunched our website. in quarter, XX% an see Powerpacks, In three include by and to all-time by our deployments, hours. by and pricing solar energy the high and which can deployments storage of last transfer medium XX% quarterly and solar rose

you rental, sort interject. may or in instantly on save number realize money and of states, if your a a bill, don't and down, people lot I of other no if there's long-term subscription What there's and our Actually, buy contract. California solar in of is, utility you no solar

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order these days. customer Yeah, us timelines months speed have in installation to improvements many from so to, our all led cases, up to

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less order can one than You in for solar you minute. house

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thanks. Great,

much. very you Thank

we're take say.com. first from So going some questions to

retail We take well as will institutional from investors then questions both as investors.

to or Tesla first commerce So, demand? is, we of expect the in are opportunities sufficient investors still institutional Tesla word question for to future. the see should advertising near create the mouth from Is what

is we're seeing of excess mouth in what enough word our Yeah, demand production. than that to more is drive of

future, inform but aware typical make product, advertising not are the at they in trickery the may We commonplace the not in time. the plans is and we no have just to people this advertise to some At in sense do but in traditional point that of sure engage more advertising.

investor and at capabilities, next Tesla about from institutional the Okay. don't is, you Elon, look robo-taxis when The other you are than or missed? over what excited years, next question you autonomous that understand vehicle three investors believe have most

as was or term, there for Kunal be generally Tesla or the Tesla of Energy, same automotive roughly think growth as or is talking lack most of underappreciated Energy long same the Tesla's This expect In of a is understanding appreciation I to about. sector business. I the size the the group.

Tesla be bigger, of take I think, a element. similar Meaning, Tesla think it's Tesla Solar. battery it to if Solar the you could least certainly I magnitude stuff, but plus appreciated Energy is,

is of production to to the it the had almost X amount the simplifying of of We resources. production them part And resources basically years, had X and from about else for XX fixing Model company take we X. apply the Model two tremendous to in everywhere ramp -- a and months, design Model like, divert the

that and cells. car were Powerpack and have unfortunately we lines production we them took engineering the even cell Tesla resources for because about So, meant to didn't of a redirected year-and-a-half, for enough and stripped and the other Energy Powerwall

feel is Tesla that X place we've in Now we restored Solar production storage. to resources Model good a a headed great and and that to place,

wouldn't be, And survive. to because think, I imagine. Model but crazy didn't the that's solve going for if so we X, the as Tesla And far growth it had future to I we as really do into can

unfortunately, So parts the that much shorted of company. other the pretty

And sustainable sustainable to to form to the for from the the energy, think, Tesla's the of energy advent which, energy difficult it beginning in part consumption generation be Energy is has vehicles, But Tesla's going sustainable been in degree activity Tesla accelerate would of means I and that of mission major me electric a be overstate vehicles. to the future.

Tesla of sustainable the stats consumed one comparable same that production much see think think car in in are we customers the I vehicle produced, in along And will as the or And energy our or the of with producing about how produced we're publish future products. you'll -- Tesla is amounts our cars. I that energy our with sustainable

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full Okay. Thank rates. is next to attach you. investor The related self-driving question from

Given selling a as that the markets, self-driving encourage order modules in to regulations will different evolve consider of individually? in or whole unevenly navigate current strategy would For selling more example, you versus data? Autopilot adoption Summon and getting package an

included. fashion. has that it already we'll think buy in basic I any Tesla mean, I Autopilot to a bundled you sell continue

I pretty with And cars. two relative that's But highway low is we Smart a the lots be thing. step have speed it advantage of full beginning that. -- So, that will we've which of other of then, and kind of think Autopilot that of is -- sides obviously, Summon and kind of being to Summon the the got really kind in next major parking self-driving sort

solving intermediate lights Now we now. and in windy work and and need through focus the to right is navigating roads That's neighborhoods. the -- windy suburban signs, which narrow on traffic stop portion roads

That's going You're the it want answer. all. to

want sure. to everyone is Something going for

Okay.

And from to next upload a the to software enabling become a we're expect a have said robo-taxi, at of functionality which as point by year. I that the standpoint Tesla the able before, to end

you -- the our In end need in next terms but basic functionality by not year. that of attention of this pay do year functionality aspirationally the opinion enough to reliable of end

from is history change increase not the robo-taxi, will the need far. think, of would it car from be value vary asset by probably biggest in by regulatory that by in But transition, robo-taxi the sort will flipping that jurisdiction. that I acceptance step authorities -- a And switch to

to with The gross Model what launch? expectations any Y production is Y, you. X question the should respect Model to X downtime percent for is, Do Thank Model next you anticipate margin Fremont launch And how timing? at compared your during latest look gross margin? Model Okay.

to the the matters production Well, is confident XXXX. And no we're X,XXX later of of timing than point What reaching some we've that week. per number really is time. the where production excess talked volume about of launch in volume middle units

expect with it do any Yeah, want body standpoint, from separate, we is not line do add margin we basically interest do to interfere. expect it standpoint, interfere downtime. a From so line the not -- not expect Yeah, No, do the paint anything? Zachary, an is to Model to X. we you

The a perspective, to from is our roughly margin than Model forecast industry on to they program slightly are steady and Yeah, common in and between X, ASPs we're controlling puts be that of worked Model Y equivalent we've the expecting that part is very sedans CUVs. for and for Y, this cost hard cost for the higher Model the at X. Model state

There the the in very a product. efficiencies excited it that production, as it will company. we're about higher will course, launch something program, we within state be It's with be first, ramp expect do as margin we that at but steady of stabilizes

volume? financial higher Thank from attach Okay. investors rates? on the FSD attach and rates to will you. lower company drive FSD And update you the for you let last margins you package benefits shareholders can manifest question improve, or price delivery will in an gross is, the institutional As provide

as associated is functionality margin I mean, to the price our think lower capability because on of revenue I attach the unchanged. the to to increase need gross and margin cash Anything slowly higher GAAP to That's FSD with expect of gross add -- I obviously improve. than that to our rates. don't of price that? going FSD. unrecognized FSD is we're

the of think $XXX in of I it's of revenue. the order why $X.X order million billion unrecognized or that's in So

which obviously gross So actual if release is recognized margin. operating on the include margin you that, today were we're the than self-driving to in cash as we GAAP basis full is higher gross the functionalities, a

Okay.

investors. retail to go from now Let's questions

by signs Tesla provide the on lights from and respond detail recognize and the on is The driving with automatic on streets city to its traffic whether still can is, end of Craig first stop more importance, you and DeepScale XXXX? question to track acquisition,

is they helpful. people, of given Sure. basically nets of in amount neural compute, for expertise I very company. which some think tiny a XX about is the DeepScale a It's and have increasing efficiency

FSD. behind turn Yeah. So it seen, I intent, but that was was true. tiny out to to, hopefully be the will slightly to intent is That a and the remains acquisition what be think, accelerate very

Okay.

The we've answered second delivery. question, already Y Model regarding

we'll to from So the question jump third Craig.

producing you some building be that second News now reports expectations Chinese for suggest as of being us production for press confirm for update X? that Is please market. the Giga purpose built. Gigafactory on Model by And the outlets? may already Xs battery production suggested Could

volume in trial in X, the sending We're production production we're we're through months few of basically cars to ramping Yeah, and essentially. Model a rapidly. system, expecting hit

second is is module battery bunch build obviously because at indeed for Model -- Y probably production more obviously Shanghai out there's and The there as already a what there's building And facilities construction well. to production. for more beyond need we

us on Okay. question is, you expand Is update to from internationally? next results of Tesla investors nationally insurance? a car it timeline The and initial can the there retail

can Yeah, take I that.

high quite that and coming price products some from as the they'll far, some better of we've standard will only we have in Tesla look us receive to by conversion expect so So for quote-to-purchase say understand take an this I'm carriers by by and California. rates increase of are alternative. quite known measured industry pleased the the to The come far. folks that and that standards, Insurance results the I increases launched as

very hard of other States, to lined the flow, up in the And in work and then internationally. product, scenes our make to on it's purchase sure countries improving working some to also happening behind the product we're states the best get customers. the experience bunch also particularly for launch a There's

Insurance as but specific we're working as changes, California. timelines has well not can, given provide received to definitely Tesla quickly on been those So able we're we how in

providers secondary of the our provide rates third-party Yeah, customers. insurance to effect I also it a reasonable of insuring that has think

just not companies, I ownership make The agree. what insurance. an to market well, insurance, as goal total to to for high. perspective alternative are their have ultimately customers to have is their it's here of other for rates sense that cost those outsized on mean, makes share most is an sure the folks of good have Completely a if pricing

Exactly. Yes.

the regarding from from to retail like There last talk investors. Okay. full is you comment this year-end, the your skepticism question means. be us by about a FSD self-driving feature-complete confusion that perhaps the And and establish feature-complete, resulting will give that Could please feature-complete what list of features baseline?

feature-complete, it's is able the interventions. to car Yeah, work, to most drive without house from mean, -- I likely one's

-- still will speed the it it So fill with be gap -- be but will drive autonomy to supervised, Summon. it autonomy from will low-speed in able low

You've got means autonomy, signs. autonomy on stop highway, which and traffic really the lights intermediate and just high-speed speed

autonomy. able but There's that able So the it mean intervention, like times. human often time. most several still intervention, through of but it timeline is scenario, car That's ever levels be autonomous, times, being three to that this feature-complete at case, everywhere before doesn't And misconstrued be do earth, most feature means it and Then -- gone complete. I've but just on every intervention means to likely it's corner and the to there's there's including requiring supervision without without would supervised. it major

the be without convinced without third different driven which level would also that -- Then regulators that another the is standpoint, supervision. enough there's then, that to And a car car Tesla can we Those that we think be are levels. from three supervision. are think it's safe be autonomously driven level the is

can Thank very Okay. much. questions we now to go from you Sherry, the analysts.

comes first with Research. you. Galves Dan Thank question Our [Operator from Wolfe Instructions]

give I particularly bit was investors the the at on QX margin mentioned nonrecurring comes us in up, should also, taking for production And for factors plant my some but isn't that to in China prepared meaningful headwinds Thanks auto key full up more QX, the be items yet? any color letter. hoping you as improvement little sizing the guys. you Hey, a could question. from gross

ramp provide that. factory. can last new couple final comments we on I -- a are a there your China inefficiencies Yeah, on of launch question On always when headwinds, about your

than China So be to any we don't different expect that.

in So there we experience will some QX. be that

forecast, ready is Fremont. and we that hard as an factory have than labor hard of amount certainly in we all ramp on We're to here working a type very did of impact inefficiencies, absorption different will but The the design QX. ramp to that given fixed having of it's limit the cost

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based targeted work done how a a more supply company We've that demand. on optimize also become pricing products and we as to bunch of in local adjust on our and we how

is team QX, we a allude the good work on that bunch there our financials. in in to I so, from which think of And

And tremendous us. work culture his have absolutely that reduction huge and has much done of And been there. underestimate cost for the the company. has Jerome a how team It's focus remained hard just in to engrained of

So, warehousing, our be amount tremendous of whether it line there's good of cost, work logistics, item happened that manufacturing, labor, on a every there. just

that an around been note, it for that comes impact whether that And because has to impact, it something in more want or release Specifically, and recurring debatable on features being call know quarter. is around nonrecurring associated and specifically with the and Summon we items, two dollar Smart but the to value goes exchange speculation that foreign don't considered there's out did quarter. we revenue not expect the we that that's the release and continue to hedge, just every given that future, since I'll revenue we one the recognition,

as quarter So the out that effect to the we'll have that plays see has.

you. Thank

with Adam Morgan Jonas next Stanley. comes Our from question

Adam. everyone. Dailey This Hi, on is for George

made question, the sell, it than is car Fremont at assumption that Shanghai for in China profitable the car once even you the sold a more So, ramped, to most be profitable say is first fair average now? could Gigafactory Model China right X the

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then And what the the product work ultimately and is mix on we land on to the there be offering. where country right will land within

now, with of that for margins it's I line facility. the just the you So Fremont in think see to it's safe roughly coming assume that out

Great. And over same you just vehicles sneak they OEMs since it's seven don't one that the then, offer battery right if commitment do, electric I so more, seem many many don't Model now. one you even that to have in and could And the launched S. years been

more As maybe be with or supplying transport? other batteries or accelerate an business OEMs in architectures vehicle sustainable maybe sustainable, could model your adoption proves complete of effort software to potentially electric we see to Tesla mass

the help there's of Tesla be with Yeah, other powertrain car and to mission front, -- on companies with I electric the battery other on would fronts. it think consistent vehicles possibly

open we're to. something it's So

adoption as batteries And car sourced the our perhaps solar other vehicles As companies. storage. not would supplying and stationary open we to of power an know, or open patents of to so definitely things serve electric a lot those or that powertrains people other to we're and obstacle

Thank Okay. you.

question, go the next please. Let's to

you. Thank

with Maynard Our next Um question Macquarie. comes from

have I questions. you. two Hi. Thank

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$XXX over was It million.

of like billion. But out several

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you. Thank

Let's go next the please. to question,

you. Thank

from Our Deutsche Emmanuel next with Rosner comes Bank. question

Hi. for our Thanks Emmanuel. questions. taking on It's Edison [ph] for

lot been of the there's a lately. pickups about First, in activity electric industry

the that? mix anymore put you're just on to insights about a book there clarify Just I Thanks. comment what earlier you later? then, that think was of about you out was the baseline? And share curious insights any Can any you have secondly, quarter-to-date. the about if And can the updates, one geographic order

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more electric I and as think reception at team as our vehicles. of become we're more very products people encouraged the of aware a

interest products that competitive raise just think and increasing. I awareness, help is overall

internally to we as we an and move focus can. our quickly need be fast existing accelerating should as on is so our car, So that increase everybody we equipment capacity. new timelines believe We electric with driving to production can both as as the

want We absolutely. We for, the fleet that's about XX aim big. Yeah, is which just X%, to of I X% think one fleet get over vehicles the order way. it is perhaps good a the a on think, Tesla year, replacing the million pretty is where global volume time. to somewhere global by the of That's, to

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Thank you.

next Let's go to please. question, the

Thank you.

Ferragu comes Our Pierre New next from Street question with Research.

for question. Hi. Thank just my feel you how taking I you...

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absolutely. Yeah,

follow-up have question? you did a Pierre,

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we when Model is that time. have for the Model at we Yeah, X launched S comparison we best the had and

Model S sales increased.

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very you much. Thank Great.

the go next Let's to question.

Thank you.

Our Credit with comes Levy question Dan next from Suisse.

the you questions. Good Hi. Thank taking evening. for

ask on to a III. Giga wanted question just First,

X,XXX you lumpy. Model X You're of and was week. cut the And ramp sort the production of units saw to ramp Fremont a with then sort targeting bottlenecks. But we on that fix

single quarter? go Given Meaning, every it basis? a the is lumpy that once still expect capacity, this how going be X,XXX in on be should you week-to-week a to you production smooth within could we or week is quarter a hit is brand-new to a X,XXX,

love I use mean, ball, crystal it. to you've a we'd got if

looking for it. I'm

a production if But Yeah, smoother X But -- there's commonality parts. than look fairly be it standpoint, enough from obviously should because lot week week you will actually a will of frame, Model time to the be a and of over it I not smooth. think reasonable be.

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And Okay. you. follow-up. Thank Great. just a then,

part You to sort that of and optimistic away one Elon, the in understand side. mentioned from in challenges of Energy we of comments Tesla Auto past the a earlier reallocation resources you that you're was the the on one the your -- I the future things in is of mentioned Energy, think

is just now to does of resources you greatest Could Solar look talk you what reallocation reallocate in where or in pockets terms see resources, of And Or entail Storage? the would Energy, that growth what capacity? you it can of like? that

the basis. also will percentage grow Well, I on higher a fastest, will on Solar but percentage a grow think, basis, Storage

starting Automotive. over think They're smaller faster I grow both than a time base. from will

I increase. be From you fluctuations one it, at will you next, to course short-term especially might a at name sort -- incredible, some year, gigantic say, to you quarter if over the I think. or parts some it of, if due look look or there growth, be like shortage absolutely think, the but seasonality year-over-year of

the full solar Coast. The of Also, to a are East install and with Solar, lot it's in ice. of snow the winter, hard roofs especially on

a some seasonality ramps see So you weather up then the but it improves. quite bit Yeah. there, as will expect to

much. looking Okay. questions, we're time I to very to forward the you Thank think next unfortunately and your much, goodbye. quarter. talking Thank we that's and have you Appreciate very all today. all you And

thanks. right, All

Ladies participation. and conference gentlemen, your Thank this today's concludes call. you for

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