Tesla Q1 2026 Financial Results and Q&A Webcast

Heat. Heat.

Heat.

Heat.

Heat.

Hey, heat. Hey, heat.

Hey.

Heat. Heat.

Heat up here.

Heat. Heat.

Hey.

Hey. Hey. Heat. Heat.

Heat. Heat. N.

Heat up here.

Hey. Uh uh.

Hey, hey, hey.

Heat. Heat.

Hey, hey hey.

Hey.

Hey.

Good afternoon everyone and welcome to Tesla's first quarter 2026 Q&A webcast.

My name is Travis Axarrod, head of investor relations, and I'm joined today by Elon Musk, VBA Teneeda, and a number of other executives.

Our Q1 results were announced at about 3 p.m. Central time in the update deck we

p.m. Central time in the update deck we published at the same link as this webcast. During this call, we will

webcast. During this call, we will discuss our business outlook and make forward-looking statements. These

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.

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

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

Elon.

Uh, thank you. So, uh, I think we've got a very exciting year ahead of us with 2026. Uh, we're going to be

2026. Uh, we're going to be substantially increasing our, um, investments in the future. So, should

expect to see significant uh, a very significant increase in capital expenditures. Uh, but I think well

expenditures. Uh, but I think well justified for a substantially increased future revenue stream. Um, and obviously Tesla's not alone in this. I think

you've seen most if not all um certainly the major technology companies uh substantially increasing their capital investments um

and uh and and we're going to be doing the same. I think it's uh it's it's

the same. I think it's uh it's it's going to pay off in a in a very big way.

So we're investing in and improving um our core technologies battery powertrain uh AI software AI training uh chip design

uh manufacturing expan uh you know laying the groundwork for significantly increased manu uh manufacturing production

um we are also uh strengthening our supply chain across the board uh batteries energy AI silicon everything um 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 uh a very significant increase well uh

actually releasing Optimus. Um but

increasing our internal production for testing um and then probably being able to have Optimus be useful outside of

Tesla sometime next year.

Um, as you've heard me say a few times, I think Optimus will be uh our biggest product, not just Tesla's biggest product ever, but probably the biggest

product ever. Um, and uh, and I remain

product ever. Um, and uh, and I remain convinced of that conclusion.

Um, so, uh, on the 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 uh, uh, part of the world you're

in. The uh, supervised full self-driving

in. The uh, supervised full self-driving is getting extremely good. Um we have uh just started production of cyber cabab

um and we'll begin production of our semi-truck soon. Um now I should say uh

semi-truck soon. Um now I should say uh whenever you have a new product uh with with with a completely new supply chain new everything uh it's always a

stretched out scurve so you should expect that initial production of cyber cap and semi will be very slow uh but then ramping up uh and and going kind of

exponential towards uh the end of the year and certainly next year and uh in fact we'll be ramping up production of of all vehicles uh and all factories uh to the best of

of our ability through the balance of this year.

Um on the energy front uh the United States and the whole world will need a lot of energy storage to meet growing electricity demand. Uh demand for our

electricity demand. Uh demand for our mega pack is very strong. Uh, and we're excited to begin production of Mega Pac 3 later this year in our new worldclass

factory outside Houston.

uh for full stop driving and robo taxi uh version 14.3 was a major architectural update and and we have a

whole pipeline of of major improvements to full self-driving that uh that that we believe will

um lead to unsupervised full self-driving um being available anywhere in the world that uh it is legal to do so.

Um and then and then there's a version 15 hopefully later this hopefully by the end of this year but certainly by early

next year um and that will be a complete overhaul of the software software architecture and we'll run on AI4. Um

that's uh and and that at that point we're really just uh

increasing the safety level of FSD uh above human safety level even more meaning I think even within version 14

we're significantly safer than than human but uh B15 will take that to another level.

Um we've expanded Grover taxi to Dallas and Houston uh using the same software source in the Bay Area. And um the limiting factor for expansion uh is

really uh rigorous validation making sure things are completely safe. We

don't want to have a single uh accident or injury with uh the expansion of robo taxi and we have to the credit of the team not had a single one to date.

Uh and then Optimus, we're preparing Fremont for startup production later this year with with Optimus. Again,

totally new supply chain, totally new technology. So therefore, it's the

technology. So therefore, it's the production scurve is always very slow in the beginning, but uh we'll ramp up to significant numbers next year. And we're

constructing a second Optimus factory in at our Giga Texas location.

Um, and that will probably start production around summer next year.

Um, the V3 Optimus design is uh almost ready to demonstrate. I think we want to just make sure it's like polished. Uh,

like it works functionally, but uh there's some aesthetic elements uh that need to be finalized. And um

I think probably middle of this year we should be able to uh show it off. Um

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 uh close to production.

Um the uh congratulations to again to the uh Tesla AI chip team for taping out

AI5. That's going to be a great chip. I

AI5. That's going to be a great chip. I

think probably the best ed AI uh inference chip for edge compute that exists. Um and certainly unequivocally

exists. Um and certainly unequivocally the best value for money. um team did a great job and we're already uh have a

lot of momentum for designing AI6 and we've begun to discuss uh ideas for dojo

3. Um so this is all very exciting. Um,

3. Um so this is all very exciting. Um,

we've we've also uh uh finalized plans for the uh chip um fab

the research chip fab on the Giga Texas campus and we'll start construction of of that this year.

Um in conclusion, uh Tesla is working on a lot of large ambitious projects.

They're all very very challenging, but I think they're going to be revolutionary.

Um, and this is what the team does best.

Solve the hardest problems and build amazing products. And I'd like to thank

amazing products. And I'd like to thank the Tesla team for all the hard work and thank you to all of our supporters.

Great. Uh, thank you very much, Elon.

Uh, and Veov also has some opening remarks.

Thanks, Travis. So, 2026 has an 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 Amyia and certain countries like France and Germany showing over 150% quarter overquarter growth in deliveries. In

Apac, we've witnessed growth in South Korea and Japan again in terms of deliveries. Even out here in the US, we

deliveries. Even out here in the US, we have seen a slight growth in terms of quarter quarter deliveries.

On the auto 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

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

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 uh 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.

Auto margins excluding credits improved sequentially from 17.9 to 19.2%. and 2%.

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.

Both tariffs and sustained high interest rates continue to add to our automotive cost. Interest rate subvention costs are

cost. Interest rate subvention costs are recognized upfront. If interest rates

recognized upfront. If interest rates continue to rise, our cost of subvention will continue to impact auto margins.

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.

We recently received approvals for FSD in Netherlands. This sets up us well for

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.

uh 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 vehicle sales strategy where we now emphasize FSD as a product and vehicle

as only the delivery mechanism.

As we have noted previously, the energy storage business is inherently lumpy tied to customer deployment timelines.

In Q1, we deployed 6 8.8 Gawatt R of energy storage, a 38% sequential decline. However, we still expect 2026

decline. However, we still expect 2026 deployments to be higher than 2025.

We set yet another record with gross margins in this business over 39 and a half% 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,

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 based on not just based on existing demand but also on expected demand.

Services and others improve 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 robot taxi business. We're making

deliberate investments in the infrastructure to help the robot taxi in the future. We grew the robot taxi fleet

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.

On operating expenses side, we there we did increase uh sequentially from a full quarter stockbased compensation expense for the 2025 CO compensation plan for

which one milestone is still deemed probable. Additionally, our spend on AI

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.

Net income was impacted from marktomarket charges on on our Bitcoin holdings which depreciated 22% as compared to the last quarter and the

unfavorable impact of FX primarily from our large intercompex.

On free cash flow we ended the quarter with o just over 1.4 4 billion as Elon mentioned we are in a very uh 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. and 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.

We are actively working on our mission of building a future of amazing abundance. However, that requires not

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

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.

Thank you very much, Ev. Uh now we're going to go to investor questions starting with uh questions from say.com.

The first question is uh when will we have the Optimus 3 reveal? uh which we already uh touched on. Um but the rest of the question is uh when will Optimus production start since we ended the

model uh X and S production earlier this uh than mid year and then uh what's the expected optimist production rate exiting this year and what are the initial targeted skills?

Well, as I was saying, um, what we found is that when we've unveiled various Optimus versions, we 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 um, unveil maybe closer to production. uh start of

production is um we're assuming is somewhere you know somewhere around the late July August time frame um

and um I mean just just to inject some reality into these questions since these questions are are not you know who did this forever this question does

not fully understand what happens with a production line um the the the last uh SX production will be in early May. Um

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, um you know motor production, all the parts production.

And so we've been dismantling the SX production line um you know from the you know more base level parts 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 um that'll be dismantled next month and the after the last of the uh SX vehicles

done. Now you can't you can't dismantle

done. Now you can't you can't dismantle some gigantic production line like overnight. It takes a at least a few

overnight. It takes a at least a few months to do so. Um and then uh you you've got to install a new production line. Um, and you've got to provide all

line. Um, and you've got to provide all of the the wiring and communication uh te you know test out the machines um of of the new production line for Optimus.

So that that also takes several months.

Um so frankly if if we're able to go from um stopping production on one line, dismantling that entire line, reinstalling a whole new line and

turning that on in a matter of four months. Uh that is a an insanely fast

months. Uh that is a an insanely fast speed.

Uh I I don't think any other company on earth has ever done that before. Just to

put things into perspective and inject some reality uh into uh the the situation here. Um

situation here. Um I don't know what the production rate of Optimus will be this year. It is

impossible to predict these things. Um

the when you have a uh brand new product in an entire new entirely new production line and the and you have 10,000 unique items all of which have to go right to

ramp production it will move as fast it will move as fast as the least lucky slowest dumbest part in the entire 10,000 um and this is a Optimus

uh is is a completely new product with a completely new production line um So uh

it's uh it's just literally impossible to predict um ex except that I I I think it will be

quite slow at first um as we iron out the 10,000 plus unique items that have to be sold for Optimus to um reach volume production.

um initial skills will be obviously we're going to start with with simple skills um in the factory and and then build up from there.

Great. Thank you, Elon. Uh 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?

Um well we we certainly hope to be have uh

unsupervised FSD or robo taxi um operating you know in I don't know uh

a dozen or so states. by the end of this year. Um,

year. Um, initially, you know, we're we're taking it very we're taking a very cautious approach to the roll out here. Like we we haven't

had any injuries and certainly no fatalities to date with the unsupervised unsupervised FSD and robo taxi expansion. We want to keep it that way.

expansion. We want to keep it that way.

And so um I don't I think probably uh 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.

Great. Thank you very much. Uh the next question is when do you expect FSD unsupervised to reach customer cars?

Um pro I'm just guessing here but probably in the fourth quarter. Um

it's it's difficult to release this like to everyone everywhere all at once because we 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 where people get into accidents a lot um because because they're just you know perhaps there's an

un like I said an unsafe intersection or bad road markings or um you know a lot of weather challenges. So so I think we

would release unsupervised gradually to the customer fleet you know to yeah um as we feel like a particular geography

is confirmed to be safe.

Great. Uh and uh the next question is how will hardware three cars reach unsupervised FSG?

Uh unfortunately hardware 3 I wish it were otherwise but hardware 3 simply does not have the capability to achieve

unsupervised FSD. Um,

unsupervised FSD. Um, you know, we did think at one point it it would have that, but uh relative to

to hardware 4, it has only 1/8 of the memory bandwidth of hardware for and and memory bandwidth is one of the key uh

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,

um, you know, for for customers that have bought, uh, FSD, um, what we're offering is essentially a

trade in, like a discounted trade in for cars that have, um, AI4 hardware. Um

and um and and we'll also be offering the ability to uh upgrade the car to replace the uh computer and you also need to replace the cameras

unfortunately um to go to hardware 4.

Um so to do this efficiently, we're we're going to have to set up uh like kind of

micro factories or small factories uh in major um metropolitan areas in order to do it efficiently. If it's because if

it's done just at the service center, it's it it is extremely slow to do so and inefficient. So we we basically need

and inefficient. So we we basically need like many production lines to to make the change. Um,

the change. Um, and um, 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 and have unsupervised FSD.

And for what it's worth, um, in the meantime, we're going to also release uh, a V14 version for hardware 3. Uh

this will be a distilled version of the same V14 software that we released for hardware 4. Uh and people should be able

hardware 4. Uh and people should be able to start the drives from park state uh and basically have all the features that V14 uh for hardware 4 has and that's

expected to come uh end of June.

Great. Thank you very much. Uh the next question is uh 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

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

robo taxi. Has AI5 been dropped from the vehicle road map?

Well, the reason AI5 tape out finished early was because the team worked incredibly hard to make it happen and um

just over time we we we gathered a lot of momentum. Um but we we did have to

of momentum. Um but we we did have to work every weekend for six months straight including every holiday. So it

was uh a lot of sacrifice by the team and and I was there of course myself every weekend. Uh and uh you know

every weekend. Uh and uh you know fortunately we didn't encounter any major we we didn't make any major mistakes that at least that we're aware

of that required um pushing out the tape out. So that that the team just did a

out. So that that the team just did a great job and worked incredibly hard is the reason. Um

the reason. Um uh yeah, I do expect that AI5 will go into Optimus and into the data center um

because it's it's it's looking like we'll be able to achieve um unsupervised

self-driving with uh AI4 that is far greater than human safety levels. So,

um, which means it's it's it's not certainly not immediately needed in in the car. Um,

the car. Um, at some point I think it will make sense for us to switch to AI5 in the car, but that's but there's not a a pressing

issue to do so. Um,

so but at some point the AI4 hardware is going to get like so old that it's like okay uh you know the only reason they're keeping the factory open is for AI4. Um

we we are planning an AI4 uh upgrade uh to use newer generation RAM. Uh so it'll it'll

go from uh 16 gigabytes to I think 32 gigabytes per SOC. So a total of 64 GB um and

um probably a 10% increase in compute in in sort of into trillions of operations per second and in memory bandwidth. So

that's uh AI4.1 AI4 plus probably uh goes into production middle of next year, I think. Depends.

It's it's depends on on uh Samsung's doing the modifications for us, so it sort of depends on on when they're able to finish that finish those modifications and bring it to

production.

Great. Uh the next question is, uh 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?

Well, we're probably jumping the gun here on um robo taxi in Europe since uh it is uh took us an immense amount of time just

to get supervised self-driving approved in Europe and uh you know these uh we don't control the regulators you know it's uh we push as hard as we can but

but that's it's ultimately up to the to the governments in Europe and the EU to decide what uh what to do. Um

so, uh 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 um supervised FSD goes

to Brussels for EU review um in May.

Yeah. So

um obviously the the next thing beyond that is to um aim for unsupervised self-driving or rover taxi in Europe. Uh 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.

And from a technology standpoint, um what we deployed in Netherlands and Europe is the same uh exact architecture uh and the training procedure and so on except it had more Europe data. Um 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.

Great. The next question is uh given the recent Nitsa incident filings, can you update us on the robo taxi safety data?

If safety validation remains the primary bottleneck, why not deploy thousands of vehicles to accelerate removal of the safety driver?

Shark, do you want to take that?

Yeah. U we are increasing the amount of our QA fleet, but we also want to use uh the customer fleet to um give us uh the useful metrics back so that we can scale

it safely. Like I don't mentioned we are

it safely. Like I don't mentioned we are absolutely focused on safety and so far we have zero uh incidents um and that's what the Nitsa filing also shows. In

addition to um safety we are also solving some of these uh so-called scaling issues. For example, you do not

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 uh slightly incorrect locations and so on. So we are

simultaneously solving the long tail of safety uh by monitoring the metrics across the entire Tesla customer vehicle fleet which are you know uh is close to

driving 10 billion miles on FSD uh in the next uh few weeks and also scaling up the amount of QA fleet that we have across the entire US to accelerate our

safety validation uh while also scaling uh the rest of the factors that can um you know throttle the um increase of unsurprised vehicles.

All right. Uh the next question is, is V uh 14.3 still the last piece of the puzzle to enable uh largecale unsupervised FSD and

robo taxi or do we have to wait until V15?

Well um no I I I think 14.3 is is is the last piece of the puzzle uh for unsupervised FSD. Now the question is like degrees of

FSD. Now the question is like degrees of safety. um like how safety and

safety. um like how safety and convenience I suppose. Um

we have a lot of known improvements um like major architectural improvements that we know would improve the probability of safety significantly.

So I think it's it's not going to make sense for us to deploy, you know, unsupervised FSD or rover taxi at large scale when we we know that

there are major architectural improvements to the software that can improve safety. Um so so I think we're

improve safety. Um so so I think we're we're going to want to uh finish writing that software, validate it and release

it before uh going to large scale unsupervised FSD depending what large scale means. I mean

we we we are of course as I mentioned earlier uh doing unsupervised FSD in three cities and we'll expand to like I said probably a dozen states

or more later this year. Um, so kind of depends on what your definition of large scale is. Um,

scale is. Um, 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.

Yep. And I'd like to note that the version of robot taxi that's running in Austin uh Dallas uh Houston etc. Those are essentially 14.3 variants. Um,

and it's obviously uh safe that that's why we're able to launch in those cities and we continue to expand based on the V13 uh, sorry, V14.3 base um, for a

while until V15 lands and V15 is going to be a major upgrade.

Yeah, great. Thank you. Um, the next two

great. Thank you. Um, the next two questions we've already answered uh, about robo taxi uh, rollout. um and uh the data that that we're observing. So

uh we will end on the last question which is uh what is Tesla doing to scale the energy generation business with solar? Residential roof deployments have

solar? Residential roof deployments have stalled. Will Tesla move to regional

stalled. Will Tesla move to regional solar and battery farms perhaps coupled to superchargers? Uh will we deploy

to superchargers? Uh will we deploy solar through utilities?

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 have also debuted our

for homeowners. We have also debuted our own solar panel with superior performance and aesthetics uh as well as our own best-in-class uh 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.

Great. Thank you, Mike. Uh so now we're going to move on to analyst questions.

Uh the first question is going to come from uh Will Stein at Truist. Uh Will,

please feel free to unmute yourself when you're ready.

Uh can you hear me?

Yes.

Yes, we can.

Great. Great. Thanks for taking my question. Um considering the various

question. Um considering the various parties involved in the terrafab project um I'm hoping you can provide uh some details for investors about which party

is going to take responsibility for each aspect of that project funding it designing it uh building it operating taking production and the like. Uh we'd

love to hear some some more details.

Yeah. So,

we're still working out the um the details of the Terapab uh deployment. Um

uh deployment. Um in in the near term, uh Tesla will be um

building the uh the research lab uh on our Giga Texas campus. Um this is something we expect to be probably,

you know, a three billion dollarish initi in initiative um and capable of maybe a few thousand wafers per month but it's

really intended to try out ideas the research lab um both both in terms of maybe we have some ideas for improving the fund fundamental technology of how

chips are made um and some of the there's some new physics we'd like to test out um but but we also want to test out the ability to um

to see if something is working in production. So you need kind of like a

production. So you need kind of like a few thousand wafer starts a month uh to make sure that uh a production process is sound.

Um and and uh and then SpaceX is uh uh going to take care of like the

initial phase of the the the scaled up terapab. Um and um

terapab. Um and um that that's that's what we've figured out thus far.

Um 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 it's kind of a lot of

resolution. It's it's kind of a lot of unfortunately a lot of complexity because uh we got to make sure Tesla shareholders are served and SpaceX shareholders are served and strike the

right balance there. Uh so it it takes a while to work through the the kind of independent director uh reviews on on this. So that 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 terab and um and then we got to figure out the rest.

Yeah.

And what about Intel's involvement?

Uh yeah, so uh Intel is uh excited to partner with us on um the some of the

core manufacturing technologies. Um so

uh we plan to use Intel's 14A uh uh process uh which is uh state-of-the-art and in fact not yet

totally complete. Um so but uh given

totally complete. Um so but uh given that by the time Terrafab scales up 14A

will be probably fairly mature or ready for prime time. Um 14A seems like the right move. Um and uh we have a great

right move. Um and uh we have a great relationship with Intel. Um a lot of respect for um the CEO, the CTO, and the

new team there. Um, so we think it's it's going to be a great partnership.

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 you have um the lithography

mask uh creation the and and then logic memory and packaging in under one roof in one building.

um that that's about the fastest I could possibly imagine doing recursive uh 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 long shot stuff but if the some of these long shots pan out would

be radical improvements in the way chips work.

Great. Uh the next question is going to come from Pierre at New Street. Uh

Pierre, please feel free to unmute yourself.

Uh hey, thanks a lot for taking my question. Um a quick one first on FSD

question. Um a quick one first on FSD adoption. So you have 180,000 new uh new

adoption. So you have 180,000 new uh 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%.

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 uh FSD users and you're selling cars. Um, and then if I add to that picture the fact that I

guess it's mostly hardware for uh owners who subscribe to FSD, it sounds like most drivers in North America who have

hardware for would already be using FSD.

Is that the right way to think about it?

And the kind of like success FSD is meeting today. Is that is that is that

meeting today. Is that is that is that the right way to think about it?

Yeah, I I think you're thinking about it the right way pier and the other thing which I'll share is that uh 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

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 experience which we want everybody to

gain and that's why you're starting seeing it in the numbers come through.

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 um intelligence is going to be implemented.

is that going to be on board on chips inside uh Optimus or if we should think uh about like your fleet of like a million Optimus being produced a year uh

actually driving very significant inference uh demand in data centers as well for for system to thinking.

Um well we think we can put a lot of intelligence locally in the robot and and uh and certainly needs to be enough intelligence that if the robot gets uh disconnected like if it's a bad cellular

signal or there isn't Wi-Fi you know Optimus can't just get stuck um it needs to have enough local intelligence that

it can still do useful things uh 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.

Um, now, uh, I guess you can think of like Optimus needs kind of a a manager to tell it tell it what to do and broadly speaking, like if you know, otherwise

it's going to keep doing the same thing it did before. Um,

so, you know, I think you need kind of a an orchestration AI, which uh, you know, Grock would be good for orchestration.

Um and uh and then for you know for Optimus's voice you know having um 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. Um

that. Um but uh 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. Uh the

you know GR would probably have about as much interaction with Optimus as a manager would have with the people on their team.

So meaning meaning Optimus could probably work for you se several hours um without any management oversight.

Great. Uh the next question is going to come from Dan at Barclays. Uh Dan,

please uh feel free to unmute yourself.

Great. Uh good evening. Thank you for taking questions. Um Elon, your your

taking questions. Um Elon, your your chip suppliers generally uh generate pretty good economics on the chip they sell. Um your approach has historically

sell. Um your approach has historically been on vertical integration. Part of

that has been to get better economics.

So I know the the longer term goal of Terraab is to get the supply you need, but how much of Terrafab is also motivated to get better economics on

your midterm chip purch purchases? And

how long is it going to take to ramp to get to a yield that achieves that type of economic par?

Um, no. I mean, Terapab is is not some sort of mechanism for to generate leverage over our chip suppliers. Uh,

it's just literally we we don't see a path to having enough uh sufficient quantity of AI chips down the road as we

scale production to high levels. um the

just the the rate at which the industry is growing um in logic but even more so in memory uh is just doesn't you know we

just we just anticipate hitting the wall if if we don't uh make chips ourselves.

So uh that's that's the reason for the ter tariff. Um I think that we do have

ter tariff. Um I think that we do have some ideas for how to make um maybe radically better AI chips. Um you these

are kind of research ideas there, you know, which means like uh long shot, but if long shot pays off,

it's a maybe a giant improvement.

And um it's just easier to do that if we have our own research lab and and and are developing our own production technologies.

Um so and if you look sort of longterm at you know say having AI satellites um 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.

All right. And our next question is going to come from Mark at Goldman Sachs. Uh Mark, please uh feel free to

Sachs. Uh Mark, please uh feel free to unmute yourself.

Uh yes. Uh good afternoon. Thank you

very much for taking my question. Uh

recognize the importance of FSD and that FSD can help to drive vehicle sales and and nice to see some of the um improvements in the FSD technology more recently with version 14. Um, 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

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.

Well, I mean, Cyber Cab is the compact vehicle. It's actually I mean, it's very

vehicle. It's actually I mean, it's very roomy, but it's a it's a twoerson vehicle. And we do think probably most

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. Um

cybercap. Um then um but over time it's going to make sense for our whole lineup to be autonomous vehicles of different sizes.

And I I did talk a bit about this um 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.

In fact longterm the only manually driven car will be the the new Tesla Roadster. Uh speaking of which, we may

Roadster. Uh speaking of which, we may be able to debut that in a month or so.

Um it requires a lot of testing uh and validation before we can uh actually have a demo and not, you know, have

something go wrong with the demo. Uh but

I think it will be one of the most exciting product unveils ever. Um I'm

not sure it I I don't think it moves the needle massively from a revenue standpoint. So, but it is very cool. Um,

standpoint. So, but it is very cool. Um,

I think I think it might be one of the most spectacular demos ever.

All right. And Mark, did you have a follow-up question?

Uh, yeah, thanks Travis. Um, my other question was on batteries and the company mentioned batteries as a constraint on its uh 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.

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

this. There's more capacity being added as we speak and I'll let Lars add a few more things to it.

Yeah, thanks Leob. Um, as you guys may have seen in Berlin, we started launching a Model Y battery pack with our in-house 4680 cells um, 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

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

um 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 uh growth in China as well, ramping in-house um

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.

All right, thank you guys. Um and our uh next analyst is going to be Colin from Wells Fargo. Uh Colin, please feel free

Wells Fargo. Uh Colin, please feel free to unmute yourself.

Oh, great. Uh thanks for taking my questions. Um you you moved the safety

questions. Um 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?

Yeah, we track basically all the metrics that you mentioned. uh we have a pretty large QA fleet uh spread across all of the United States. Uh and then we uh you know look at any intervention that could

happen and then sort of simulate uh 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 uh to expand uh and so far all of the expansions have gone according to our expectations.

Yeah. A lot of a lot of the limiting a lot of what limits wider deployment of road taxi are actually not safety issues but uh convenience issues or or the car

basically gets paranoid and gets stuck.

Um like sometimes it gets because it's it's programmed for maximum safety. So

the problem is that then it sometimes just uh gets scared to do things. So

like some get scared to cross railroads for example. um or it'll get stuck at uh

for example. um or it'll get stuck at uh you know a a light where there's uh the light the light never changes from red

or I mean there was one kind of amusing situation where a whole bunch of um rover taxis got stuck in the left turn lane in Austin because I kid you not a

Whimo had crashed into a bus. Um, and so they could not turn left because the way crashed into the bus. And so you had this like long line of like, I don't

know, a dozen or more 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.

So, so that obviously drives people crazy if there's a whole bunch of robo taxis blocking the whole road. Um,

so it's it's a ton of ton of things like that. That's the single biggest thing is

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

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. Um, and

and so you have to stop the infinite looping, literal infinite looping. Um

so those are actually and that those are by far the um issues that we have to resolve as opposed to direct safety issues.

Got it.

Great.

And then did you have a follow-up call?

Yeah, just last year I asked about you know FSD and camera and the issues with sunglare 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. Uh is this did it require a

vehicles. Uh is this did it require a retrofit of the camera? Is this fully deployed? I guess I was just curious

deployed? I guess I was just curious since the filing mentioned it.

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 um 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 um we expect

to resolve that and any of the other investigations in in short order.

Yeah. And we have also implemented stricter measures for the um 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 um then the FSD won't be available for those cars.

It just needs you have to clean the inside of the windscreen.

Great. Um that unfortunately is all the time we have uh today. Uh we appreciate everyone's questions and we look forward to talking to you next quarter. Thank

you very much and goodbye.

Hey.