Tesla (TSLA) Q2 FY26 Earnings Call Transcript

Travis Axelrod00:00

Good afternoon, everyone, and welcome to Tesla's second quarter 2026 Q&A webcast. My name is Travis Axelrod, head of investor relations. And I'm joined today by Elon Musk, Vaibhav Taneja, and a number of other executives.

Travis Axelrod00:15

Our Q2 results were announced at about 3 PM central time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today.

Travis Axelrod00:30

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 SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow-up.

Travis Axelrod00:38

Please use the raise hand button to join the question queue. Before we jump into Q&A, Elon has some opening remarks. Elon?

Elon Musk01:11

Thank you. So, yeah, it's been a great quarter. We achieved record Q2 deliveries um Model Y I believe is now I think it's the best selling car of any kind in the world and is setting records across the board so its popularity is is increasing tremendously and we're seeing in uh in locations that have um FSD approved we're seeing a very high take rate of FSD and in fact I think for a lot of people they're actually buying Tesla full self driving with the car attached.

Elon Musk01:40

As opposed to a car with FSD they're coming into our stores uh in the US and saying they want the full self driving and with whatever car it comes with essentially so clearly the this is a significant demand driver and as we get approval for FSD in different part different countries I think we'll see a similar uptick in demand so

Elon Musk01:53

Yeah it's looking very good on that front the energy business is also growing incredibly fast and I think will be crucial for the scale up of artificial intelligence

Prepared remarks

Elon Musk02:24

Data centers we're investing a lot in the growing the core business and really preparing for the future so this is a massive capex year but I'm confident that all the things that we're investing in are what will yield incredible returns really maybe the best capex returns that we've ever seen

Elon Musk04:42

And just the Tesla team has performed incredibly well the sub have started production and we also have started production and are ramping in well we will soon start production with Optimus we have started production with the Tesla semi truck we will soon start production with Mega Pack 3 we've started production with the lithium refinery the cathode refinery we also have we're scaling up battery cell productions battery cell production and we're also preparing to do a massive solar panel like solar cells and panel production actually this is going all the way from silicon refinement to producing the solar cell and then deployment of solar because there's going to be tremendous need for electricity in the future due to electrification of transport and AI obviously so we're working on what we believe is the most ambitious build out of advanced infrastructure manufacturing capacity ever in history it's a big deal so with robo taxi our goals are very ambitious for robo taxi but we do need to be cautious about causing any accidents or causing any harm to anyone although there are I think 30 to 40,000 automotive deaths per year in the United States alone most of those do not generate any press or you know there's that they're you know you never really read about almost any of those but if we injure even one person it will be worldwide headline news and regulators will immediately clamp down on our activities so and we don't want to injure anyone so so we're going as fast as humanly possible in scaling RoboTaxi but with while trying to ensure that we do not harm anyone at all and ideally do not even run over a pet so that that's really the constraint is we're we want to grow as fast as possible with RoboTaxi without harm to anyone

Elon Musk05:14

And we're providing live updates for RoboTaxi launch as we open up in a city we immediately post that on X so if you just follow the Tesla account on X you'll we'll keep you informed as we scale to new cities we've opened up in a number of cities in Florida and in Texas and obviously in the Bay Area so we'll continue to scale I think very very rapidly on a on with

Elon Musk05:25

It looks like more than 10% a week in terms of miles driven so it's a it's very high compound growth rate

Elon Musk05:37

So let's see Optimus you know as you've heard me say before I think Optimus will be the biggest product ever but it is a very complex problem to solve

Elon Musk06:35

it's one of the one of the hardest things to solve to make a an autonomous humanoid robot that can do tasks that you if you simply ask it to do something or show it a video it can do the task without any programming like no one's ever achieved this and you've got there are many challenges in the electromechanical design of the robot to achieve sufficient dexterity and also be very reliable and have a long wear and tear like meaning it needs to be out in the field and not break down otherwise you've got sort of a 70 kilogram robot that just flopped over and you gotta carry it like a carry it out like a body you know it doesn't have wheels so and we don't want Optimus to go haywire um so um

Elon Musk06:46

It's it's a lot of work to scale to get the design right and to scale production and I really want to emphasize here that the

Elon Musk07:56

Production scaling challenge is is a very very substantial this is going to be the hardest product to scale manufacturing that we've ever made at Tesla because everything on the robot is new and the difficulty of scaling the production ramp is proportionate to the newness of the parts in the robot and you know at least with electric cars the non-electric powertrain portions of the cars had an existing supply chain so you could go to existing suppliers for wheels and side mirrors and windshield glass and that kind of thing body panels and but with Optimus there's there is no supply chain so we've had to build up a supply chain in its entirety um or in-house the production and we've actually in-house a tremendous amount um the Optimus production line that we're building out in Fremont in place of what used to be the Model SX production it looks incredible I mean it's quite stunning to see

Elon Musk08:18

So so I just want to be make sure to calibrate people correctly it's Optimus will follow the sort of normal S curve of manufacturing of a manufacturing ramp but the initial portion of the X curve will be quite flat and long because of the newness of the parts in the robot

Elon Musk09:23

So you've probably seen lots of impressive demonstrations of robots on the internet but those demonstrations you're seeing are pre-programmed or remote controlled so there is no humanoid robot that is actually able to do generalized tasks Optimus will be the first one that is capable of doing that where it's not just a demo it's genuinely useful in day-to-day life so and Optimus is designed to have full human dexterity so a hand that has the same level of dexterity if not higher than a human hand and the human hand is an incredible thing the more you study the human hand the more amazing you realize how amazing hands are there it's more than just opposable thumbs I mean the nuances of how human hands work are amazing as the closer you look the more amazed you are

Elon Musk09:32

And Optimus will have that that capability you'll have human and then superhuman dexterity

Elon Musk09:35

So it's truly going to be quite something

Elon Musk11:38

let's see Terafab you know the Terafab we expect to announce the location soon and provide more details about our plans in that regard which we'll leave that to the product sort of the launch announcement rather than try to squeeze it into an earnings call because I think this is a very big announcement and it deserves to have its own sort of day in the spotlight and not be sort of squeezed into an earnings call but I do think Terrafab is going to be an amazing initiative and a necessary one and one without which we will be constrained in our ability to scale Optimus production because we simply won't have enough AI chips so it's crucial to solve that and we'll have to solve memory logic and packaging for in order to scale Optimus so if anyway like I said we'll leave that to its own announcement we've placed equipment orders for our development fab in Austin and that development fab I think is pretty cool because it's intended to be to have lithography mask production and then logic memory and packaging and chip testing all under one roof so you can have a very fast iterative cycle and try out new chip designs very quickly and see if they work I don't think such a building exists anywhere on earth so this is really going to be super helpful as we try some exciting adventurous high risk high payoff bets on AI chips so it's focused like I said on primarily Optimus like how do we make Optimus as useful as possible

Elon Musk11:44

Then we have like we have Digital Optimus which is basically

Elon Musk13:04

Driving a computer screen I guess you could call it computer use or something like that but driving a computer screen the same way you drive a car so for the car with it's sort of pixels in or photons in and controls out the same thing is true for Optimus Digital Optimus it's photons in controls out so we feel confident we can adapt the same Tesla AI technology that we developed for self driving cars to have a self driving computer screen or self driving computer essentially the self driving computer where the Tesla the very low cost Tesla AI for computer can handle all of the four term tasks they're doing real time video control of the screen of the computer so it's not like screenshots type of thing it's real time video and high frame rate and digital options will be important obviously for physical optimus because physical Optimus needs to be able to operate computers it's like it can't come up to a touch screen and not know what to do it's gotta have a generalized touch screen and computer use capability

Elon Musk13:28

So that's looking promising then it this is in partnership with SpaceX SpaceX's Grok so the big model that is kind of like the manager of Digital Optimus and kind of tells Digital Optimus what to do provides it with a series of tasks and then Digital Optimus goes and does those tasks.

Elon Musk13:45

We're also building out a mega pod design that has Tesla AI for computers with

Elon Musk15:35

With x86 so pairing an x86 computer with the Tesla AI for computer in a box and it's kind of just digital Optimus in a box and in a mega pod you know kind of like the mega pack packaging and so we put just a large number of AI for plus x86 combos in a giant box essentially and that these boxes can be placed anywhere in the country or outside the country and this allows us to scale AI compute using this aggregated electricity production so because there's lots of places all around the world including at our superchargers I think we've got something like seven gigawatts of power at our superchargers and growing and we can place mega pods at many of these superchargers and have distributed power for AI so I think that that could be quite a big deal so in conclusion we're super excited about our autonomy and robotics roadmap there's so much awesome stuff coming it's like I said hard to squeeze into an earnings call but we'll have a lot of product announcements and this is going to be a great year for Tesla I think one of our best years ever and then I think next year will be even better so in conclusion I want to thank the Tesla team for their excellent execution and all of our supporters for joining us in this journey thank you

Travis Axelrod15:39

Great, thanks so much Elon and now Vaibhav has some opening remarks.

Vaibhav Taneja16:03

Thanks Travis. So Q2 continued the trend that we saw at the end of Q1 a resurgence in demand for vehicles across the globe. We achieved record Q2 deliveries globally with sequential growth across the Americas APAC and EMEA of 60% 27% and 12% respectively additionally Model Y set records in several key markets

Vaibhav Taneja16:29

Including the Netherlands, Australia, and New Zealand. The efforts of the Tesla team to create compelling products at a reasonable price with the capability of autonomous driving are coming to fruition. We exited Q2 with our largest order backlog since 2023. We are therefore focused on increasing production at all our factories to meet this growing demand.

Vaibhav Taneja16:47

Production growth will be limited by our supply chain this includes not just batteries but also electronic components we've been here before and like always our Tesla team is working actively to unblock the obstacles ahead by securing strategic deals with suppliers.

Vaibhav Taneja17:05

Like Elon mentioned one of the key factors for grow for vehicle demand has been FSD our sales data suggests one of the main reasons customers are coming and looking at the car is because of FSD.

Vaibhav Taneja17:29

In Q2, we had in North America, about 55% of our deliveries had FSD subscription at the time of delivery enabled. Overall, FSD attach rates continue to improve, reaching nearly 1.5 million paid customers globally, of which 55% is upfront purchases and the remaining 45% is subscriptions.

Vaibhav Taneja17:40

We expect that the bulk of the growth in FSD monetization will come from subscriptions as we've removed the purchase option in most markets.

Vaibhav Taneja18:10

Automotive automotive margins excluding regulatory credits declined sequentially from 19.2% to 16.3% As a reminder we had highlighted in Q1 that we had a 230 million benefit from warranty true downs and some tariff relief which did not repeat in Q2. controlling for the impact of those benefits from the prior quarter our automotive gross margins excluding credits would have been approximately flat.

Vaibhav Taneja18:31

This demonstrates the effective pricing and cost management done by the Tesla team as we continue to drive demand. Commodity price increases and interest rate changes all continue to add to our costs. Note that interest rate subvention costs are recognized upfront as revenue offset.

Vaibhav Taneja18:41

So as interest rates have risen this year the cost of subvention has risen along with them. Which had a negative impact on automotive margins.

Vaibhav Taneja19:03

As we have previously noted energy business is inherently lumpy deployments are tied to customer timelines and largely out of our control. In Q2 we deployed 13.5 gigawatt hour of energy storage a 53% sequential increase and the second largest quarter for energy business.

Vaibhav Taneja19:46

Despite this growth energy gross margins declined from 39.5% to 20.4%. This margin decline was a result of several dynamics first there was a warranty true up in the quarter of about 240 million related to certain vendor issues for our legacy deployments also the tariff benefits we recognized in Q1 of more than 200 million did not repeat and lastly we had previously guided that ASPs for industrial storage is coming down amidst growing competition long term we believe the energy business should normalize at a gross margin rate in the mid to low 20% range.

Vaibhav Taneja20:00

Our order backlog of this business is robust and we are doing our best to build based on both existing demand and future demand we expect from data center growth and overall electrification of the economy.

Vaibhav Taneja20:21

Service and other margins improved sequentially from 9.2% to 14.1% an all-time high. This was mainly driven by an uptick in volume and better cost management of our vehicle fleet that supports businesses such as used car, supercharging, service centers, and insurance.

Vaibhav Taneja20:38

While marginal today, also included in this business are deliberate investments we are making in infrastructure that will help scale RoboTaxi in the future. We continue to grow the Tesla RoboTaxi fleet and have expanded to a total of seven markets in the US.

Vaibhav Taneja20:47

We expect the ramp of the fleet to accelerate throughout the year along with expansion into new US markets.

Vaibhav Taneja21:04

As previously guided operating expenses increased sequentially. The increase came primarily from significant research and development related activities including pre-production ramp costs for new products like the Semi Truck, Optimus, Cybercab and other AI initiatives.

Vaibhav Taneja21:27

As well as depreciation for an additional compute that we brought online. Additionally, we had charges related to litigation expenses in the quarter. Note that we are in a big investment cycle and expect our operating expenses largely driven by R&D to continue to grow in 2026 and beyond.

Vaibhav Taneja21:43

Net income was positively impacted by a mark to market gain of 1 billion on our SpaceX holdings. which was offset by losses on FX of approximately 300 million and on Bitcoin of about 100 million.

Vaibhav Taneja22:23

As previously guided our free cash flow ended up being negative for the quarter. Most of the reason for the it going negative is because capex more than doubled sequentially. And we expect it to increase further in the second half of 2026. We continue to expect that capex for this year will be more than 25 billion capex will grow for the next two or three years as we expand our RoboTaxi fleet expand our production capacity for Optimus make investments for semiconductor fab install solar manufacturing capacity and AI compute infrastructure.

Vaibhav Taneja22:42

In addition to all the other expansions we'll do for other manufacturing for automotive. In addition to using our cash for such investments we are being opportunistic in securing certain debt facilities that will give us the capacity to borrow up to 30 billion to help accelerate such investments.

Vaibhav Taneja22:56

We believe this is the right strategy to position the company for the next era. And we'll always make such investment in a very capital efficient manner. The path to amazing abundance is ever challenging and requires making bold bets.

Vaibhav Taneja23:14

Our progress will not be will be non-linear. The future is going to be great and we are ready to rise to the occasion. I would like to end by thanking the Tesla team our customers investors and suppliers for their confidence in us on this journey.

Travis Axelrod23:27

Thanks so much Vaibhav. Um as everyone on the call may have noticed we've covered several of the say.com questions already in opening remarks including optimus production terafab and digital optimus.

Travis Axelrod23:33

Ashok is joining us today our VP of AI and he's going to cover questions related to RoboTaxi. Ashok?

Ashok Elluswamy23:46

Thank you Travis. Many of the questions on say.com relate to RoboTaxi deployment and scaling so we thought we'd provide a comprehensive view of where we are now and where we are going in the future.

Ashok Elluswamy24:05

First of all I'd like to state that the robo taxi program has been operating extremely well. Especially in terms of safety the program has had an impeccable safety record we have driven more than 380,000 miles of unsupervised robo taxi now across six cities in two different states.

Ashok Elluswamy24:22

We have had zero notable incidents any reports have been of other actors impacting us when we were stationary. Again I like to emphasize how safe the operation has been so far. Zero notable incidents over 380,000 miles.

Ashok Elluswamy24:38

Historically the so-called experts have always claimed that you need LiDARs radars HD maps and the entire kitchen sink to drive safely. Here we show that such is not true. You can have safe comfortable and affordable autonomy with just cameras.

Ashok Elluswamy24:45

This record should be a huge validation of Tesla's entire AI approach.

Ashok Elluswamy25:01

Second I'd like to discuss scaling. We started the RoboTaxi program roughly a year ago in Austin. We had safety monitors in the passenger seats of the cars back then. Around the end of last year we had the first fully unsupervised robo taxis in Austin.

Ashok Elluswamy25:18

Since the beginning of this year we have grown a double digit growth rates to the number of unsupervised miles that the fleet drives every week. I repeat we have grown at such a high compounding rate on a week over week basis over the last several months.

Ashok Elluswamy25:26

Not only that we expect to continue growing at such a large rate through the rest of this year. The other thing

Ashok Elluswamy25:43

To note is that for expanding to new cities it has been relatively less effort on our front. We expect that the time to launch to a new city will continue to trend towards zero. Towards an end where we operate in entire states as a whole instead of going by city.

Ashok Elluswamy26:03

Such growth was only possible because we have a world class engineering team at the Frontier AI development here at Tesla. The currently operating robo taxi fleet is already running early version early versions of the V15 FSD software that we had referred to in the past.

Ashok Elluswamy26:20

For V15 we had planned roughly about seven major improvement tracks and they're all happening in parallel. The early V15 builds that are running on RoboTaxi have already 40% of those tracks merged together and that's what's running in the fleet right now.

Ashok Elluswamy26:49

As we continue to complete our work on V15 we will see that the car is going to be ridiculously safe and capable we're already seeing internal signs that out of these bets that we have made for technology improvements are all continuing to are all starting to work and we expect that the payoff will be huge and that's what is going to help us sustain the same growth rate through the rest of this year and so on

Ashok Elluswamy27:28

Finally regarding the cyber cab first of all it's a phenomenal product anyone who rides in it instantly falls in love with the experience we have aligned our manufacturing targets to roughly match the projected growth rate of the unsupervised miles the same V15 models that power the Model Y and other platforms will also work on cyber cabs in conclusion robo taxi growth so far has been literally exponential while keeping an impeccable safety record our technology bets are paying off helping us sustain the exponential growth for the foreseeable future and the cyber cab is going to be awesome

Travis Axelrod27:35

that's great thanks so much Ashok um and there was one remaining question on data collection for Optimus training would you mind covering that as well

Ashok Elluswamy27:58

Yep definitely um regarding Optimus especially Gen 3 Optimus has been designed to not just match the appearance of human beings but also the functionality and dexterity of humans. one of the main reasons for this approach is that having the human form factor and function allows us to learn from humans on how to perform a wide variety of tasks.

Ashok Elluswamy28:16

This opens up the entire world to provide data for training Optimus. Just like FSD we have access to a broad fleet of humans giving us data from all of the workers at our factory Optimus can learn quite a bit from observing them perform their tasks at the factories.

Ashok Elluswamy28:40

We also have a dedicated data collection team who can provide relatively small amount but of very high quality demonstrations to do the post training of these models. This is a this is all on top of any training we can do off of the entire internet of data that shows demonstrations of people doing various tasks both in industrial settings and home settings.

Ashok Elluswamy28:59

The second flywheel is when we have a large number of Optimus robots practicing their tasks in what we call the Optimus Academy. The data from the bots experiencing the tasks themselves will be invaluable and help us close any minor form factor gaps that may exist between the bot and the humans.

Ashok Elluswamy29:14

This is also when the reinforcement learning loop kicks in where the bot initially attempts some tasks, fails sometimes, learns from both the successes and failures of those tasks and eventually learns to master those tasks and perhaps a superhuman level.

Ashok Elluswamy29:53

Our AI strategy for Optimus is aligned with the same uh it's the same end-to-end strategy that drives FSD pixels in controls out um and just like FSD we expect it to work broadly in FSD you know you can get in the car type in an address and then hit start and then it like handles all of driving from park to park and the same thing is going to be true for Optimus as well you're going to just ask it to do anything and then it should just perform the entire task on its own without you having to do anything along the way and it's the same team that produced FSD you know the V12 13 14 and now V15 software that now works on Optimus as well hence I'm very confident that Optimus will be an extremely capable robot

Travis Axelrod30:10

Uh great thank you so much Ashok um so that covers the say.com questions and now we will move over to analyst questions the first question comes from Tom from RBC Tom please feel free to unmute yourself when you're ready

Travis Axelrod30:23

Tom you're still on mute so please unmute yourself and go ahead and ask your question

Travis Axelrod30:48

Alright we're not getting any audio from Tom at the moment so we will try to move on to Andrew and we'll add Tom back to the queue to come in next so Andrew as soon as you can please unmute yourself and ask your question

Andrew Percoco30:56

Hey can you hear me

Travis Axelrod30:58

Yes we can.

Andrew Percoco31:45

Awesome thanks so much for taking the question um so maybe just to start out on Optimus um Elon you mentioned that you know there's really no supply chain today for Optimus so you've had to mostly insource a lot of that yourself I'm just curious as you as you've gone through this exercise are you seeing any suppliers willing to you know invest alongside you to set up domestic manufacturing to potentially help you scale more quickly in the US you know asking that in the context of obviously you know you want to control your own destiny to some extent and ramp as quickly as possible but from an investment cycle standpoint you know potentially more capital efficient to have some partners you know help you along the way so I'm just curious how you're thinking about that and some of the dialogue you've had with potentially some external suppliers

Travis Axelrod31:58

Elon you may be on mute right now we can't hear you.

Elon Musk32:41

Sorry yeah I as our supplies have been great and they've made they have made an arm making tremendous investments into in support of Optimus and Robo taxi and whatnot you know Samsung and TSMC in particular are building fabs some TSMC in Arizona and Samsung in Texas and putting in tens of billions of dollars for to build AI compute for Optimus and RoboTaxi Panasonic is also invested many billions in increasing battery cell production

Elon Musk33:01

I'm a little under the weather here but ill so I sound a little off kind of struggling with some a little bit ill today so yeah but our partners have been great and I'd like to thank them for their support and their investment and their hard work

Andrew Percoco33:05

Great thanks for that and maybe just as a

Travis Axelrod33:11

So sorry Andrew we're going to have Karn hop in here for additional color briefly

Karn Budhiraj33:48

Yeah just to add to Elon's point that you know the Samsung fab that's going to be pretty significantly dedicated to future projects that's a massive investment multi-billion dollar we're having we're seeing the same level of investment going to memory and also new specific metal injection molded parts flexible printed circuits and all sorts of novel new technologies that are you know more based for the robot as opposed to the traditional vehicle supply chain we've had and in certain cases where we don't find a great partner we've never hesitated from insourcing it and we have a very capable manufacturing engineering team and a design team that helps us scale those things.

Elon Musk34:14

Yeah and actually I'd also like to thank Micron for giving us memory allocation they've got to make some very tough decisions on memory allocation and we really appreciate Micron making room for Tesla in the years to come and giving us actually a very significant allocation on reasonable terms given the pretty insane pricing of memory these days.

Andrew Percoco34:48

Great, really appreciate that that color and maybe just my follow-up on robo taxis you guys gave a lot of great you know information in your prepared remarks but you know there's seems to be some evolving regulations at the state level potentially around sensor requirements so I'm just curious as you think about your own rollout what do you want to see or what do you need to see from regulators to make sure that you know obviously some regulation might be good but you don't want it to be over regulated so what do you expecting to see what do you want to see to make sure that this is you know done in a proper way

Travis Axelrod34:56

And we've got Lars on the line um Lars if you wouldn't mind covering this one if you can

Lars Moravy35:11

Yeah sure Travis um I mean I think you know we talk about regulation particularly in the US we've made a lot of headway um you know just good initiatives from the federal government in terms of FMVSS rules

Lars Moravy36:12

Moving towards you know acceptance and adoption of purely built 80s and I really appreciate that support from on that when it comes to like a state to state level obviously the stuff in New Jersey you know is a little bit disheartening I think ultimately as Ashok said in his opening remarks we really focus on the performance of the vehicle and ultimately that's what's going to drive regulators and the public to adopt it you know I think you know the best regulations are those that provide companies and innovators with a goal or a task and allow us to figure out the solution and when we see regulations that provide a solution before identifying the problem we really don't you know appreciate those but as Tesla always has and will continue to do we'll let our performance speak for itself and I think Ashok laid that out really clearly and that that that'll be the foundation of our expansion moving forward.

Travis Axelrod36:16

Great thanks for the questions

Travis Axelrod36:24

Uh thanks so much uh we're going to try Tom again from RBC Tom can you unmute and try to speak please

Travis Axelrod36:41

Unfortunately Tom we see you unmuted but we're not hearing you so we're going to have to send you back into the queue next is Alex from Bank of America Alex as soon as you can please unmute yourself

Alexander Perry37:19

Hey, thanks. Thanks for the questions here. Um just a few follow-ups on RoboTaxi actually I guess what milestone should investors be watching from here that would cause you to accelerate your fleet scaling or market deployments you know is it the further safety validation like a miles driven per incident or something else and then um would you ever consider third party distribution partnerships such as with rideshare providers uh to increase utilization or is the plan for now to keep RoboTaxi fully vertically integrated thanks

Elon Musk38:24

Yeah we expect to be vertically integrated with RoboTaxi as we are in the rest of our business so I I don't think we're going to have any demand challenges with RoboTaxi so this is the economics will be so compelling that I I think we will really have a lot more desire to use the service than you know like I think demand will outstrip our ability to service the demand and so obviously you just there's no you can just go vertical in that situation so it's really just about going through and what we call the March of Nines of reliability where you need like how many nines of reliability do you need to scale ideally you want 99 99 99 you know percent reliable um and so that's the it's just the March of Nines of reliability I think the only thing really constraining our growth in robo taxi

Travis Axelrod38:38

Great. Thanks, Elon. The next question is going to come from Colin at Wells Fargo. Colin, please unmute yourself when you're ready.

Colin Langan38:59

Oh, great. Thanks for taking my questions. There's been a lot of chatter about SpaceX and Tesla combining in some way I mean a lot of collaboration already today I mean Elon do you see synergies eventually from combining the companies and is that makes sense from you from your perspective over time?

Elon Musk39:33

Well I mean as you can tell from all the many collaborations on so many fronts with SpaceX and you know there's a lot there's more and more overlap especially with Terrafab that's really going to be you know a gigantic project so but obviously we can't talk about you know combining companies and that kind of thing on a earnings call it's gotta be done with the appropriate process and with that I'll turn it over to Brandon our General Counsel.

Brandon Ehrhart39:54

Yeah no thanks Elon and that's exactly right we continue to benefit from our relationship with SpaceX and we've had they've been a great partner and we have numerous beneficial transactions with them and earlier this year we deepened our relationship through an investment and a framework agreement this will allow us to continue work with them on projects that Elon mentioned like Terrafab and Digital Optimus

Elon Musk41:29

Yeah and this there's many other things too obviously you've got Grok in the car um and um so and Grok helping yeah drive digital Optimus um you've also got Starlink being integrated into um the Cyber cab and Sonic will be integrated into all our vehicles and at least for markets that Starlink is active because for a robo taxi situation you need to have you know coverage everywhere and there are many many many places even in Silicon Valley where the cellular coverage is is a terrible or sometimes non-existent which is surprising for Silicon Valley but I know when I drive to work the first 10 15 minutes I I can't actually do any calls because the cellular connectivity is so bad so we can't have robo taxis getting stuck in these like Bermuda triangles of lack of cellular connectivity um so so Starlink with its ability to do connectivity anywhere is actually quite important um so we don't have you know robo taxis missing in action and then obviously if people are sitting in the car they're going to want to do high productivity stuff or entertainment and with Starlink you can watch you know 4k live sports in the car and with very low cost per gigabyte of data as that's really not feasible via the cellular system.

Elon Musk41:34

And there's many other situations.

Vaibhav Taneja42:15

Yeah I mean I would say think of it like Ashok was mentioning about Cybercab right that the experience is great in a world when you don't have to focus on driving you have all the play all the time in the car to do whether it's a conference call watch a movie or anything that's why if you look at the Cybercab design it has a big screen and you know we've started doing Cybercab rides in our factory in Austin and when you go through that experience you I mean soon customers would be able to do it in not too distant future and then you'll understand why that connectivity becomes so important.

Travis Axelrod42:19

Great. And then Colin, do you have a follow up?

Colin Langan42:51

Yeah, just if I follow up on RoboTaxi you know if I look at the launches it's been you've been adding cities but the number of units is still you know looks like based on media reports sort of in the dozens as opposed to hundreds you know why not just sort of scale up Austin or one or two cities before adding cities and sort of what do you need to sort of get that you know higher volume numbers in a major city what sort of is the roadblock to sort of adding more vehicles on the ground.

Ashok Elluswamy43:09

Yeah, the reason we have been expanding across different cities instead of just doubling down on a single city is that we want to make sure that our stack is a very general one. It is a general one, we just want to like you know both prove to ourselves and to other folks that it is working across a lot of different cities without too much effort per city.

Ashok Elluswamy43:55

And that's what we see internally and then as Elon mentioned earlier the growth rate has been literally exponential just it's an early part of the exponential that's why it's hard for others to comprehend. In terms of like miles versus vehicles since these vehicles operating the robo taxi fleet drive basically continuously as opposed to human drivers who whose vehicles for maybe a couple hours a day or something like that these vehicles are in mostly continuous operation which means that even for a few vehicles you can get a lot of miles out of them and that's why we are tracking the amount of unsupervised miles or just the number of vehicles or something like that and we want to be operating in a very efficient fleet so all of the work that goes into the efficiency makes it even more so that we get a lot of miles per vehicle available in the fleet.

Vaibhav Taneja44:28

Yeah and just to add further to this I'm like what think of it we're trying to scale this and we're trying to make sure that there are different kinks which would be there and there are things not just on the software front on the operation front which we're also trying to tackle so that's why we're trying to have a broader footprint to try and make sure before we go really high in terms of deployment that we are able to sort these things out in a smaller fleet in a controlled manner.

Elon Musk44:38

Yeah, one of the things for Cybercab should be noted is because it is a new vehicle chassis um we need to accumulate

Elon Musk45:23

Driving data that is specific to the Cybercab before we can put a lot of them on the road. So unlike say Model 3, Model Y and our other vehicles where we've got a lot of vehicles on the road millions of vehicles on the road we don't have that for Cybercap so we actually have to accumulate miles with Cybercaps that are retrofitted with steering wheels and brakes acceleration breaking pedals that kind of thing to calibrate to the Cybercap chassis so so you'll see as we are confident about that the number of cyber caps in cities will increase dramatically

Travis Axelrod45:30

Great. Our next question is oh yeah go ahead Lars.

Lars Moravy46:10

If I can just add like one thought here the other reason I just want to like point out is you know like TCO transportation regulatory situations are different city by city state by state is not federal you know framework to do that and so like the reason we're expanding city by city is to make sure that we're meeting all of those one at a time and we're satisfying you know all of the requests of each individual city and you know and everywhere we can so we have to expand you know to each city to meet those requirements and we'll continue to do so in until all of what Ashok and Vaibhav and Ashok said will follow with the scaling

Questions and answers

Travis Axelrod46:17

Thanks, Lars. The next question is coming from Walt from LightShed. Walt, please unmute yourself.

Walter Piecyk46:41

Thanks. Just a quick follow-up for that Lars comment. I mean, the NHTSA administrator Jonathan Morrison was just on CNBC you know he already you know is trying to get rid of the pedal and said I forget his exact term but seemed like he wanted to get rid of the steering wheel. It seemed like that would be a gating factor but is there other things that you need at the federal level to really kind of unlock your ability to ramp Cybercab?

Lars Moravy47:21

I mean, the short answer is no, I mean I think we have a great relationship with NHTSA and you know direct Administrator Morrison especially and you know I think they're just following through with what the public wants and the world knows is coming and they're trying to stay ahead of it and make sure that you know they're doing the right things in place so you know we've been open and honest with them for the last couple years about what our plans were and what we're doing and yeah we don't want to say we're in lockstep but you know I feel like we have a partner there and we're working together on it

Walter Piecyk47:29

Got it. And then just, Elon, kind of a roadmap question, I guess. Starlink, obviously, is integrated in Cybercab and you guys

Walter Piecyk47:51

Just talked about the connectivity for watching movies. But what about the flip side of that? Can these, can the Cybercabs become remote hotspots for Starlink mobile? And then similarly, roadmap question on the Semi, you know, when do you anticipate looking at autonomy for the Semi? Because that seems like a pretty sizable market as well in terms of autonomous trucking.

Walter Piecyk47:54

And the need for it given what's going on in our country right now

Elon Musk48:41

Yeah absolutely there as you allude to there is a really serious shortage of truckers um so there just aren't enough people who around who want to drive trucks um which are crucial for transport throughout America um so so an autonomous semi is actually going to be very important to address the shortage of truck drivers um and obviously will be great for improving safety and you know making it easier on truck drivers to have a self driving semi is going to yeah dramatically improve safety and comfort for truck drivers that you know yeah you use the Tesla semi

Elon Musk49:16

The you know since the units the total number of units of the Tesla semi is still low and will continue to be a very small percentage even by the end of this year of our total vehicle fleet it makes sense for us to focus our efforts our self driving efforts on our high volume vehicles so Model 3 and Y and solving self driving for and really getting you know the point where it's generalized unsupervised self driving for those vehicles

Elon Musk49:17

And Cybercab

Elon Musk50:04

So, so we expect to um do get self driving working on the Tesla semi um probably around the end of this year or early next year um and um but we I just don't want it to be a distraction um on the you know on the march of nines of self driving of safety for self driving on 3Y and Cybercap that's so that it's taking a bit of a backseat but the next six months or so for autonomous semi but it will be you know it will definitely be a big working next year and in time for the scale up to high production of Tesla semi

Elon Musk50:13

For communications yeah I think there's an interesting angle there where

Elon Musk50:29

You could use the Starlink terminals that are in the Tesla cars as like sort of cell towers I suppose or connectivity towers basically for

Elon Musk50:41

Providing relays on the ground to cell phones and to anyone who would like Wi-Fi basically.

Elon Musk50:47

But yeah, it's a different subject, but obviously one could do that with the stationary Starlink terminals too.

Travis Axelrod50:56

All right. Our next question is going to come from Will. at Truist. Will, please unmute yourself.

William Stein51:40

Great. Thanks so much for taking my question. Elon, you teased us a little bit about sort of the supply chain relative to Optimus, highlighting how difficult it's going to be. But we'd be really interested to understand what your propensity is to manufacture semis for this yourself. When we think about microprocessors, microcontrollers, actuators, and other semiconductors that are going to be used, it occurs to me that you have many that are commercially available. You have an option to design some but have them made at third party fabs. You also have the option potentially to design and make them yourself.

William Stein51:47

What should we think about your propensity to source these components in these different manners?

Elon Musk52:01

You're talking about like, making like microcontrollers and small, like the various computers that are in the car that operate you know, like the steering system and the braking system.

William Stein52:05

No, I I'm I'm talking about for Optimus, not for

Elon Musk52:23

Yeah, Optimus has a lot of really specialized power electronics and circuit boards it's all Tesla design stuff but it is fabricated by suppliers

Elon Musk53:11

For Optimus 4 which will be built in Austin that that will be a much more vertically integrated supply system for Optimus 4 and that would you know we'd aim to have an order of magnitude more production of Optimus 4 than Optimus 3 so sort of aspirationally 10 million units a year versus a million units a year of Optimus 3 um but you know with all the caveats there which is insanely difficult to scale production um so um and yeah Optimus Optimus 4 will be much more vertically integrated so probably doing a lot of the sort of PCB work in in-house for that

William Stein53:31

As a follow-up, well, first, maybe you could talk about the timing as to when that when Optimus 4 should be should let's say start production but the actual follow-up I wanted to ask was the plan to upgrade hardware 3 to hardware 4 in order to be able

William Stein53:43

To process I suppose it's version 15 of the and future versions of FSD is that still the plan to do hardware upgrades on the cars

Elon Musk54:47

I think it's going to make sense for to upgrade all cars with that are have less than hardware four almost any cars that have cameras basically because otherwise it probably too many modifications but anything that's got sort of that's set up for cameras it will be financially sensible at some point to upgrade them and but I think we'd want to upgrade them to the next generation of you know like next generation AI AI board so it would be either like we have an upgraded AI4 chip that's sort of medium sort of moderate improvement over AI4 probably reaches production around the middle of next year and then there's also AI5 which hopefully is in volume production around the middle of next year AI5 will initially go into Optimus

Elon Musk55:05

And we're actually making very good progress. The chip team is really doing great work and making incredibly fast progress on AI5. And we're I'm very excited about the design of the Tesla AI6 chip. I think it's going to be the best edge computing chip in the world.

Elon Musk55:16

And if somebody's got a better one, I'd like to meet that person and shake their hand because the AI6 chip is just so good.

Elon Musk55:29

So I think we've got we got a things going really well on the chip front yeah and again I'd like to thank our thank TSMC and Samsung and Micron for their support.

Travis Axelrod55:40

Great. We are coming up on the hour, but we're going to try to squeeze Dan in. So from Barclays, Dan, please unmute yourself.

Dan Levy56:20

Great. Thank you. Appreciate it. I'd like to ask about the pace and path of capex. Elon, in the past, you've said that, you know, you'll spend as much as you can, but, you know, really efficiency seems like it's the gating factor. So to what extent right now in this capex cycle is your pace of capex effectively capped simply because spending any more would be done in an inefficient manner. and to what extent is the pace of capex really the primary determinant right now in unlocking the different supply constraints that you have?

Elon Musk57:49

Yeah it's a good question um I've actually you know my what I've asked the Tesla team to do is is like really we should be spending on CapEx as fast as we can spend as fast as we can without it being too wasteful so we're not trying to aim for like some extremely high efficient efficiency capital spend because that would slow things down so it's trying to it's a balance between like how much you know sort of capital efficiency versus time so if we can be it's okay to be a little less capital efficient if we get things done sooner because that's actually going to be the higher MPV outcome for the company so overall I'm pretty happy with how things are going I mean we're doing an incredible amount of construction and production growth in so many different arenas simultaneously I don't think there's ever been a company that's on this at the scale you know maybe proportionately back in when Henry Ford did the Model T or something like that but or World War II when you know companies were making had to sort of scale weapons production but I think probably this is the fastest industrial scale up since World War II in America.

Vaibhav Taneja58:25

Yeah, and I will just add a little bit on that, basically, if you look at it, you know, all our spend on capex is trying to do productive assets. right we're basically scaling factories whether it's Optimus whether it's cyber cab whether it's LFP factory which went into operation earlier this year or the semi factory or even putting in a semiconductor fab in there as well as you know we are trying to get a lot of solar manufacturing in the US in fact

Elon Musk58:30

Yeah this is underrated by the way just go ahead

Vaibhav Taneja59:23

Yeah I was going to yeah basically you know the amount of solar manufacturing which happens in the US we're just going to multiply it with an order of magnitude and none of these things are easy right because what you have to do is in order to build a factory you have to start from ground zero so just so you know again I don't think we have shared this we end up being the general contractor for almost all our construction facilities because we are doing that much construction and so going back to what Elon was saying we're going at a very rapid scale and yes uh you know this means that we have we are doing a lot of things all at the same time and that's why you know we just have to go as fast as we can humanly make things work in the real world.

Elon Musk59:27

Yeah, but our capex efficiency I think is off scale good.

Travis Axelrod59:34

Alrighty. And then Dan, yeah, did you have a follow-up that we can wrap up with?

Dan Levy1:00:16

Yeah, maybe just a quick question on energy storage, which you know, I think is a key topic here. Maybe you can just address, you know, to what extent is energy storage going to be supply constrained for the foreseeable future? And then just to what extent are the deployments right now the typical peak shaving that you'd see at utilities versus you've talked about in some of your materials you know, for battery storage addressing the quality of power issue for data centers giving the sharp fluctuations in power use where you have an advantage given software power electronics so just what is that demand curve right now between a data centers versus just broader peak shaving for utilities

Elon Musk1:00:39

Um well it's still mostly um it's not just peak shaving but it's also grid balancing so it's not just like the packs are on briefly but for balancing power from um wind generation and solar generation batteries are awesome um I mean the solar battery combination will be

Elon Musk1:00:55

How the vast majority of energy in the world is produced in the future um that's already of course how all of the Starlink satellites are powered is with solar panels and batteries so you can just think of Earth like a giant satellite

Elon Musk1:02:06

there's far more power available from the sun than anything else by far and we think power constraints are going to be they already are a major issue for AI you know just turning on the AI computers the AI compute demand is so high that people are having even the so-called you know the hyperscalers are having trouble turning on their AI compute and finding the power and then smoothing the power with you know especially for the training runs where the power cycles dramatically in a very short period of time you can have during a training run the power consumption can drop by you know 70% for 100 milliseconds and you really need fast acting advanced power electronics to be able to smooth out these massive the massive changes in power especially during the training runs so that's why SpaceX has bought so many mega packs for the data centers it's actually

Elon Musk1:02:25

Mostly for smoothing out the power for the training runs but it will also be useful for being able to tap more power from the grid by you know if you tell utilities that they can

Elon Musk1:02:42

You know cut that that they won't they will not need to supply power during the you know the worst hours of the worst days of the year because the batteries can handle it then that makes it much easier for that for them to give you power

Elon Musk1:03:22

In fact, I mean, probably the best way to scale total energy production in the United States is simply using batteries because there's, I think, around 1.2 or 1.3 terawatts of power production in the US but the average power usage is only half a terawatt so you've got two and a half times as much power generation as the average usage that means you could potentially double the energy output of the United States just with batteries so really we see demand for MegaPack being very very high in the future

Travis Axelrod1:03:30

Alrighty. Uh, that is all the time we have for today for Q&A. Uh, we appreciate everyone's questions and we look forward to talking to you next quarter. Thank you very much.

Vaibhav Taneja1:03:33

Thanks everyone.