Elon Musk Makes Big Tesla Predictions On Q1 2026 Earnings | Supercut

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[00:00:01]Hi, >> good afternoon everyone and welcome to Tesla's first quarter 2026 Q&A webcast.

[00:00:08]My name is Travis Axarrod, head of investor relations and I'm joined today by Elon Musk Tenea and a number of other executives.

[00:00:16]Our Q1 results were announced at about 3 p.m. Central time in the update deck we published at the same link as this webcast.

[00:00:24]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. 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.

[00:00:42]During the question and answer portion of today's call, please limit yourself to one question and one follow-up.

[00:00:48]Please use the raise hand button to join the question queue. Before we jump into Q&A, Elon has some opening remarks.

[00:00:55]Elon, >> thank you. So I think we've got a very exciting year ahead of us with 2026.

[00:01:00]We're going to be substantially increasing our investments in the future. So should expect to see significant a very significant increase in capital expenditures. But I think well justified for a sub substantially increased future revenue stream. And obviously Tesla is not alone in this. I think you've seen most if not all certainly the major technology companies are substantially increasing their capital investments and and and we're going to be doing the same. I think it's it's going to pay off in a in a very big way. So we're investing in and improving our core technologies battery powertrain AI software AI training chip design manufacturing expan you know laying the groundwork for significantly increased manufacturing production. We are also strengthening our supply chain across the board, batteries, energy, AI, silicon, everything and laying the groundwork like I said for what we expect to be a significant increase in vehicle production in the future and of course a very significant increase well actually releasing Optimus but increasing our internal production for testing and then probably being able to have Optimus be useful outside of Tesla sometime next year.

[00:02:19]As you've heard me say a few times, I think Optimus will be our biggest product, not just Tesla's biggest product ever, but probably the biggest product ever. And and I remain convinced of that conclusion.

[00:02:34]So on our vehicle side, it's always I think worth noting that a Tesla car is incredibly incred incredible value for money and they're they're all autonomy ready depending on what part of the world you're in. The supervised full self-driving is getting extremely good. We have just started production of cyber cabab and we'll begin production of our semi-truck soon.

[00:03:01]Now I should say whenever you have a new product with with with a completely new supply chain, new everything, it's always a stretched out scurve. So you should expect that initial production of cyber cab and semi will be very slow, but then ramping up and going kind of exponential towards the end of the year and certainly next year.

[00:03:22]And in fact, we'll be ramping up production of all vehicles and all factories to the best of our ability through the balance of this year.

[00:03:31]On the energy front, the United States and the whole world will need a lot of energy storage to meet growing electricity demand. Demand for our mega pack is very strong and we're excited to begin production of Mega Pac 3 later this year in our new worldclass factory outside Houston.

[00:03:48]for full self-driving and robo taxi version 14.3 was a major architectural update and we have a whole pipeline of major improvements to full self-driving that we believe will lead to unsupervised full self-driving being available anywhere in the world that it is legal to do so.

[00:04:10]And then there's a version 15 hopefully later this hopefully by the end of this year but certainly by early next year and that will be a complete overhaul of the software architecture and we'll run on AI4. That's and that at that point we're really just increasing the safety level of FSD above human safety level even more. meaning I think even within version 14 we're significantly safer than human but B15 will take that to another level.

[00:04:45]We've expanded Grover taxi to Dallas and Houston using the same software source in the Bay Area and the limiting factor for expansion is really rigorous validation making sure things are completely safe. We don't want to have a single accident or injury with the expansion of robo taxi and we have to the credit of the team not had a single one to date. And then Optimus, we're preparing Fremont for starter production later this year with with Optimus.

[00:05:16]Again, totally new supply chain, totally new technology. So therefore, it's the production scurve is always very slow in the beginning, but we'll ramp up to significant numbers next year.

[00:05:28]And we're constructing a second Optimus factory in at our Giga Texas location.

[00:05:34]Um, and that will probably start production around summer next year.

[00:05:39]The V3 Optimus design is almost ready to demonstrate. I think we want to just make sure it's like polished, like it works functionally, but there's some aesthetic elements that need to be finalized. And I think probably middle of this year we should be able to show it off. We're also a little hesitant to show V3 off because we find our competitors do a frame by frame analysis whenever we release something and copy everything they possibly can. So I think there's some value to you know not showing new technology until it's close to production.

[00:06:17]The congratulations to again to the Tesla AI chip team for taping out AI5.

[00:06:24]That's going to be a great chip. I think probably the best ed AI inference chip for edge compute that exists and certainly unequivocally the best value for money. team did a great job and we're already have a lot of momentum for designing AI6 and we've begun to discuss ideas for dojo 3.

[00:06:48]So this is all very exciting. We've also finalized plans for the research chab on the Giga Texas campus and we'll start construction of that this year.

[00:07:00]In conclusion, Tesla is working on a lot of large ambitious projects. makes it all very very challenging, but I think they're going to be revolutionary. And this is what the team does best. Solve the hardest problems and build amazing products. And I'd like to thank the Tesla team for all their hard work. And thank you to all of our supporters.

[00:07:18]>> Great. Thank you very much, Elon. And Veov also has some opening remarks.

[00:07:22]>> Thanks, Travis. So, 2026 has had an interesting start, not just for us, but I think the world in general. On the autos business, we have seen a resurgence in demand in AMIA and certain countries like France and Germany showing over 150% quarter overquarter growth in deliveries. In APAC, we witnessed growth in South Korea and Japan again in terms of deliveries. Even out here in the US, we've seen a slight growth in terms of quarter quarter deliveries.

[00:07:55]On the order backlog front, we ended the quarter with the highest Q1 order backlog in over two years. Whilst the recent increase in gas prices has had a positive impact on the order rate, this improvement started before the uptrend in gas prices. This is due to the work done by the Tesla team in bringing more compelling and affordable vehicles to market. 10 years back when we launched model 3 in the US with a promise of 35,000 starting price which if you adjust today for inflation translates to about $48,000 in today's dollar terms the starting price of model 3 today is way less than that while the product is way more compelling from where it started given this setup we're focused on increasing our overall production volume something that we already started in Q1 this volume increase is evidenced by the Giga Berlin reaching a record output of over 61,000 units in Q1. We plan to keep growing volumes further not just in Berlin but across all our factories. Our biggest limiter continues to be our battery pack capacity and we are actively working on resolving that.

[00:09:10]Auto margins excluding credits improved sequentially from 17.9 to 19.2%. and 2%.

[00:09:18]Note that we have had certain one-time benefits from warranty trowns around 230 million and some relief on tariffs. We have not realized any benefit from the recent Supreme Court ruling on IPA tariffs as there is still a lot of uncertainty around the final outcome.

[00:09:36]Both tariffs and sustained high interest rates continue to add to our automotive cost. Interest rate subvention costs are recognized upfront. If interest rates continue to rise, our cost of subvention will continue to impact auto margins.

[00:09:53]On the FSD adoption front, we continue to see improvement reaching nearly 1.3 million paid customers globally. The bulk of the growth came from subscriptions while upfront purchases only increased 7% as we removed the purchase option in some markets. in Q1.

[00:10:11]We recently received approvals for FSD in Netherlands. This sets up us well for a EUwide approval later in Q2 and you know we're just gated by how the regulators go about it. Additionally, we've also received approvals in China.

[00:10:32]The broader approval is still not there, but we're working with the regulators in the country and we're hoping that we can get approval by Q3. With these approvals coming through, we expect the broader adoption of the software in the existing fleet and incremental demand for our vehicles. With all this in mind, we have evolved our vehicles sales strategy where we now emphasize FSD as the product and vehicle as only the delivery mechanism.

[00:11:02]As we have noted previously, the energy storage business is inherently lumpy tied to customer deployment timelines.

[00:11:10]In Q1, we deployed 6 8.8 Gawatt R of energy storage, a 38% sequential decline. However, we still expect 2026 deployments to be higher than 2025.

[00:11:25]We set yet another record with gross margins in this business over 39 a.5% due to some one-time benefits from certain tariff recognitions of more than 250 million from certain tariffs which you had paid in prior quarters on a normalized basis. We continue to expect energy compression from here with increasing competition and tariff impacts. As previously discussed, tariffs in this business can have outsiz impacts as most of the battery cells are procured from China. Our order backlog for this business is robust and we're doing our best to build not just based on existing demand but also on expected demand.

[00:12:08]Services and others improved sequentially from 8.8% to 9.2%. This includes a collection of efforts meant to support our customers like service centers, used cars, paid supercharging, part sales, insurance, and even our robo taxi business. We're making deliberate investments in the infrastructure to help the robot taxi in the future. We grew the robot taxi fleet quarter over quarter and we expect to keep ramping the fleet as we accelerate and get into other geographies.

[00:12:39]On operating expenses side, we did increase sequentially from a full quarter stock-based compensation expense for the 2025 CO compensation plan for which one milestone is still deemed probable. Additionally, our spend on AI related initiatives including expense on development of our own AI5 chip and new products like cyber cap, semi, optimus and mega block etc. continue to be at a elevated levels and we expect this trend to continue for the full year 2026.

[00:13:15]Net income was impacted from marktomarket charges on Bitcoin holdings which depreciated 22% as compared to the last quarter and the unfavorable impact of FX primarily from our large intercomps on free cash flow. We ended the quarter with just over 1.4 4 billion as Elon mentioned we are in a very big capital in investment phase which is going to start now and would last a couple of years. So based on that our current expectation for 2025 2026 is over 25 billion of capex and you know just to remind you we are paying for six factories which were going to go into operation. Some have already started some would go into operation later part of this year. We're further increasing our investment in AI related initiatives including the AI infrastructure to support robotaxi and the launch of Optimus. We've already started placing orders for the research semiconductor flab in Austin and for solar manufacturing equipment. While this may seem a lot and we will have the impact of negative free cash flow for the rest of the year, we believe this is the right strategy to position the company for the next era. We'll make such investments in a very capital efficient manner.

[00:14:36]We are actively working on our mission of building a future of amazing abundance. However, that requires not just a lot of investment but an immense amount of execution. The future is going to be great and the whole Tesla team is rising to the occasion to make this a reality. I would like to end by thanking the Tesla team, our customers, investors and vendors for having confidence in us on this journey. Thanks.

[00:15:06]>> Thank you very much, Rev. Now, we're going to go to investor questions starting with a question from say.com.

[00:15:12]The first question is when will we have the Optimus 3 reveal which we already touched on but the rest of the question is when will Optimus production start since we ended the model X and S production earlier this midyear and then what's the expected Optimus production rate exiting this year and what are the initial targeted skills >> well as I was saying what we found is that when we've unveiled first Optimus versions we found out how competitors literally do a frame by frame analysis and copy everything we're doing. So I think we want to push the Optimus 3 unveil maybe closer to production start of production is we're assuming is somewhere you know somewhere around the late July August time frame and I mean just just to inject some reality into these questions since these questions are are not you know who did this whoever this question does not fully understand what happens with the production line the the Last SX production will be in early May, but you have to look at the entire upstream portion of the production line. So you have to start with, you know, sales, battery packs, you know, motor production, all the parts production.

[00:16:26]And so we've been dismantling the sex production line you know from the you know more base level parts b the more basic level parts to as you get to more larger sub assemblies you you you start dismantling the line from the small parts first not not from the final assembly first. So the final assembly line will that'll be dismantled next month and the after the last of the SX vehicles done. Now, you can't dismantle some gigantic production line like overnight. It takes at least a few months to do so. And then you've got to install a new production line. Um, and you've got to provide all of the wiring and communication uh, you know, test out the machines of the new production line for Optimus. So, that that also takes several months. So frankly, if we're able to go from stopping production on one line, dismantling that entire line, reinstalling a whole new line, and turning that on in a matter of 4 months, that is an insanely fast speed.

[00:17:32]I don't think any other company on Earth has ever done that before, just to put things into perspective and inject some reality into the situation here. I don't know what the production rate of Optimus will be this year. It is impossible to predict these things. When you have a brand new product in an entirely new production line and you have 10,000 unique items, all of which have to go right to ramp production. It will move as fast as the least lucky, slowest, dumbest part in the entire 10,000.

[00:18:02]And this is a Optimus is a completely new product with a completely new production line. So, it's just literally impossible to predict except that I I think it will be quite slow at first as we iron out the 10,000 plus unique items that have to be sold for Optimus to reach volume production.

[00:18:24]Initial skills will be obviously we're going to start with simple skills um in the factory and then build up from there.

[00:18:33]>> Great. Thank you, Elon. The next question is, what milestones are you targeting for unsupervised FSD and robo taxi expansion beyond Austin this year and how will that drive recurring revenue?

[00:18:44]>> Well, we certainly hope to have unsupervised FSD or robo taxi operating, you know, in I don't know a dozen or so states by the end of this year.

[00:18:57]Initially, you know, we're taking a very cautious approach to the roll out here.

[00:19:01]like we we haven't had any injuries and certainly no fatalities to date with the unsupervised FSD and rover taxi expansion. We want to keep it that way and so I think probably unsupervised FSD or rover taxi revenue will not be super material this year but I do think it will be material it'll be material probably in a significant way next year.

[00:19:27]>> Great. Thank you very much. The next question is, when do you expect FSD unsupervised to reach customer cars?

[00:19:34]>> Prod. I'm just guessing here, but probably in the fourth quarter. It's difficult to release this like to everyone everywhere all at once because we do want to make sure that they're not unique situations in a city that you know particularly complex intersection or you know actually they tend to be places where people get into accidents a lot because they're just you know perhaps there's an like I said an unsafe intersection or bad road markings or you know a lot of weather challenges. So I think we would release unsupervised gradually to the customer fleet you know to yeah as we feel like a particular geography is confirmed to be safe.

[00:20:20]>> Great. And the next question is how will hardware 3 cars reach unsupervised FSG?

[00:20:28]Unfortunately, hardware 3, I wish it were otherwise, but hardware 3 simply does not have the capability to achieve unsupervised FSD. You know, we did think at one point it it would have that, but relative to to hardware 4, it has only 1/8 of the memory bandwidth of hardware 4. And memory bandwidth is one of the key elements needed for unsupervised FSD. It's just generally a thing that's needed for for AI for if you're doing an auto aggressive transformer memory bandwidth is the choke point. So, you know, for for customers that have bought FSD, what we're offering is essentially a trade in like a discounted trade in for cars that have AI4 hardware and and and we'll also be offering the ability to upgrade the car to replace the computer.

[00:21:25]And you also need to replace the cameras unfortunately to go to hardware 4. So to do this efficiently, we're going to have to set up like kind of micro factories or small factories in major metropolitan areas in order to do it efficiently. If it's because if it's done just at at the service center, it's it it is extremely slow to do so and inefficient. So we we basically need like many production lines to to make the change. And I I do think over time it's going to make sense for us to convert all hardware 3 cars to hardware 4 because that's what enables them to uh enter the robo taxi fleet and have unsupervised FSD.

[00:22:11]>> And for what it's worth in the meantime we're going to also release V14 version for hardware 3. This will be a dist version of the same V14 software that we released for hardware 4 and people should be able to start the drives from park state and basically have all the features that V14 for hardware 4 has and that's expected to come end of June.

[00:22:32]>> Great. Thank you very much. The next question is what enabled you to finish the AI5 tape out early and were there any changes to the original vision? Last week, Elon said AI5 will go into Optimus and the supercomputer, but one month ago said it would go into the robo taxi. Has AI5 been dropped from the vehicle road map?

[00:22:52]Well, the reason AI5 tape out finished early was because the team worked incredibly hard to make it happen and just over time we gathered a lot of momentum. But we did have to work every weekend for six months straight, including every holiday. So it was a lot of sacrifice by the team and I was there of course myself every weekend and you know fortunately we didn't encounter any major we didn't make any major mistakes that at least that we're aware of that required pushing out the tape out so that the team just did a great job and worked incredibly hard is the reason.

[00:23:30]Yeah, I do expect that AI5 will go into Optimus and into the data center because it's looking like we'll be able to achieve unsupervised self-driving with AI4 that is far greater than human safety levels. So, which means it's certainly not immediately needed in the car. some point I think it will make sense for us to switch to AI5 in the car, but there's not a pressing issue to do so. So, but at some point the AI4 hardware is going to get like so old that it's like okay, you know, the only reason they're keeping the factory open is for AI4. We are planning an AI4 upgrade to use newer generation RAM. So it'll go from uh 16 gigabytes to I think 32 GB per SOC. So a total of 64 GB and probably a 10% increase in compute in in sort of in trillions of operations per second and in memory bandwidth. So that's AI4.1 AI4 Plus probably goes into production middle of next year I think depends.

[00:24:49]It's depends on Samsung's doing the modifications for us. So it sort of depends on when they're able to finish those modifications and bring it to production.

[00:24:59]>> Great. The next question is, now that FSD has been approved in the Netherlands and is expected to launch across Europe this summer, can you discuss your robo taxi strategy for the region?

[00:25:09]>> Well, we're probably jumping the gun here on robo taxi in Europe since it is took us an immense amount of time just to get supervised self-driving approved in Europe. And you know, these we don't control the regulators. you know, it's we push as hard as we can, but that's it's ultimately up to the governments in Europe and the EU to decide what what to do. So, yeah, as it is, we've only been approved in the Netherlands. We expect to be improved approved in a lot of other countries and I think the supervised FSD goes to Brussels for EU review in May. Yeah. So and obviously the next thing beyond that is to aim for unsupervised self-driving or rover taxi in Europe. I actually don't know what the time frame for that is and would be somewhat at the mercy of the regulators as to when that approval would would take place.

[00:26:04]>> And from a technology standpoint what we deployed in Netherlands and Europe is the same exact architecture and the training procedure and so on except it had more Europe data. And I suspect the same thing will be true for unsupervised FSD as well. Whatever we used to solve in the US will work in other places in the rest of the world too provided we were able to add the data from the local regions.

[00:26:26]>> Great. The next question is given the recent Nitsa incident filings, can you update us on the robo taxi safety data?

[00:26:34]If safety validation remains the primary bottleneck, why not deploy thousands of vehicles to accelerate removal of the safety driver?

[00:26:42]>> Shark, do you want to take that? Yeah, we are increasing the amount of our QA fleet, but we also want to use the customer fleet to give us the useful metrics back so that we can scale it safely. Like I don't mentioned, we are absolutely focused on safety and so far we have zero incidents and that's what the Nitsa filing also shows. In addition to safety, we are also solving some of these so-called scaling issues. For example, you do not want the robot taxi to be stuck blocking intersections or don't want to be dropping people off at slightly incorrect locations and so on.

[00:27:13]So we are simultaneously solving the long tale of safety by monitoring the metrics across the entire Tesla customer vehicle fleet which are you know is close to driving 10 billion miles on FSD in the next few weeks and also scaling up the amount of QA fleet that we have across the entire US to accelerate our safety validation while also scaling the rest of the factors that can you know throttle the increase of unsupervised vehicles.

[00:27:40]All right, the next question is, is V14.3 still the last piece of the puzzle to enable large scale unsupervised FSD and robo taxi or do we have to wait until V15?

[00:27:54]>> Well, no, I I I think 14.3 is is is the last piece of the puzzle for unsupervised FSD. Now the question is like degrees of safety like how safety and convenience I suppose we have a lot of known improvements like major architectural improvements that we know would improve the probability of safety significantly.

[00:28:17]So I think it's it's not going to make sense for us to deploy you know unsupervised FSD or robo taxi at large scale when we we know that there are major architectural improvements to the software that can improve safety. So, so I think we're we're going to want to finish writing that software, validate it, and release it before going to large scale, unsupervised FSD, depending as what large scale means. I mean, we we we are we of course, as I mentioned earlier, doing unsupervised FSD in three cities and we'll expand to, like I said, probably a dozen states or more later this year. So kind of depends on what your definition of large scale is. But I do think it wouldn't it wouldn't be >> right for us to go go to go to like very large scale unsupervised FSD when we know that there are software improvements in the pipeline that would improve safety.

[00:29:17]>> Yep. And I'd like to note that the version of robo taxi that's running in Austin, Dallas, Houston, etc. those are essentially 14.3 variants. And it's obviously safe that that's why we're able to launch in those cities and we continue to expand based on the V13 sorry V14.3 base for a while until V15 lands and V15 is going to be a major upgrade.

[00:29:40]>> Yeah.

[00:29:43]>> Great. Thank you. The next two questions we've already answered about robo taxi rollout and the data that that we're observing. So we will end on the last question which is what is Tesla doing to scale the energy generation business with solar? Residential roof deployments have stalled. Will Tesla move to regional solar and battery farms perhaps coupled to superchargers? Will we deploy solar through utilities?

[00:30:08]>> Yeah, the overall US residential solar market is going through a bit of a correction after the loss of the homeowner tax credit last year, but we still see strong demand shaping up for the second half of the year. Tesla introduced a lease product this year that allows us to capture the tax credit ourselves and offer competitive pricing for homeowners. We've also debuted our own solar panel with superior performance and aesthetics as well as our own best-in-class mounting system that gives us a fully integrated home energy ecosystem. We believe we strongly believe that solar and storage markets globally will continue to grow at both residential and utility scale and we will continue to invest in that growth.

[00:30:48]Great. Thank you, Mike. So, now we're going to move on to analyst questions.

[00:30:52]The first question is going to come from Will Stein at Truist. Will, please feel free to unmute yourself when you're ready.

[00:31:00]>> Uh, can you hear me?

[00:31:02]>> Yes. Yes, we can.

[00:31:04]>> Great. Great. Thanks for taking my question. Considering the various parties involved in the Terrafab project, I'm hoping you can provide some details for investors about which party is going to take responsibility for each aspect of that project, funding it, designing it, building it, operating, taking production, and the like. We'd love to hear some some more details.

[00:31:27]Yeah. So, we're still working out the details of the Terraab deployment. In the near term, Tesla will be uh building the research lab on our Giga Texas campus.

[00:31:41]This is something we expect to be probably, you know, a $3 billionish in initiative and capable of maybe a few thousand wafers per month. But it's really intended to try out ideas the research lab both in terms of maybe we have some ideas for improving the fund fundamental technology of how chips are made and some of the there's some new physics we'd like to test out but we also want to test out the ability to see if something is working in production. So you need kind of like a few thousand wafer starts a month to make sure that a production process is sound.

[00:32:21]And then SpaceX is going to take care of like the initial phase of the scaled up terra fab. And that's what we've figured out thus far. You know, any any kind of intracompany thing has to be approved by both the SpaceX and Tesla board of directors. It's got to go through a conflict resolution. It's kind of a lot of unfortunately a lot of complexity because we got to make sure Tesla shareholders are served and SpaceX shareholders are served and strike the right balance there. So it takes a while to work through the kind of independent director reviews on this. So that's basically what we've figured out thus far is Tesla's doing the research fab, SpaceX doing the initial part of the large scale terafab and then we got to figure out the rest.

[00:33:07]>> Yeah.

[00:33:08]>> And what about Intel's involvement?

[00:33:12]>> Yeah. So Intel is excited to partner with us on the some of the core manufacturing technologies. So we plan to use Intel's 14A process which is state-of-the-art and in fact not yet totally complete. So, but given that by the time Terrafab scales up, 14A will be probably fairly mature or ready for prime time. 14A seems like the right move. And we have a great relationship with Intel, a lot of respect for the CEO, the CTO, and the new team there.

[00:33:50]So, we think it's it's going to be a great partnership.

[00:33:53]>> Yeah. And the other thing on the research fab I think we've said it before we plan to do memory logic everything in the same place including mask because we want to have a quick iteration loop so that we can see and basically scale the technologies which we're trying to bring up. Yeah, I I think this will be unique in the world or at least I'm not aware of any place where you'd you have the lithography mask creation the and and then logic memory and packaging in in under one roof in one building. that that's about the fastest I could possibly imagine doing recursive research and development and and being able to try out some pretty radical ideas some of which have you know you know it's kind of longshot stuff but if the some of these long shots pan out would be radical improvements in the way chips work.

[00:34:55]>> Great. The next question is going to come from Pierre at New Street. Pierre, please feel free to unmute yourself.

[00:35:02]>> Hey, thanks a lot for taking my question. A quick one first on FSD adoption. So, you have 180,000 new users paying users this quarter and I compare that to your overall install base, it might be 15%, but then if I shrink that to the US or to North America where most of them are, it's probably more like 30 35%.

[00:35:25]And I'm trying to and I compare that you probably sold about 100,000 cars in North America in the quarter. So you're winning twice more FSD users and you're selling cars. And then if I add to that picture the fact that I guess it's mostly hardware for owners who subscribe to FSD, it sounds like most drivers in North America who have hardware for would already be using FSD.

[00:35:55]Is that the right way to think about it?

[00:35:57]And the kind of like success FSD is meeting today. Is that is that is that the right way to think about it?

[00:36:04]Yeah, I I think you're thinking about it the right way pair and the other thing which I'll share is that you know you can't just look at one quarter versus the other quarter in terms of churn but we are actually seeing churn of subscribers also coming down which again is a reflection of the product is getting better and obviously if subscriptions are going up that is a good metric. The other thing also to note is that we are seeing customers actually drive longer which again you could correlate it that's why you have lesser churn because people are liking the product and if I mean I've said this before if I just use my own personal behavior right I literally get in the car I press a button and it just goes and earlier I used to park now I don't even have to park and that is the exper experience which we want everybody to gain and that's why you're starting seeing it in the numbers come through.

[00:37:06]>> Excellent. Thank you. And if I may maybe a quick followup completely different it's more on the Optimus architecture and you talked about the partnership with XAI and and Gro and I I was wondering if you can share with us anything about how the system to intelligence is going to be implemented.

[00:37:25]Is that going to be on board on chips inside Optimus? Or if we should think about like your fleet of like a million Optimus being produced a year actually driving very significant inference demand in data centers as well for for system to thinking.

[00:37:44]Well, we think we can put a lot of intelligence locally in the robot and and and it certainly needs to be enough intelligence that if the robot gets disconnected, like if it's a bad cellular signal or there isn't Wi-Fi, you know, Optimus can't just get stuck.

[00:37:59]It needs to have enough local intelligence that it can still do useful things, you know, even if it loses the connection. Kind of like the car. Like the car does not need any cellular or Wi-Fi connection to be able to drive safely. Now I guess you can think of like Octopus needs kind of a a manager to tell it tell it what to do broadly speaking like if you know otherwise it's going to keep doing the same thing it did before. So, you know, I think you need kind of a an orchestration AI, which you know, Grock would be good for orchestration and and then for, you know, for Optimus' voice, you know, having a low latency intelligent voice AI, Grock is actually very good for that. So if you want to talk to Optimus and have kind of a you know a Grock level conversation, you you kind of need to connect to a Grock level AI for for that. But but I would expect the amount the amount of interaction apart from like you know the voice voice stuff and asking complicated questions of the robot that necessarily needs a a large AI model to answer the you know Grunk would probably have about as much interaction with Optimus as a manager would have with the people on their team.

[00:39:20]So meaning meaning Optimus could probably work for you se several hours without any management oversight.

[00:39:29]Great. The next question is going to come from Dan at Barclays. Dan, please feel free to unmute yourself.

[00:39:36]>> Great. Good evening. Thank you for taking questions. Elon, your your chip suppliers generally generate pretty good economics on the chip they sell. Your approach has historically been on vertical integration. Part of that has been to get better economics. So I know the the longerterm goal of Terafab is to get the supply you need, but how much of Terafab is also motivated to get better economics on your midterm chip purchases? And how long is it going to take to ramp to get to a yield that achieves that type of economic parody?

[00:40:09]>> No, I mean Terafab is is not some sort of mechanism for to generate leverage over our chip suppliers. It's just literally we we don't see a path to having enough efficient quantity of AI chips down the road as we scale production to high levels. It just the the rate at which the industry is growing in logic but even more so in memory is just doesn't you know we just we just anticipate hitting the wall if if we don't make chiffs ourselves. So uh that's that's the reason for the ter t terab. I think that we do have some ideas for how to make maybe radically better AI chips.

[00:40:51]You know, these are kind of research ideas there, you know, which means like long shot, but if long shot pays off, it's maybe a giant improvement and it's just easier to do that if we have our own research fab and and and are developing our own production technologies.

[00:41:09]So, and if you look sort of longterm at, you know, say having AI satellites, making trips for those, there's just there's no just no way in hell the existing industry can keep up with that. It's impossible.

[00:41:23]>> All right. And our next question is going to come from Mark at Goldman Sachs. Mark, please feel free to unmute yourself.

[00:41:32]>> Yes. Good afternoon. Thank you very much for taking my question. I recognize the importance of FSD and that FSD can help to drive vehicle sales and and is to see some of the improvements and the FSD technology more recently with version 14. However, I'm also hoping to understand if the company's view on new vehicle models has evolved and I ask given that Elon you posted on X recently that Tesla could develop a family vehicle and there's also been some past discussion about a compact vehicle.

[00:42:00]>> Well, I mean Cyber Cab is the compact vehicle. It's actually I mean it's very roomy but it's a two it's a twoerson vehicle and we do think probably most of our production long term will be cyber cap because 90% of miles driven are with two or one or two people. So it would mean that you know you'd want to vast majority of your production to be cybercap then but over time it's going to make sense for our whole lineup to be autonomous vehicles of different sizes.

[00:42:30]And I I did talk a bit about this when we did the kind of AI day in LA at Warner Brothers and you know showed like this is our current lineup and this is what you know some idea of what our future lineup will be which is that it's going to be almost entirely autonomous.

[00:42:47]In fact longterm the only manually driven car will be the the new Tesla Roadster. Speaking of which we may be able to debut that in a month or so. It requires a lot of testing and validation before we can actually have a demo and not, you know, have something go wrong with the demo. But I think it will be one of the most exciting product unveils ever. I'm not sure. I I don't think it moves the needle massively from a revenue standpoint. So, but it is very cool. I think I think it might be one of the most spectacular demos ever.

[00:43:21]>> All right. And Mark, did you have a follow-up question?

[00:43:25]>> Yeah, thanks Travis. My other question was on batteries and the company mentioned batteries as a constraint on its growth. Can you speak more to how Tesla expects to resolve this and to what extent that might come from ramping up your own LFP and 4680 battery cell manufacturing or is this something that you'd expect to resolve primarily with increased sourcing from suppliers? Thank you.

[00:43:46]Yeah. So, at the moment, I think the limiter is not the cells itself. It's the battery pack capacity. And you know, we're like I said in my opening remarks, we're actively working on resolving this. There's more capacity being added as we speak. And I'll let Lars add a few more things to it.

[00:44:06]>> Yeah, thanks. As you guys may have seen in in Berlin, we started launching a Model Y battery pack with our in-house 4680 cells a few months ago, and that is ramping up nicely, adding to Berlin's output and helping with the demand surge that we've seen in Europe. As well, we're adding additional capacity in our Reno facility, sort of retooling it as it's been building packs now for, you know, almost 10 years. and in order to put in some more efficient lines and get you know additional output out there and then you know we continue to have growth in China as well ramping in-house LFP module production and battery packs associated with that. So all of those things are happening now and in in the next months and that's you know really plans we laid out a few months back to increase that that output with the growing demand.

[00:44:52]>> All right, thank you guys. And our next analyst is going to be Colin from Wells Fargo. Colin, please feel free to unmute yourself.

[00:45:01]>> Oh, great. Thanks for taking my questions. You you moved the safety driver in Austin and you're now expanding into Allison, Houston. What are the key safety metrics that you're tracking that gives you confidence that robo taxi is safe enough to expand? Is it sort of miles per intervention, miles per accident, per fatality? And and where do you stand on that now?

[00:45:25]>> Sure. Yeah, we track basically all the metrics that you mentioned. We have a pretty large QA fleet spread across all of the United States and then we you know look at any intervention that could happen and then sort of simulate both in practice and also in our simulators that are very very good nowadays using neural networks as what would have happened and then based on all these analysis we in the end make the call to expand and so far all of the expansions have gone according to our expectations.

[00:45:54]Yeah, a lot of a lot of what limits wider deployment of road taxi are actually not safety issues but convenience issues or or the car basically gets paranoid and gets stuck.

[00:46:05]Like sometimes it gets because it's it's programmed for maximum safety. So the problem is that then it sometimes just gets scared to do things. So like some get scared to cross railroads for example or it'll get stuck at you know a a light where there's the light the light never changes from red or I mean there was one kind of amusing situation where a whole bunch of rover taxis got stuck in the left turn lane in Austin because I kid you not a Whimo had crashed into a bus and so they could not turn left because the Whimo had crashed into the bus and so you had this like long line of like I don't know a dozen Tesla robo taxis that were waiting for the bus to move, but the bus was never going to move because the way crashed into the bus.

[00:46:56]So, so that obviously drives people crazy if there's a whole bunch of robo taxis blocking the whole road. So, it's it's a ton of things like that. That's the single biggest thing is is just the car being scared to move or getting kind of stuck in situations like that. We've also had literal infinite loops where, you know, the car might want to make a turn into a road, but there's construction and then it goes around the block, tries to turn into the road with construction, goes around the block, tries to turn the road. And so you have to stop the infinite looping, literal infinite looping. So th those are actually and that those are by far the issues that we have to resolve as opposed to direct safety issues.

[00:47:40]Got it. Great. And then did you have a followup last?

[00:47:43]>> Yeah. Just last year I asked about you know FSD and camera and the issues with sunlare and you noted that there was a breakthrough with direct photon counting that addressed this issue. But a month ago there was a Nitsa filing saying that they haven't received an update when the solution was deployed and the number of vehicles. Is this did it require a retrofit of the camera? Is this fully deployed? I guess I was just curious since the filing mentioned it.

[00:48:10]Yeah, first I want to say we did, you know, change the cameras some months ago and those are out and the Nitsa flying is referring to like older vehicles. We always work directly with Nitsa on all of the issues that they raise with us and there there's they're asking for quite a bit of information and you know we're complying with that in as timely a manner as possible and so we expect to resolve that and any of the other investigations in in short order.

[00:48:34]>> Yeah. Yeah. And we have also implemented stricter measures for the the visibility of the camera. So in recent software builds if the camera is not able to see things clearly because of you know residue buildup or what have you then the FSD won't be available for those cars.

[00:48:49]>> It just needs you have to clean the inside of the windscreen.

[00:48:54]>> Great. That unfortunately is all the time we have today. We appreciate everyone's questions and we look forward to talking to you next quarter. Thank you very much and goodbye.