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Good afternoon, everyone, and welcome to Tesla's First Quarter 2026 Q&A Webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk, Vaibhav Taneja and a number of other executives.

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

During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. 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 1 question and 1 follow-up. [Operator Instructions]

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

Thank you. So I think we've got a very exciting year ahead of us with 2026. We're going to be substantially increasing our investments in the future so we should expect to see significant -- a very significant increase in capital expenditures, but I think well justified for a 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 substantially increasing their capital investments. And we're going to be doing the same. I think it's going to pay off in a very big way.

So we're investing in and improving our core technologies, battery powertrain, AI software, AI training, chip design, manufacturing -- 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.

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 I remain convinced of that conclusion.

So on our vehicle side, it's always, I think, worth noting that a Tesla car is incredibly -- incredible value for money, and 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 Cybercab, and we'll begin production about SemiTruck soon. And I should say, whenever you have a new product with a completely new supply chain, new everything, it's always a stretched out S-curve. So you should expect that initial production of Cybercab 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. 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.

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 Megapack is very strong, and we're excited to begin production of Megapack 3 later this year in our new world-class factory outside Houston.

For full self-driving and Robotaxi, 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. 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 will run on AI4. That's -- and 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 v13 will take that to another level.

We've expanded Robotaxi to Dallas in 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 accidental injury with the expansion of Robotaxi. And we have, to the credit of the team, not had a single one to date.

And Optimus, we're preparing Fremont for starter production later this year with Optimus. Again, totally new supply chain, totally new technology. So therefore, the production S-curve is always very slow in the beginning, but we'll ramp up to significant numbers next year. And we're constructing a second Optimus factory in -- at our Giga Texas location. And that will probably start production around summer next year.

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 not showing new technology until it's close to production.

The -- congratulations to -- again to the Tesla AI chip team for taping out AI5. That's going to be a great chip. I think probably the best AI inference chip for edge compute that exists. And certainly, I think the best value for money. The team did a great job. And we already have a lot of momentum for designing AI6, and we've begun to discuss ideas for Dojo 3. So this is all very exciting.

We've also finalized plans for the chip fab -- the research chip fab on the Giga Texas campus, and we'll start construction of that this year.

In conclusion, Tesla is working on a lot of large, ambitious projects. They're all very challenging, but I think they're going to be revolutionary. And that's what the team does best, solve the hardest problems and build 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. Thank you very much, Elon. And Vaibhav also has some opening remarks.

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 EMEA, in certain countries like France and Germany showing over 150% quarter-over-quarter growth in deliveries. In APAC, we witnessed growth in South Korea and Japan, again, in terms of deliveries. Even out here in the U.S., we have seen a slight growth in terms of [ quarter-quarter ] deliveries.

On the order backlog front, we ended the quarter with the highest Q1 order backlog in over 2 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 U.S. 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 when 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.

Auto margins, excluding credits, improved sequentially from 17.9% to 19.2%. Note that we have had certain onetime benefits from warranty true-downs around $230 million and some relief on tariffs. We have not realized any benefit from the recent Supreme Court ruling on IEEPA 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 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 remove the purchase option in some markets in Q1. We recently received approvals for our FSD in Netherlands. This sets up us well for an EU-wide approval later in Q2, and we're just gated by how the regulators go about it.

Additionally, we've also received approvals in China. 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 time lines. In Q1, we deployed 6 -- 8.8 gigawatt hour of energy storage, a 38% sequential decline. However, we still expect 2026 deployments to be higher than 2025. We set yet another record with gross margins in this business over 39.5% due to some onetime benefits from certain tariff recognitions of more than $250 million from certain tariffs which we 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 outsized 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 unexpected demand.

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, spare supercharging, part sales, insurance and even our Robotaxi business. We're making deliberate investments in the infrastructure to help the Robotaxi in the future. We grew the Robotaxi 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 did increase sequentially from a full quarter stock-based compensation expense for the 2025 CEO 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 Cybercab, Semi, Optimus and Megablock, et cetera, continue to be at elevated levels, and we expect this trend to continue for the full year 2026.

Net income was impacted from mark-to-market charges on our Bitcoin holdings, which depreciated 22% as compared to the last quarter and the unfavorable impact of FX, primarily from our large intercompany ForEx.

On free cash flow, we ended the quarter with just over $1.4 billion. As Elon mentioned, we are in a very big capital 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 just to remind you, we are paying for 6 factories which we're 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 fab in Austin and for solar manufacturing equipment. While this may seem a lot and 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 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.

Thank you very much, Vaibhav. Now we're going to go to investor questions, starting with questions from say.com.

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 -- the 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 various Optimus versions, we found out our 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 around the late July, August time frame. And I mean just to inject some reality into these questions since these questions are not -- if I were to describe those questions, it does not fully understand what happens with the production line.

The last S and X production will be in early May. But you have to look at the entire upstream portion of the production line. So you start with sales, battery packs, motor production, all the parts production. And so we've been dismantling the S, X production line from the more base-level parts -- more basic level parts to -- as you get to more larger subassemblies, you start dismantling the line from the small parts first, not from the final assembly first. So the final assembly line will -- that will be dismantled next month and after the last of the S X vehicle is done.

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, and you've got to provide all of the wiring and communication, test out the machines of the new production line for Optimus. So that also takes several months.

So frankly, if we're able to go from [ suffering ] 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. 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. The -- 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 into ramp production, it will move as fast as the least luckiest, lowest, dumbest part in the entire 10,000. And this is a Optimus -- it's a completely new product with completely new production line. So it's just literally impossible to predict, except that I think it will be quite slow for us as we iron out the 10,000-plus unique items that have to be sold for Optimus to reach volume production. Initial skills will be -- obviously, we're going to start with simple skills in the factory and then build up from there.

Great. Thank you, Elon. The next question is, what milestones are you targeting for unsupervised FSD and Robotaxi expansion beyond Austin this year? And how will that drive recurring revenue?

Well, we certainly hope to be -- have unsupervised FSD or Robotaxi operating in, I don't know -- it does [indiscernible] states by the end of this year. Initially, we're taking it very -- we're taking a very cautious approach to the rollout here. Like we haven't had any injuries and certainly no fatalities to date with the unsupervised FSD and Robotaxi expansion. We want to keep it that way. And so I don't -- I think probably unsupervised FSD or Robotaxi revenue would not be super material this year. But I do think it will be material -- it will be material probably in a significant way next year.

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

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 particularly complex intersection or actually, they tend to be places where people get into accidents a lot because they're just -- perhaps there's -- and like I said, an unsafe intersection or bad road markings or a lot of weather challenges. So I think we would release unsupervised gradually to the customer fleet as we feel like a particular geography is confirmed to be safe.

Great. And the next question is, how will hardware 3 cars reach unsupervised FSD?

Unfortunately, hardware 3 -- I wish it were otherwise, but hardware 3 simply does not have the capability to achieve unsupervised FSD. We did think at one point, it would have that, but relative 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. And it's just generally a thing that's needed for AI. If you're doing order aggressive transformer memory bandwidth, it's the [indiscernible] point. So for customers that have bought FSD, what we're offering is essentially trade in -- like a discounted trade-in for cars that have AI4 hardware. And then we'll also be offering the ability to upgrade the car to replace the computer, 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. It's -- because if it's done just at the service center, it is extremely slow to do so and inefficient. So we basically need like many production lines to make the change. And 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 enter the Robotaxi fleet and have unsupervised FSD.

And for what it's worth, in the meantime, we are going to also release a V14 version for Hardware 3. This will be a distilled version of the same V14 software that we released for Hardware 4, and people should be able to start the drive from park state and basically have all the features that V14 for Hardware 4 has. And that's expected to come end of June.

Great. 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 1 month ago said it would go into the robotaxi. 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 just over time, we gathered a lot of momentum. But we did have to work every weekend for 6 months straight, including every holiday. So it was a lot of sacrifice by our team, and I was there, of course, myself, every weekend. And fortunately, we didn't encounter any major -- we didn't make any major mistakes, at least that we're aware of that required pushing out the tape-out. So the team just did a great job and worked incredibly hard is the reason.

Yes, 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 not -- certainly not immediately needed in the car. 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 pricing issue to do so. So -- but at some point, the AI4 hardware is going to get like so old that it's like, okay, 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 will go from 16 gigabytes to, I think, 32 gigabytes per SoC. It's a total of 64 gigabytes, and probably a 10% increase in compute in sort of into [ trillions ] of operations per second and in memory bandwidth. So that's AI4.1 or AI4+ probably goes into production middle of next year, I think, depends. It depends on -- Samsung is doing the modifications for us. So it sort of depends on when they're able to finish that -- finish those modifications and bring it to production.

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 Robotaxi strategy for the region?

Well, we're probably jumping a gun here on Robotaxi in Europe since it is -- it took us an immense amount of time just to get supervised self-driving approved in Europe. And these -- we don't control the regulators. 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 to do. So yes, as it is, we've only been approved in Netherlands, we expect to be approved in a lot of other countries. And I think the supervised FSD goes to Brussels for EU review in May, yes.

So -- and obviously, the next thing beyond that is to aim for unsupervised self-driving or Robotaxi in Europe. I actually don't know what the time frame for that is and would be somewhat at the most of the regulators as to when that approval would take place.

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 we had more Europe data. And I suspect that same thing will be true for unsupervised FSD as well. Whatever we use to solve in the U.S. will work in other places and the rest of the world, too, probably that we were able to add the data from the local regions.

Great. The next question is, given the recent NHTSA incident filings, can you update us on the Robotaxi safety data? If safety validation remains the primary bottleneck, why not deploy thousands of vehicles to accelerate removal of the safety driver?

Ashok, do you want to take that?

Yes. 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 Elon mentioned, we are absolutely focused on safety. And so far, we have 0 incidents, and that's why the NHTSA 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 Robotaxi to be stuck, blocking intersections or don't want to be dropping people off at slightly incorrect locations and so on. So we are simultaneously solving the long tail of safety by monitoring the metrics across the entire Tesla customer vehicle fleet, which 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 U.S. to accelerate our safety validation while also scaling the rest of the factors that can throttle the increase of unsupervised vehicles.

All right. The next question is, is v14.3 still the last piece of the puzzle to enable large-scale unsupervised FSD and Robotaxi? Or do we have to wait until V15?

Well, I think 14.3 is 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. So I think it's not going to make sense for us to deploy unsupervised FSD Robotaxi large scale when we know that there are major architectural improvements to the software that can improve safety. So I think we're going to want to finish writing that software, validate it and release it before going to large-scale unsupervised FSD. Depending on what large scale means. I mean we are, of course, as I mentioned earlier, doing unsupervised FSD in 3 studies, and we'll expand to, like I said, probably a dozen states or more later this year. So it kind of depends on what your definition of large scale is. But I do think it wouldn't be right for us to go to like very large scale unsupervised FSD when we know that there are software improvements in the pipeline that would improve safety.

Yes. And I'd like to note that the version of Robotaxi that's running in Austin and Dallas, Houston, et cetera, 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 -- v14 base for a while until v15 lands. And v15 is going to be a major upgrade.

Yes.

Great. Thank you. The next 2 questions, we've already answered about Robotaxi rollout and the data 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?

Yes. The overall U.S. 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 own solar panel with superior performance in 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.

Great. Thank you, Mike. So now we're going to move on to analyst questions. The first question is going to come from Will Stein at Truist. Will, please feel free to unmute yourself when you're ready.

Can you hear me?

Yes. Yes, we can.

Considering the various parties involved in the Terafab 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. I would love to hear some more details.

Yes. So we're still working out the details of the Terafab deployment. In the near term, Tesla will be building the research fab on our Giga Texas campus. This is something we expect to be probably a $3 billion-ish initiative and capable of maybe a few thousand wafers per month, but it's really intended to try out ideas. The research fab, it was in terms of maybe -- we have some ideas for improving the fundamental technology of how chips are made and some of some new physics we'd like to test out, but we also want to test out the ability to -- 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.

And then SpaceX is going to take care of like the initial phase of the scaled up Terafab. And that's what we figured out thus far. Any kind of intercompany thing has to be approved by both the SpaceX and Tesla Board of Directors. It has got to go through a conflict resolution. It's going to have a lot of, unfortunately, a lot of complexity because we've got to make sure Tesla shareholders are served and SpaceX shareholders have 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 figured out thus far is Tesla doing the research fab, SpaceX doing the initial part of the large-scale Terafab. And then we got to figure out the rest.

Yes. And what about Intel's involvement?

Yes. So Intel is excited to partner with us on 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 Terafab 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. So we think it's going to be a great partnership.

Yes. 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 are trying to bring up.

Yes. I think this will be unique in the world, or at least I'm not aware of any a place where you have the lithography mask creation, the -- and then logic, memory and packaging in under one roof in one building. That's about the fastest I could possibly imagine doing [ recourse ] of research and development and being able to try out some pretty radical ideas, some of which have -- it's kind of long-shot stuff, but if some of these long shots pan out, it would be radical improvements in the way [indiscernible] work.

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

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 installed base, it might be 15%. But then if I shrink that to the U.S. 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 FSD users and you're selling cars. And then if I add to that picture the fact that, I guess, it's mostly Hardware 4 owners who subscribe to FSD, it sounds like most drivers in North America who have Hardware 4 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 the right way to think about it?

Yes. I think you're thinking about it the right way, Pierre. And the other thing which I'll share is that you can't just look at 1 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. Earlier, I used to park. Now I don't even have to park. And that is the experience which we want everybody to [ grade, ] and that's why you're starting seeing it in the numbers come through.

Excellent. And if I maybe a quick follow-up, completely difference, it's more on the Optimus architecture. And you talked about the partnership with xAI and Grok, and I was wondering if you can share with us anything about how the system to intelligence is going to be implemented? Is that going to be onboard on chips inside Optimus? Or if we should think that like your fleet of like 1 million Optimus being produced a year actually driving very significant inference demand in data centers as well for system to thinking.

Well, we think we can put a lot of intelligence locally in the robot. And it certainly needs enough intelligence that if a robot gets disconnected like if it's a bad cellular signal or there isn't WiFi, Optimus can't just get stuck. It needs to have enough local intelligence that it can still do useful things even if it loses connection kind of like the car. Like the car does not need any cellular or WiFi connection to be able to drive safely.

Now I guess you can think of like Optimus needs kind of a manager to be told what to do, broadly speaking, like if otherwise going to keep doing the same thing it did before. So I think you need kind of an orchestration AI, which Grok would be good for orchestration. And then for Optimus' voice, having a low-latency intelligent voice AI, Grok is actually very good for that. So if you want to talk to Optimus and have kind of a Grok-level conversation, you kind of need to connect to a Grok-level AI for that.

But I would expect the amount of interaction, apart from like the voice stuff and asking complicated questions of the robot that necessarily needs a large AI model to answer, the -- Grok will probably have about as much interaction with Optimus as a manager would have with the people on their team. So meaning Optimus could probably work for several hours without any management oversight.

Great. The next question is going to come from Dan at Barclays.

Great. Elon, 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 longer-term 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 parity?

No. I mean Terafab is not some sort of mechanism to generate leverage over our chip suppliers. It's just literally, we don't see a path to having enough efficient quantity of AI chips down the road. As we scale production to high levels, just the rate at which the industry is growing in logic, but even more so in memory, it's just doesn't -- we just anticipate hitting a wall if we don't make chips ourselves. So that's the reason for the Terafab. I think that we do have some ideas for how to make maybe radically better AI chips. And these are kind of research ideas there -- 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 are developing our own production technologies. So -- and if you look sort of long term at, say, having AI satellites, making chips for those, they're just -- there's just no way in how 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.

Yes. I recognize the importance of FSD and that FSD can help to drive vehicle sales and see some of the improvements in the FSD technology more recently with version 14. However, I'm also hoping to understand if the companies you on new vehicle models has evolved. And I ask given that you, Elon, 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, Cybercab is compact. It's actually -- I mean, it's very roomy, but it's a 2-person vehicle. And we do think probably most of our production long term will be Cybercab because 90% of miles driven are with 1 or 2 people. So it would mean that you'd want to the vast majority of your production to be Cybercab. Then over time, it's going to make sense for our whole lineup to be autonomous vehicles of different sizes. And I did talk a bit about this when we did the kind of AI Day in L.A. at Warner Bros. and showed like -- this is our current lineup, and this is what some idea of what our future lineup will be, which is that it's going to be almost entirely autonomous. In fact, long term, the only manually driven car will be 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 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 don't think it moves the needle massively from a revenue standpoint. So -- but it is very cool. I think it might be one of the most spectacular demos ever.

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

Yes. My other question was on batteries, and the company mentioned battery is 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 would expect to resolve primarily with increased sourcing from suppliers?

Yes. So at the moment, I think the limiter is not the cells itself. It's the battery pack capacity. And 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 -- thanks -- to it.

Yes. Thanks, Vaibhav. As you guys may have seen in Berlin, we started launching model 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 almost 10 years. And in order to put in some more efficient lines and get additional output out there. And then 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 in the next months and that's really plans we laid out a few months back to increase that output with the growing demand.

All right. Thank you guys. And our next analyst is going to be Colin from Wells Fargo.

Great. 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 Robotaxi is safe enough to expand? Is it sort of miles per intervention, miles per accident, per fatality? And where do you stand on that now?

[ Ashok? ]

Yes. 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 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 then make the call to expand. And so far, all of the expansions have gone according to our expectations.

Yes, a lot of the limiting -- a lot of what limits wider deployment of Robotaxi are actually not safety issues, but convenience issues or the car basically gets paranoid and get stuck, like sometimes it gets -- because it's programmed for maximum safety. So the problem is that then it sometimes just gets scared to do things. So like get scared across railroads, for example, or it will get stuck at a light where there's -- the light number changes from red or I mean there was one kind of amusing situation where a whole bunch of Robotaxi got stuck in the Lifton land in Austin because, I kid you not, a Waymo had crashed into a bus. And so they could not turn left because the Waymo crashed into the bus. And so you have this like long line of like, I don't know, a dozen or more hit Robotaxi that were waiting for the bus to move, but the bus was never going to move because the Waymo just crashes the bus. So that obviously drives people crazy if there's a whole bunch of Robotaxi is blocking the whole road.

So it's a ton of things like that. That's the single biggest thing 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 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 to construction, goes around the block, tries to turn on the road. And so you have to stop the infinite looping, literal infinite looping. So those actually -- those are, by far, the issues that we have to resolve as opposed to direct safety issues.

Got it. Great.

And then your follow-up.

Yes. Just last year, I asked about FSD and camera and the issues with sun glare, and you noted that there was a breakthrough with direct photon counting that address this issue. But a month ago, there was a NHTSA filing saying that they haven't received an update when the solution was deployed in the number of vehicles. Is this -- did it require a retrofit of the camera? Is this fully deployed? And I guess I was just curious since the filing mentioned it.

Yes. First, I want to say, we did change the cameras some months ago, and those are out. And the NHTSA is referring to like older vehicles. We always work directly with NHTSA on all of the issues that they raised with us, and they're asking for quite a bit of information, and we're complying with that in as timely manner as possible. And so we expect to resolve that in any of the other investigations in short order.

Yes. And we have also implemented stricter measures for the visibility of the camera. So in recent software, if the camera is not able to see things clearly because of residual buildup or what have you, then the FSD won't be available for those cars.

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

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.

Good afternoon, everyone, and welcome to Tesla's Fourth Quarter 2025 Q&A Webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk; Vaibhav Taneja and a number of other executives.

Our Q4 results were announced at about 3:00 p.m. Central Time in the update deck we published at the same link as this webcast.

During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. 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. [Operator Instructions] Before we jump into Q&A, Elon has some opening remarks. Elon?

Thanks, Travis. So we've updated the Tesla mission to amazing abundance, and this is, this is intended to send a message of optimism about the future. I think we're most likely headed to an exciting, amazing era of abundance. And I think with the with the advent or with the continued growth of AI and robotics, I think we actually are headed to a future of universal high income, not universal basic income but universal high income. I mean there's going to be a lot of change along the way, but that is what I see as the most likely outcome. So I think that's -- it makes sense to update Tesla's mission to reflect that goal. And obviously, along that way, we're going to keep improving safety, driving down the cost of goods and getting people access to anything they need without compromise. And still making sure that the environment is great, nature is great and people can have whatever they want, which seems like probably the best future. I'm open to other ideas, but that sounds like it sounds like if you could say what is the best future you could possibly imagine. I guess it would be that everyone can have whatever one, including amazing medical care, and -- but we still keep the beauty of nature and earth. I think that's probably the best outcome.

And we're seeing, obviously, the first steps along that way this year for Tesla, post major steps as we increase vehicle autonomy and begin to produce Optimus robots at scale. We're making very, very big investments. So this is going to be a very big CapEx year as [indiscernible] will get into. That is deliberate because we're making big investments for an epic future. So I think all these investments make a lot of sense. We'll continue to make sure that when we do spend capital is just spent very efficiently. But it's a lot of things. Major investments in batteries and the entire supply chain of batteries. So we're also going to be significant manufacturers of solar cells, and we're making massive investments in AI chips.

So -- but I think these all make a ton of strategic sense. And then I guess I have like one, I guess -- it's not exactly bad news, but it's a it's -- we're -- it's time to basically bring the Model S and X programs to an end with an honorable discharge because we're really moving into a future that is based on autonomy. And so if you're interested in buying a Model S and X, now would be the time to order it because we expect to wind down S and X production, next quarter and basically stop production of Model S next quarter. We'll obviously continue to support the Model S and X programs for as long as people have the vehicles. But we're going to take the Model S and X production space in our Fremont factory and convert that into an Optimus factory, which will -- with the long-term goal of having 1 million units a year of Optimus robots in the current S and X space in Fremont. So that is slightly sad, but it's -- but it is time to bring the S, X program to an end and shift really -- it's part of our overall shift to an autonomous future. As my profile picture on X said for a few months there. The future is autonomous.

And -- so let's say, with respect to full self-driving and Robotaxi, people are obviously following with very close attention, the progress of FSD and you can experience it for yourself. If you've got a Tesla, you can notice with -- really with every software update targets better and better at autonomy. And we're able to do our first rides with no safety monitor in the car in Houston. These are paid rides. So these are just sort of randomly selected paid rides with no safety monitor. And I think maybe as of maybe yesterday or so, we actually don't -- we don't even have a chase car or anything like that. So these are just cars with no people in them and no one is following the car in Austin. So we obviously are being very cautious about this because we want to have no injuries or serious accidents along the way. So I think it makes sense to be very cautious, but you'll see [indiscernible] the amount of autonomy increased dramatically, I think, every month essentially. So -- and then there will also be an opportunity, something we're talking about for a long time for existing owners of Tesla's to add or subtract their case to the fleet, kind of like how Airbnb works where you can subtract your house to the Airbnb inventory. And I think probably the value of the Tesla -- the sort of partial people adding or subtracting the cars to Tesla autonomous fleet is probably a little underweighted by a lot of people because we've got millions of cars with [indiscernible] that can do this. So that -- it might potentially -- I think it will provide an opportunity for a lot of customers to earn more by landing their car to the fleet than their lease cost to Tesla, yes, which is kind of -- it's kind of like you get -- in that scenario, you basically get paid to own a Tesla. It's quite a good scenario. And we expect to have fully autonomous vehicles in probably, I don't know, somewhere between a quarter and of the United States by the end of the year, pending regulatory approval. A big factor would be if there's some kind of federal preemption for autonomous vehicles. In the absence of that, you kind of have to go on a city by city or state-by-state basis. But nonetheless, even if it is city-based, state by state, we expect to be in I don't know, thousands of cities, dozens of major cities by the end of the year.

With respect to energy, the Tesla Energy team is done incredible work. And the growth rate on that is continuing to be very strong, and we're building more manufacturing capacity and expect that energy will have very high growth for really as far into the future as we can imagine.

The solar opportunity is underestimated. We think the best way to add significant capability to the grid is or -- not the grid, let's say, powering AI data centers is solar and batteries on earth and solar and space. So that's why we're going to work towards getting 100 gigawatts a year of solar cell production integrating across the entire supply chain from raw materials already finished solar panels.

Maybe a bit more about Optimus. We'll probably tail Optimus 3 in a few months. And I think it's going to be quite surprising people. It's an incredibly capable robot. And as I mentioned, we are replacing the SX line in Fremont with a 1 million unit per year line of Optimus. Now because it is a completely new supply chain, it's just -- it's -- there's really nothing from the existing supply chain that exists in Optimus. Everything is designed from physics post principles. So that means the normal S curve of manufacturing ramp will be longer for Optimus than it is for products that have at least some portion of an existing supply chain, like when everything is new, the production rate will be proportionate to the least lucky, least confident part of the entire supply chain. And if there's 10,000 things need to go right, it's -- it only takes 1 to be slow to lag that. But -- so it will be sort of a stretched out S-curve. But I'm confident that we'll get to 1 million units a year of -- in Fremont of Optimus 3. And this Optimus 3 really will be a general-purpose robot that can learn by observing human behavior, so you can like demonstrate a task or verbally describe a task or show it a task even showed a video and it will be able to do that task. So it's going to be a very capable robot. I think long-term Optimus will have a very significant impact on the U.S. GDP, like it will actually move needle on U.S. GDP significantly.

So in conclusion, -- there's still obviously many who doubt our ambitions for creating amazing abundance, but we're confident it can be done and that we're making the right moves technologically to ensure that it is. And Tesla is obviously not -- never been a company to shy away from solving some of the hardest problems. It's -- I think that's kind of how you build value in the companies. You solve hard problems. So I don't know how you create value by solving easy problems. So there's a lot of hard problems that the Tesla team is going to solve, but it's an incredibly talented, hard-working team. And I'd like to thank actually everyone at Tesla for their incredible hard work and it's not [indiscernible] work with such a talented group. So thank you to everyone who is supporting this mission. The future is more exciting than you can imagine.

Fantastic. Thank you so much, Elon. And next, we have some remarks from Vaibhav. Go ahead.

Thanks, Travis. So Q4 '25 was an interesting quarter in a couple of respects. On the auto front, while in Q3, we saw a surge in U.S. demand before the IRA consumer credit cliff pulling in some demand from Q4. In other parts of the world, we saw increase in demand leading to record deliveries in smaller countries like Malaysia, Norway, Poland, Saudi Arabia and Taiwan, while continued strength in the rest of APAC and EMEA. We therefore ended 2025 with a bigger backlog than in recent years. Note that none of these countries have the latest version of FSD supervised available yet.

On the Storage front, we had yet another record in terms of deployments. I would like to thank our customers and Tesla in continuing this momentum. On the automotive margins front, automotive margins, excluding credits, improved sequentially from 15.4% to 17.9%. The automotive gross profit was flat sequentially despite 16% lower delays primarily due to regional mix as we had proportionately more deliveries in APAC and EMEA. As we look to 2026, with the progress that has been made with autonomy, our focus is on ramping production at all our factories. Our biggest constraint globally continues to be on the battery pack front. While our teams have been creative in trying to resolve the situation by now putting 4680 cells in nonstructural packs, we continue to iterate improving things from here on. [indiscernible] adoption continued to improve in the quarter, reaching nearly 1.1 million paid customers globally. Of these, nearly 70% were upfront purchases. It is important to note that beginning this quarter, we are transitioning fully to a subscription-based model for FSD. Therefore, net additions to this figure will primarily be via subscription model and in the short term will impact automotive margins.

On the energy front, we achieved yet another record in terms of gross profit for the quarter and ended the year with nearly $12.8 billion in revenue at 26.6% year-over-year growth. This was the result of higher deployments in all regions and continued strength in demand for both Megapack and Powerwall. As we look at 2026, our backlog remains strong, well diversified globally, and we expect increasing deployments with the launch of Megapack 3 and Megablock. However, we expect margin compression from the increased low-cost competition impact to market from policy uncertainty and the cost of tariffs.

Services and others margin declined from 10.5% to 8.8%, primarily from higher employee related costs for service centers as we start preparing for the ramp in activity from the growth in the fleet size. We did see a momentum in margin. We see -- we did see an improvement in margin from our supercharging business, which is included within services and other. Additionally, note that our Robotaxi business-related costs, while not material, are also included within this. Given that this -- we're still in the early phase of our fleet deployment and are still doing a lot of validation testing, the revenue and cost per mine metrics are not meaningfully discussed at the moment.

Then on total gross margin front, we ended the quarter with over 20.1%, something which we haven't achieved over the last 2 years. This improvement came despite the impact of lower fixed cost absorption and impact of tariffs, which were in excess of $500 million in Q4.

Operating expenses increased sequentially, primarily from increased stock-based compensation for employees, and as we started regarding charges on -- for 1 operation milestone under our 2025 CEO Performance Award that was deemed to be probable over the [indiscernible]. Additionally, our spend on AI-related initiatives and new products like Cybercab, Semi, Optimus and Megapack, et cetera, continues to be on animated levels and we expect this trend to continue for the full year 2026.

Net income was negatively impacted from mark-to-market charges on a Bitcoin holding, which depreciated 23% as compared to the last quarter and the impact of unfavorable impact of FX, primarily from our large intercompany [indiscernible].

On the free cash flow front, we ended up at $1.4 billion. We did end up CapEx being slightly below our previous guidance of $9 billion. But like as Elon already mentioned, this year is going to be a huge investment here from a CapEx perspective. And at the moment, we are expecting that CapEx would be in excess of $20 billion. We'll be paying for 6 factories namely the refinery, LFP factories, Cybercab, Semi, a new Megafactory, the Optimus factory. On top of it, we will also be spending money for building our AI compute infrastructure, and we will continue investing in our existing factories to build more capacity. And then also the related infrastructure, along with it. And we'll also further expand our fleet of Robotaxi and Optimus. While this may seem a lot, we believe this is the right strategy to position the company for the next era, and we'll make such investments, as Elon mentioned, in a very capital-efficient manner. Note that this does not include potential investments in solar cell manufacturing on our tariff fab as we are still in early phase, and we plan to provide an update in future quarters.

We're starting not the next chapter, but a new book on the progression of this company. 2026 year would be when all of this began. While at times it feels daunting, it is going to be the most exciting change in Tesla's history. And we could not have even dreamed of embarking on this journey without the support of our customers and our investors. Thanks for again showing the confidence in us, and let's get ready for a future of amazing abundance. Thanks.

Great. Thank you very much, Vaibhav. Now we're going to head over to investor questions. As always, we will start with questions from Say.com. The first question is, today, there are approximately 90 million cars sold globally each year. Does Tesla have a view based on its Robotaxi ambition what this number will be in 5 or 10 years? And how does this impact Tesla's EV strategy to have more models?

Yes. Thanks, Travis. As Elon said, the future is autonomous. And obviously, autonomy and Cybercab are going to change the global market size and mix quite significantly. I think that's quite obvious. General transportation is going to be better served by autonomy as it will be safer and cheaper. And over 90% of vehicle miles traveled are with 2 or less passengers now, which is why we designed Cybercab that way. In this new autonomous market, we at Tesla have the advantage of efficiency, cost and manufacturing at scale that really no 1 else has. And we've built that over the last decades. And we believe that, that segment that we are creating will grow 1 million year-over-year.

I'd just to add to what Lars said there. The -- it's the point that loss made, which is that 90% of mile driven are with 1 or 2 passengers or 1 or 2 occupants essentially is a very important one because that implies that the Cybercab, which is a dedicated 2-seater, dedicated Robotaxi -- it's a little confusing with the term Robotaxi, Cybercab, sorry about the confusion. But -- and in fact, in some states, we're not allow to use the word cab or taxi. So it's going to get even more strange, it's going to be like cyber vehicle or something Cyber car. But the Cybercab, which is a specific vehicle model that we're making does not have a steering wheel or pedals. So this is clearly there's no -- there's no full [indiscernible] mechanism here. It's like this car either drives itself or it does not drive. And we expect to start production in April. as always, it's an S-curve of -- the production rate is an S-curve. So very slowly and then grows exponentially, then you hit the linear and then ultimately, [indiscernible] at what your target volume is. So -- but we would expect over time to make far more Cybercabs than all of our other vehicles combined. Given that 90% of distance driven or distance being -- distance traveled exactly no longer driving is 1 or 2 people, I think it's like 80% is just one. So it would mean that long-term Cybercab would make several times more cyber [indiscernible] than all of our other vehicles combined.

Great. Thank you so much. The next question a bit related. Are there still plans to launch new models to address different price segments and vehicle types, which could materially expand the TAM for Tesla?

Yes. To further on what we were just talking about, we've launched our least expensive models ever over the last few months and are continuing to expand that -- those models globally. And over the last decade, we have continually brought down the cost vehicles without sacrificing range, performance or premiumness. And we'll continue to do that, as Vaibhav said, investing in our factories. But these are all trade-offs of where we spend our time or money. And to Elon's point, just now with Cyber cab coming, we are aiming to bring that Tesla premium right experience to our largest market yet, that could be 5 or 10x our current levels of production. This new autonomous market you have to start thinking about us as moving to providing Transportation-as-a-Service more than the total addressable market for the purchased vehicles alone. And of course, we do have plans to have Robotaxi's in various shapes and sizes, but obviously, Cybercab will be the grand majority of that volume.

Yes. The vast majority of miles traveled will be autonomous in the future. I would say, probably less than -- I'm just guessing, but probably less than 5% of miles driven will be where somebody is actually driving the car themselves in the future, maybe as low as 1%.

Great. This question is, historically, Tesla has spoken about gross margin per model. Are there stand-alone gross margin targets for the current models, excluding the benefits for FSD sales?

We've talked about this with the peers to cautions, but transportation, as we know, is changing. And I think we cannot keep applying the same framework from a car sales model to the future of what we are trying to do. So it has to be looked at it more holistically. And autonomy software will be the driver for growth from now. And as we aim to maximize the global fleet, we have been laser-focused on COGS from our side to make sure -- because that is something which we manage. So we will keep focusing on that. But I think we need to look at it from a different dimension.

Yes. Like the cybercab that is -- the whole design of Cybercab it was to optimize the fully considered cost per mile of autonomous driving. And it's a different design problem than if you're trying to design cars for people who will be driving versus being driven. And so Cybercab, like, like I said, super optimized for minimum cost per mile and also for a much higher duty cycle. So we would expect Cybercab to be used probably 50 or 60 hours a week instead of the 10 or 11 hours a week that a driven vehicle is used. So typically, people might drive their car for 1.5 hours a day on average, so it's 10 hours per week out of 168. But I think an autonomous vehicle is likely to be used probably 5x as often, which means that you need to design the vehicle for much more wear and tear per unit time and much more resilient. It's more like a commercial truck. That's a continuous operation close, continuous operation as how you design an autonomous vehicle. And we will have larger vehicle in the Cybercab in the future that are designed for full autonomy. And we've actually shown pictures of this, and in fact, have shown prototypes. So this is not exactly a secret. In fact, we've given people rides in them. So we're not keeping this -- hiding the light under a bushel here. It's like we're literally saying what we're going to do and have said what we're going to do for a while. So I think long term, we would really, the only vehicles that we'll make will be autonomous vehicles with the exception of the next-generation Roadster, which we're hoping to debut in April. Hopefully, it's going to be something out of this world.

Fantastic. SP1 The next question we unfortunately have to skip because it's not related to Tesla. And we would like to remind folks use the Say platform to please focus these questions on Tesla. So with that in mind, we're going to move on to the next question, which is what is the current bottleneck to increase Robotaxi deployment and personal use on supervised FSD? The safety and performance of the most recent models, is it the safety and performance of the most recent models? Or is it people to monitor the Robotaxis in car or remotely? Or is there some other blocker? I don't know, Ashok, if you want to kick off on this one.

Yes. We have scaled the robot access service that's available to customers over the last year in order to just learn the scaling problems without having to wait for one to supervise. With that goes. One is like learn as much as possible from the fleet with the safety monitors. And secondly, we're laser focused with the engineering team to solve the unsupervised FSD problem. I think we did both like by the end of last year, we had the long tail of issues that we were able to churn through. And then in the last couple of weeks, we have started our unsupervised Robotaxi service to public customers in Austin. I think some customers took try last week and also service continues today without any real car or something like that. Separately, we did scale the fleet side in the Bay Area and in Austin. And through that, we learned issues with charging and other issues that we would have seen once we sort of scale the unsupervised fleet. So both are happening in parallel.

Variant of the software that's used for the robot active service was shipped to customers with V14, and customers saw a huge jump in performance, like a lot of happy feedback from customers. So -- and since then, we have improved the software significantly as well. And customers will continue to see with their own software releases that the software is so good that they are like screaming to remove the tire monitoring software. Does it [indiscernible] inside the car too much?

Adding to that a little bit with what Ashok said about learning about our charging and service needs. We're using our vast network of charging and service centers that really only Tesla has in this space to jump start our infrastructure build-out needs to get ahead of Robotaxi autonomous vehicle demand. And we expect that because of this network, we are the only company capable of scaling at the rate that is needed for the some of autonomy that is coming.

Yes. Great. Moving on to the next question. After the unveil of the cyber truck, Elon stated that if it didn't sell well, Tesla would build a more conventional-looking pickup. How practical would it be to create this new design on the cyber truck architecture? And could it be conveniently built on the existing production lines?

Actually, in its segment, Cybertruck continues to be a leader and is selling more than any other electric truck out there, while our competition continues to pull back. But to the question itself, from a line standpoint, we always design our lines to be super flexible. We built 3 on the same line. We built SNX on the same line still showing that we can do that. The Cybertruck line was designed in the same way and is one of our most fully ready for autonomy platforms.

Yes. But yes, we will transition Cybertruck line to just a fully autonomous line. And there's obviously a market there for cargo delivery, like you say, like localized cargo delivery within a city within a few hundred miles, something like that, there's a pretty -- there's a lot of cargo that needs to move locally within a city and autonomous Cybertruck could be very useful for that.

Great. Moving on to the next question. Regarding Optimus, could you share the current number of units deployed in Tesla factories and actively performing production tasks? What specific roles or operations are they handling? And how has their integration impacted factory efficiency or output?

Yes. I mean we're still very much at the early stages of Optimus. It's an R&D -- it's still in the R&D phase. So we have had Optimus to do some basic tasks in the factory. But as we iterate our new versions of Optimus, we deprecate the old versions. And so it's not -- I wouldn't say it's like -- it's not in usage in our factories in a material way. It's more so that the robot can learn. We wouldn't expect to have any kind of significant Optimus production volume until probably end of this year. .

Great. adding to Optimus Gen 3 is an awesome robot that is also it's an awesome robot that minimizes any differences. Basically, it looks like a human, people could be easily confused that it's a human. And this helps our strategy for the A2 because you can learn from how humans do these tasks and it's very easy to tease the robot in the same way as opposed to previous remarks.

Yes. I mean, I guess, 1 thing I should say like is there's a lot of news of like various companies announcing layoffs and whatnot. But at our Tesla factory in Fremont, we actually expect to increase head count over time and to significantly increase output from our factories. So we don't have any layoff plans, we expect to actually increase headcount.

Great. The next question similar to the other autonomy questions, but slightly different. When is FSD going to be 100% unsupervised?

Well, it is 100% unsupervised and FSD is 100% unsupervised. I mean -- we obviously have cars operating with no 1 in them and no safety monitor and no follow car or anything like that in Austin right now. For customers, we're being just very cautious with the rollout. I mean we with each successive version as we prove it out, and we make sure that there are no sort of unique issues in particular cities because like sometimes you get like some very difficult intersection. And it will be an intersection where a lot of humans have accidents by the way. There's like some pretty nutty intersections were a lot of humans make mistakes and have accidents in various cities. So we want to make sure that FSD can handle those unusual intersections, like you take L.A., for example, where [indiscernible] combine is like there's about I don't know, 20 traffic lights and people are constantly having accidents there. So you want to make sure that FSD can handle unique things in particularity city. So -- and then we're also just being paranoid about safety. But with each successful release of FSD, we will reduce the amount of driver monitoring that's needed proportionate to the safety of the FSD build.

Great. As it relates to Robotaxi, what has surprised you about the rollout so far. We've talked about what's constrained the fleet expansion to date, but it appears there are 200 vehicles based on public tracking. Is that something that we can confirm?

I wouldn't say there's anything that really surprised us because we are a large fleet, we had all the metrics. So there was not sort of a [indiscernible]. It was us continued work to grind down on the long [indiscernible] issues. And that's what enabled us to launch down supervise service in Austin.

Yes. And I mean in terms of Robotaxi vehicles carrying paid customers, I think we're well over 500 at this point between the Bay Area and Austin.

Yes, there's waving [indiscernible] of like vehicles depending on the load, but you can have like more vehicles doing at peak times and then a fewer vehicles in the off hours.

Yes. This will probably double every month type of thing. It's going to -- it's on an exponential curve.

I mean 1 other thing people forget that we've been deliberate on all this in the sense that we have the supporting infrastructure already being in place, whether it's service centers, charging, yes, we'll have to augment as the fleet grows, depending upon the density of where the demand is and whatnot. But it's not something like we just stumbled upon it and we're starting. We've been at it for years. It's, not every city is designed the same way. Same thing. Our infrastructure is also not the same in every city, but you have to give us credit that it's been a journey. And like Lars said, if there is some company which can do it, we've only been at it so we should be able to deliver much better.

Great. The next question is about [ Chase ] cars, which we already covered. So moving on to the last question. Elon, you've been spending significant personal time on Tesla's chip design. What was the forcing function behind this increased involvement? And do you think external chip sales will represent a significant portion of Tesla's valuation by the end of the decade?

Well, I mean, there -- I tend to spend time on whatever the most curl is for the company and completing the AI 5 chip design and hopefully will be a great chip is arguably the #1 most critical thing to get done, which is why I'm spending more time on that than currently anything else at Tesla, spend pretty much every Saturday on this. And in a chunk of every Tuesday. So it's like -- if I'm sending my Saturdays on something, it's going to be something pretty important. I do think [indiscernible] will be a very good shop I feel quite confident about the design at this point. And then AI6, which will follow that, it will be aspirationally would follow that under a year will be yet another big leap beyond AI5. So I feel pretty good about our chip strategy right now. And -- but in terms of selling it outside of Tesla, we first need to make sure we have enough chips for all of our vehicle production and all of our Optimus production, and then we will actually use the AI5 trips in our data centers. We already use the AI4 chips in our data centers. So when we do training, it's a combination of the AI4 chips and NVIDIA hardware primarily that we do training with. So but you say by the end of the decade, I mean it's like -- things are changing so fast, it's hard to imagine like what happens at the end of the decade. I mean, we might -- I mean -- when I look ahead at say, what's the limiting factor for Tesla growth, if you go, say, 3 or 4 years out, I think it actually is chip production. Is there enough enough AI logic and enough AI -- enough memory norm for our volume. And right now, I see that as being the thing that probably limits our growth in 3 or 4 years, which would imply that we're not selling chips outside of Tesla because we need them. And in fact, I think I think it's going to make sense, and this is definitely going to be a sort of a controversial thing. But I think Tesla needs to build a tera fab. I mentioned this at the Shareholder Meeting. But even when you look at the output of the -- best case output of all of our key suppliers. And I'd say even the players like strategic partners like Samsung, TSMC and Micron. But -- and we say like what's the most you could possibly make, then it's not enough. So we -- I think in order to remove the constraint, the probable constraint in 3 or 4 years, we're going to have to build a Tesla Terra fab, a very big fab that includes logic, memory and packaging domestically. And that's actually also going to be very important to ensure that we are protected against any geopolitical risks. I think people may be underweighting some of the geopolitical risks that are going to be a major factor in a few years. So now a lot of people are like this -- we'll say like that's -- fabs are really hard. I'm like, yes, I know if that was really hard. I don't think they're easy. But we do a lot of hard things. We didn't used to have car factories that we didn't use to have battery cell factories or lithium refineries or Megapack factories or these other things. We figured it out. So I think it's -- I think if we do the Tesla Terra fab, we're going to be limited by a supplier output of chips. And I think maybe memory is an even bigger limited than AI logic. So for example, we have chip supply deals with TSMC in Arizona and Samsung and Texas. But currently, there are no advanced memory fabs at scale in the United States. They are 0, literally 0. Hopefully, Micron will have something going in a few years because they're all headquartered in Idaho, where they make a lot of potato chips, we need to make computer chips too. So -- and we're working with our strategic partners on the chip front, memory and logic. But I think I think we've got to also try our hand at building a large-scale fab that integrates logic memory and packaging. And if we don't do that, we're just going to be fundamentally limited by supply chain especially if there's some geopolitical -- in a worst case, geopolitical situation, it would be quite quite severe situation. So I think quite frankly, it would be easy not to try the terra fab. So Yes.

Great.

We'll have a bigger announcement on this in the future.

Awesome. With that, we're going to move on to analyst questions. The first analyst is Emmanuel Wolfe Research.

Great. It's Emmanuel Rosner from Wolfe Research. My first question is on the CapEx. You signaled a pretty large increase to over $20 billion for this year. I was hoping to better understand where the investments are going. Any way to dimension for us which of the product line of technologies account for the bulk of the increase. And also, do you view this as like onetime in nature of 2026? Or I guess, how much of this is an ongoing level of high spending for a number of years? And then just finally, still on that, with that level of spending, you're going to be burning cash. How should we think about the new cash balance or any other way to finance this?

Yes. So Emmanuel, I tried to put this in my opening remarks, too, but I'll try and go a little bit deeper. There's about 6 factories, which we are starting production in this year. So there's a lot of cash CapEx, which is going into that. Then as we are trying to scale Optimus, we need a lot more compute. So we're putting more money towards compute as well. And then..

[indiscernible] Training.

[indiscernible] training. And then we're also going to be spending money to expand the capacity in our existing factories. On top of it, we're -- just keep in mind that we're not -- none of these numbers, which I shared of [ 20 billion ] [indiscernible] and anything to do with the solar fab or the semiconductor chip fab. Those would be, as Elon mentioned, would come later on. And you think -- your second part of your question was, is this one-off? Or would we expect more?

I think we're getting into this investment phase because we have big aspirations. And when you look at it, some of these aspirations are -- I call them as infrastructure play, especially if you have to do a chip fab, and we have to do a solar cell manufacturing fab. Those are infrastructure plays. And that funding takes a little bit longer. And you would be in an investment cycle for a little bit longer.

Initially, third part of your question was how are we going to fund it? Initially, obviously, we have over $44 billion of cash and investments on the books. So we'll use our internal resources, but there are ways where we can fund it, especially when we look at the Robotaxi fleet because any time you have a consistent stream of cash flow, you can go and get money from the banks. And we have had conversations with banks about it. And that is something how we're going to do it.

And then on the infrastructure play side. Yes, like I said, we don't have a number yet. But given that it's an infrastructure play, it's a longer tail. We will have to look at a little bit more in terms of how we fund it, whether it's through more debt or other means.

Great. Our next question comes from Andrew from Morgan Stanley.

Great. I just want to start on the [ ETX AI ] investment that you guys announced today. You talked about there being some collaboration between the companies. So I'm just hoping to get more information or if you're hoping you could shed more light on what that looks like and maybe how the work xAI is doing can be leveraged at Tesla and vice versa?

Yes. I mean, if you looked at the disclosure, which we also put in there, we do talk about this is literally a furtherance of our [indiscernible]. And even today, if you look at Tesla vehicles, we are using Grok in there. And as we look at things whether we can do it ourselves. Yes, there are a lot of things which we can do ourselves. But if there are things which xAI can help accelerate our progress, then why should we not do that? And that is the reason why we've gone ahead with such an investment because this is part of the strategic initiative because as it is, if you remember, I talked about how many things which we are doing ourselves. If there are ways and means we can find efficient ways for others to help us and xAI actually literally fits into that mold. So that's why we went ahead with it.

And we just had like a lot of investors ask us to do this as like a lot of investor, Tesla shareholders say like, we should invest in xAI. So that's like we're just doing what shareholders asked us to do pretty much. But Grok will be very helpful in, say, maximizing the efficiency of the management of a large autonomous fleet. So I mean, if you've got an autonomous fleet that's in the future 10 million vehicles or tens of millions of vehicles, then optimizing the efficient use of that fleet, Grok will be, I think, way better than any [indiscernible] solution or sort of manually managed solution. And if you say you're managing, say, a large team of Optimus robots to build a factory or build a refinery and say, a hypothetically like a -- it's a hypothetical example, a rare earth or refinery, which we do desperately need in America, then you say, well, like what's going to organize the Optimus robots to build that ore refinery that would -- you need kind of need an orchestra conductor. And so then Grok would be kind of the orchestra conductor for the autonomus robots to build the -- hypothetically, and it might not be hypothetical in the future. I'm just saying it's not currently on our plans. But we do need a lot more ore refining capacity in the U.S. So then what's going to manage, let say, let's say, 1,000 of Optimus robots to do...

Elon, You're on mute, I'm not sure if you're trying to follow-question ready. We're going to move on to the next question which is coming from Dan Levy at Barclays.

Great. Elon, you talked about some of the constraints on memory. Given the very tight supply, are there any near-term constraints on procuring memory? And if there are -- to what extent could you look at modifying the functionality in the vehicle, similar to what you did in '21 when we saw shortages on MCUs? And maybe how are you thinking about bridging in the next few years?

Well, the Tesla AI is very compute efficient and very memory efficient. So I think 1 of the metrics one you consider for any given AI model is the intelligence per gigabyte especially when you're constrained on RAM, having an AI that has very high intelligence density per gigabyte. So you could say like, like -- for [indiscernible] gigabytes, how much functionality can you get out of it? I actually think Tesla is ahead of the rest of the world in intelligence density of AI bite, an order of magnitude or more. Like this is going to sound like a pretty bold statement, but I kind of know what the intelligence efficiency of the big models are like Grok and like to be honest -- and a bunch of the other models. And Tesla AI is like in terms of memory efficiency more than an order of magnitude better. So that puts us in a pretty good position, actually, for scaling. And we don't -- we actually do -- we do think that there's -- we do have a solution for logic and memory for, let's say, the next roughly 3 years. But if you start going beyond 3 years, we look at the scaling plans and how many fabs are getting built. And especially if you factor in geopolitical uncertainty. There's always risk that maybe the best chips don't arrive that people were expecting to arrive. So that's why I think we need to have more fab capacity in the U.S., just in case, chips don't stop arriving for any reason. This is really existential for Tesla because if Optimus is completely useless without an AI chip. It's not like at least the cars we can put steering wheels and pedals in or retrofit them if need to be. But Optimus is just a [indiscernible] without -- it's like the 10 men or whatever for the Wizard of us. But even worse these are [indiscernible] walk afters [indiscernible] there without an itch up. So we've got a good solution for significant scale through for the next roughly 3 years. Beyond that, we will be supplier limited, and so we've got to got some game plan to not be supplier limited.

Great. Our next question is going to come from George at Canaccord.

So there's been a sort of startups, particularly from China entering the humanoid market. And just wondering what the long-term competitive advantages that keep Tesla ahead are and how, based on what you've seen, will Optimus fundamentally differ from these competitors?

Well, I do think that the -- by far the biggest competition for humanoid robots will be from China. China is incredibly good at scaling manufacturing actually quite good at AI, as you can see from the open source -- or not the open source, but the sort of -- I guess, some of them are open actually. But basically, the models that China is distributing for free are actually quite good and they keep getting better. So China is very good at AI, very good at manufacturing and will definitely be the toughest competition for Tesla. We -- to the best of our knowledge, we don't see any significant competitors outside of China. But China will definitely be tough competition. There's no 2 ways about it. So I always think like people sort of outside of China kind of underestimated China. China is [indiscernible] or next level. So I guess, we're going to build -- we think Optimus will be much more capable than any robot that we are aware of under development in China. So we think we'll be ahead in terms of the real-world intelligence, the electromechanical dexterity, especially the hand design, which is by far, the hardest thing in the robot. And in fact, I'd tell you there's really 3 hard things about humanoid robots, they're building an incredible hand that has the same degrees of freedom and dexterity as a human hand, is an incredibly difficult engineering challenge. Then there's the real-world AI and scaling production. Those are the 3 hardest problems by far for humanoid robots. I think where Tesla has -- is the only company that actually has all 3 of those components.

Great. And our last question is going to come from Colin at Oppenheimer.

Thanks so much. you talked a little bit about the CapEx spend, but this is an incredibly ambitious technology development program that you're talking about. Can you talk a little bit about the R&D spend? And how are you thinking about the synergies of the different components, particularly on the hardware side, if you think about batteries in the chips, in the memory and the efficiency of the system and what sort of advantages do you think you'll end up getting out of some of these purpose-built devices that you'll end up integrating into multiple end markets?

Well, really, what we're trying to do is make sure that we can scale to a very high volume with autonomous vehicles with a humanoid robot and that we address geopolitical risk, which I think there's so many company out there that are asleep at the switch with regard to geopolitical risk. They're like -- or they just have their head in the sand and hope nothing that will happen. We're more paranoid than that. I always think of Andy Grove's famous statement, "only the paranoid survive". Why did they come up with that statement at Intel. Let's think. So I think there's a lot of wisdom in that statement. So we're going to be paranoid and make sure that we can continue to build batteries and robots and AI chips, no matter what happens, and companies that don't do that, a bunch of them will cease to exist.

Yes. I mean remember, all this comes out of necessity. It's not that we want to do it. we have no choice.

Yes. I mean we built the most advanced lithium refinery in the world, by the way. So it's not just like our lithium refinery in [indiscernible] is not just a copy of what others have done. It's an entirely new process that is nominally more efficient and more advanced than anything else in the world. The same is true of our cathode refinery here in Austin. And we wish others would build this can -- other people please, for the love of God. In the name of all [indiscernible] Holy and others, please build this, build this stuff.

It's not the first time [indiscernible].

Exactly. I mean this is not the first time we've said something like this like.

Why do we have to put these things. Why can't others not also please can pull these things. I mean this is -- it's very hard to build these things. And we build them out of desperation, not because nobody else is building lithium refineries and cathode refineries. We're pretty much not just the largest but also the only lithium refinery and cathode refinery in America. So yes, so we're making moves to make sure that no matter what happens, Tesla will prosper.

Great. Unfortunately, that's all the time we have for Q&A today. We really appreciate everyone's questions, and we look forward to talking to you next quarter. Thank you very much, and goodbye.

Good afternoon, everyone, and welcome to Tesla's Third Quarter 2025 Q&A Webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk, Vaibhav Taneja and a number of other executives. Our Q3 results were announced at about 3:00 p.m. Central Time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements.

These comments are based on our predictions and expectations as of today. 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. We urge shareholders to read our definitive proxy statement, which contains important information about the matters to be voted on at the 2025 Annual Meeting. [Operator Instructions] Before we jump into Q&A, Elon has some opening remarks. Elon?

Thank you. We're at a critical inflection point for Tesla and our strategy going forward as we bring AI into the real world. I think it's important to emphasize that Tesla really is the leader in real-world AI. No one can do what we can do with real-world AI. I have pretty good insight into AI in general. I think that Tesla has the highest intelligence density of any AI out there in the car, and that is only going to get better. And we're really just at the beginning of scaling at quite massively full self-driving and Robotaxi and fundamentally changing the nature of transport. I think people just don't quite appreciate the degree to which this will take off where it's -- honestly, it's going to be like a shock wave.

So it's because the cars are all out there. There -- we have millions of cars out there that with a software update become full self-driving cars. And we're making a couple of million a year. And in fact, with the advent of -- with what we see now as a clarity on achieving full self-driving, unsupervised full self-driving, I should say, I feel confident in expanding Tesla's production. So that is our intent to expand as quickly as we can our future production. So I was reticent to do that until we had clarity on achieving unsupervised full self-driving. But at this point, I feel like we've got clarity, and it makes sense to expand production as fast as we reasonably can.

We're also making huge -- making impact on the energy sector with battery storage. So with both Powerwall and especially with the Megapack, we are dramatically improving the ability to generate more energy from the grid. Let me sort of talk a little bit about that, which is if you look at total U.S. energy capability, for example, there's roughly a terawatt of continuous power available in the U.S. But the average usage over a 24-hour cycle is only 0.5 terawatt because of the big difference between day and night usage. If you buffer the energy with batteries, you can effectively double the energy output in the United States just with batteries building no incremental power plants.

And it's very difficult to build power plants. So they take a long time. There's a lot of permitting, and it's not an industry that's used to moving fast. So we see the potential there for Tesla battery packs to greatly improve the energy output per year for any given grid, US or otherwise. We're also on the cusp of something really tremendous with Optimus, which I think is likely to be or has potential to be the biggest product of all time. And it's a difficult project. And it's worth noting that it's not like it's just automatic. I'm not aware of any robot program by Ford or GM or U.S. sort of car companies. who like, I think maybe think of Tesla as a car company, we mostly make cars and battery packs.

But -- so it's not just like an obvious fall of a log thing to make Optimus, but we do have the ingredients of real-world AI and exceptional electrical, mechanical engineering capabilities and the ability to scale production, which I don't think anyone else has all of those ingredients. So yes, with version 14 of the -- of self-driving, which people -- you can see the reactions of people online. They're quite amazed. Actually, anyone in the U.S. can get version 14 if they just go and select, I want the advanced software in their car. So if you're listening right now and you'd like to try it out, just go in Settings and say, I want the advanced software, and you will get version 14.

And yes, so on the Megapack front, we unveiled MegaBlock, Megapack 3. We also have exciting plans for Megapack 4. Megapack 4 will incorporate a lot of the -- a lot of what is normally in a substation and be able to output at probably 35 kilovolts directly. So this greatly improves our ability to deploy Megapack because it's not dependent on building a substation up through 35 kV for Megapack 4. So that will be -- that's the engineering priority for Megapack. And we look forward to unveiling Optimus V3 probably in Q1. I think it will be ready for -- to show off.

And that I think is going to be quite remarkable. If you -- it won't even seem like a robot. It will seem like a person in a robot suit, which is kind of how we started off with Optimus. But it will seem so real that you'll need to like poke it, I think, to believe that it's actually a robot. And obviously, like the real-world intelligence we've developed for the car, most of that transfers to Optimus. So it's a very good starting point. In conclusion, we're excited about the updated mission of Tesla, which is sustainable abundance.

So going beyond sustainable energy to say sustainable abundance is the mission where we believe with Optimus and self-driving that you can actually create a world where there is no poverty, where everyone has access to the finest medical care. Optimus will be an incredible surgeon, for example, I imagine everyone had access to an incredible surgeon. So I think there's -- of course, we make sure Optimus is safe and everything. But I do think we're headed for a world of sustainable abundance, and I'm excited to work with the Tesla team to make that happen.

Great. Thank you very much, Elon. Vaibhav also has some opening remarks.

Thanks, Travis. Q3 was a special quarter at multiple levels. We set new records, not just for deliveries and deployments, but also around a range of financial metrics from total revenues, energy gross profit, energy margins to free cash flow. This was the result of continued confidence of our customers in our products and the relentless efforts by the Tesla team. The strength in deliveries was attributed to strong performance across all regions. Greater China and APAC were up sequentially 33% and 29%, respectively. North America was up 28%, while EMEA was up 25%. The pace in deliveries was the function of continued excitement around the new Model Y.

We had previously talked about 2025 being the year of the Y and have since delivered on that promise with the new Model Y released in Q1, followed by Model Y Long Wheelbase and Performance and more recently, Standard Y in North America and EMEA. We're now operating our Robotaxi in 2 markets, Austin and most Bay Area cities. We've already expanded our coverage area in Austin 3x since the initial launch and are on pace to continue expanding further. Unlike our competitors, our Robotaxi fleet blends in the markets we operate in since they don't have extra sensor sets or peripherals, which make them stick out.

This is an underappreciated aspect of our current vehicle offerings, which are all designed for autonomous driving. We feel that as experience -- as people experience the supervised FSD at scale, the demand for our vehicles, like Elon said, would increase significantly. On the FSD adoption front, we've continued to see decent progress. However, note that total paid FSD customer base is still small, around 12% of our current fleet. We're moving -- we're working with regulators in places like China and EMEA to obtain approvals so that we can get FSD in those regions as well.

Now covering a little bit on the financial side. Automotive revenues increased 29% sequentially, in line with the growth in deliveries. While regulatory credits declined sequentially, we entered into new contracts and continued delivery on previously entered contracts. Our automotive margins, excluding credits, increased marginally from 15% to 15.4%, which was attributed to improvements in material cost and better fixed cost absorption due to higher volumes. The energy storage business continued to deliver with record deployments, gross profit and margins.

As discussed before, this business has a bigger impact from tariffs as measured by a percentage of COGS since currently all sales procured are from China, while we are still working on other alternatives. However, as the ramp of Megafactory Shanghai is happening, this is helping us avoid tariffs because we are using this factory to supply the non-U.S. demand. Like Elon said, grid-scale storage, the only way we can get to electricity fastest is by using storage. The other thing to keep in mind is we are seeing headwinds in this business given the increase in competition and tariffs.

The total tariff impact for Q3 for both businesses was in excess of $400 million, generally split evenly between them. Services and Other demonstrated a marked improvement sequentially. This was a function of improvements primarily in our insurance and service center businesses. Note that while small, our Robotaxi costs are included within Services and Other, along with our other businesses like paid supercharging, used car, parts and merchandise sales, et cetera. Our operating expenses increased sequentially.

The largest increase included in restructuring and other related to certain actions undertaken to reduce cost and improve efficiency to convergence of our AI chip design efforts. Additionally, we incurred legal expenses related to proceedings in certain legal cases as well as incremental costs incurred in preparation for our shareholder meeting. Such costs are recorded within SG&A. Further, our employee-related spend is increasing, especially in R&D as we have recently granted various performance-based equity awards to employees working on AI initiatives, and therefore, such spend will continue to increase going forward.

On other income, our other income decreased sequentially, primarily from mark-to-market adjustments on BTC Holdings, which was a much smaller gain of $80 million in Q3 versus $284 million in Q2, with the rest of the movement attributable to FX movements in the quarter. Our free cash flow for the quarter was approximately $4 billion, which was yet another record. Our total cash and investments at the end of the quarter were over $41 billion.

On the CapEx front, while we are expecting to be around $9 billion for the current year, we're projecting the numbers to increase substantially in 2026 as we prepare the company for the next phase of growth in terms of not just our existing businesses, but our bets around AI initiatives, including Optimus. In conclusion, note that bringing AI into real world is hard, but we have never shied away from doing what is hard. We are extremely excited about the future and are laying down the foundation, the benefits of which will be realized over years to come. I would like to end by thanking the Tesla team, our customers, our investors and supporters for their continued belief in us.

Thank you very much, Vaibhav. Now let's go to investor questions. From say.com, the first question is, what are the latest Robotaxi metrics, fleet size, cumulative miles, rides completed, intervention rates? And when will safety drivers be removed? What are the obstacles still preventing unsupervised FSD from being deployed to customer vehicles?

I'll start off with that, and then Ashok can elaborate. But we are expecting to have no safety drivers in at least large parts of Austin by the end of this year. So within a few months, we expect to have no safety drivers at all at least in parts of Austin. We're obviously being very cautious about the deployment. So our goal is to be actually paranoid about deployment because obviously, even one accident will be front page headline news worldwide. So it's better for us to take a cautious approach here.

But we do expect to have no safety drivers in the car in Austin within a few months. I think that's perhaps the most important data point. And then we do expect to be operating Robotaxi in, I think, about 8 to 10 metro areas by the end of the year. It depends on various regulatory approvals. And -- but you can actually -- I think most of our regulatory applications are online, you can kind of see them because they're public information. But we expect to be operating in Nevada and Florida and Arizona by the end of the year. Ashok?

Yes. We continue to operate our fleet in Austin without anyone in the driver seat, and we have covered more than 0.25 million miles with that. And then in the Bay Area, where we still have a person in the driver seat because of the regulations, we crossed more than 1 million miles. So -- and we continue to see that the fleet -- Robotaxi fleet works really well. Customers are really happy, and there's no notable issues.

On the customer side, we have -- customers have used FSD supervised for a total of 6 billion miles as of yesterday. So that's like a big milestone. And overall, the safety continues to be very good. And as Elon mentioned, we are on track to remove the person from inside the car altogether, starting with Austin.

Great. The next question is, what is the demand and backlog for Megapack Powerwall, solar or energy storage systems? With the current AI boom, is Tesla planning to supply power to other hyperscalers?

Thanks. Demand for Megapack and Powerwall continues to be really strong into next year. We received very strong positive customer feedback on our MegaBlock product, which will begin shipping next year out of Houston. And we're seeing remarkable growth in the demand for AI and data center applications as hyperscalers and utilities have seen the versatility of the Megapack product to increase reliability and receive -- and relieve grid constraints, as Elon was talking about.

We've also seen a surge in residential solar demand in the U.S. due to policy changes, which we expect to continue into the first half of 2026 as we introduce the new solar lease product. And we also began production of our Tesla residential solar panel in our Buffalo factory, and we will be shipping that to customers starting Q1. The panel has industry-leading aesthetics and shape performance and demonstrates our continued commitment to U.S. manufacturing.

Great. Thank you, Mike. Unfortunately, the next question is related to future products. This is not the appropriate venue to cover that. So we're going to have to skip it. The question after that is, what are the present challenges in bringing Optimus to market, considering app control software, engineering hardware, training general mobility models, training task-specific models, training voice models, implementing manufacturing and establishing supply chains.

Yes. I mean bringing Optimus to market is an incredibly difficult task to be clear. It's not like some walk in the park, at some point. I mean actually technically, Optimus can walk in the park right now. And we do have Optimus robots that walk around our offices at our engineering headquarters in Palo Alto, California, basically 24 hours a day, 7 days a week. So any visitors that come by, you actually -- you can stop one of the Optimus robots and ask it to take you somewhere, and it will literally take you to that meeting room or that location in the building. So I don't want to downplay the difficulty of Optimus.

It's an incredibly difficult thing, especially it's difficult to create a hand that is as dextrous and capable as the human hand, which is an incredible -- the human hand is an incredible thing that the more you study the human hand, the more incredible you realize the human hand is and why you need 5 -- 4 fingers and a thumb, why the fingers have certain degrees of freedom, why the various muscles are of different strengths, the fingers are of different lengths. And it turns out actually that those are all there for a reason. And so making the hand and forearm, because most of the actuator -- just like the human hand, the muscles that control your hand are actually primarily in your forearm.

The Optimus hand and forearm is an incredibly difficult engineering challenge. I'd say it's more difficult than the rest of -- from an electromechanical standpoint, the forearm and hand is more difficult than the entire rest of the robot. So -- but really, in order to have a useful generalized robot, you do need this, you do need an incredible hand. And then you need the real-world AI, and you need to be able to scale up that production to have it be relevant because it's not relevant if it's just a few hundred robots. But -- so you need to be able to make Optimus robots at volumes comparable to vehicles, if not significantly higher.

So you're trying to make 1 million or something per year -- trying to make 1 million Optimus robots per year, that manufacturing challenge is immense, considering that the supply chain doesn't exist. So with cars, you've got an existing supply chain. With computers, you've got an existing supply chain. With a humanoid robot, there is no supply chain. So in order to manufacture that, Tesla actually has to be very vertically integrated and manufacture very deep into the supply chain, manufacture the parts internally because there just is no supply chain.

So this is the kind of thing where I'm like, if I put myself in the position of a start-up trying to make a humanoid robot, I'm like, I don't know how to do it without an immense amount of manufacturing technology. So -- that's why I think like Tesla is in almost a unique -- I think a unique position when you consider manufacturing technology scaling, real-world AI and a truly dextrous hand. Those are generally the things that are missing when you read about other robots that just don't have those 3 things. So I think we can achieve all those things -- those 3 things with an immense amount of work. And that is the game plan.

So like my fundamental concern with regard to how much voting control I have in Tesla is, if I go ahead and build this enormous robot army, can I just be outset at some point in the future? That's my biggest concern. If I -- that is really the only thing I'm trying to address with this so called compensation, but it's not like I'm going to go spend the money. It's just if we build this robot army, do I have at least a strong influence over that robot army, not control, but a strong influence. That's what it comes down to in a nutshell. Like I don't feel comfortable building that robot army if I don't have at least a strong influence.

Great. Thank you. We've already covered Robotaxi expansion. Unfortunately, the question after that is another future product question, so we're going to have to skip that. The next one, though is, can you update us on the $16.5 billion Samsung chip deal in Taylor? Given the importance of semiconductors to autonomy and Tesla's AI-driven future, what gives you confidence Samsung can fulfill AI6 at Tesla's time lines and achieve relatively better yields and cost versus TSMC?

Okay. So I'm going to give quite a long answer to this question because I have to unpack this question and then answer the unpacked version. So first of all, I have nothing but great things to say about Samsung. They're an amazing company. And Samsung is worth noting, does manufacture our AI4 computer and does a great job doing that. So now with the AI5, and here's I need to make a point of clarification relative to some comments I've made publicly before, which is we're actually going to focus both TSMC and Samsung initially on AI5. So the AI5 chip design by Tesla is -- I think it's an amazing design.

I have spent almost every weekend for the last few months with the chip design team working on AI5. And I don't hand out praise easily, but I have to say that I think the Tesla chip team is really designing an incredible chip here. This is -- by some metrics, the AI5 chip will be 40x better than the AI4 chip, not 40%, 40x because we have a detailed understanding of the entire software and hardware stack. So we're designing the hardware to address all of the pain points in software.

So I don't think there really isn't anyone that's doing this -- the entire stack all the way through real world -- kind of calibrating against the real world where you've got cars and robots in real world that like we know what the chip needs to do, and we know what -- just as importantly, we know what the chip doesn't need to do. Sort of give you some examples here. With the AI5, we deleted the legacy GPU or the traditional GPU, which is -- it's in AI4. But AI5 does not have -- we just deleted the legacy GPU because it basically is a GPU. So we also deleted the image signal processor. And there's like a long list actually of deletions that are very important.

As a result of these deletions, we can actually fit AI5 in a half reticle and with good margin for the traces from the memory to the Tesla Trip accelerators, the ARM CPU cores and the PCI-X sort of the PCI blocks. So this is a beautiful chip. I've hoarded so much life energy into this chip personally. And I'm confident this will be -- this is going to be a winner next level. So it makes sense to have both Samsung and TSMC focus on AI5. And so technically, the Samsung fab has slightly more advanced equipment than the TSMC fab. These will both be made in the U.S., one -- TSMC in Arizona, Samsung in Texas.

And -- but it's -- we're going to make -- starting off just to be confident of having -- our goal -- explicit goal is to have an oversupply of AI5 chips because if we have too many AI5 chips for the cars and robots, we can always put them in the data center. So we already use AI for training in our data centers. So we use a combination of AI5 and NVIDIA hardware. So we're not about to replace NVIDIA to be clear, but we do use both in combination, AI4 and NVIDIA hardware. And the AI5 excess production, we can always put in our data centers. NVIDIA keeps improving.

The challenge that they have is that they've got to satisfy a large range -- a lot of requirements from a lot of customers, but Tesla only has to satisfy requirements from one customer, that's Tesla. That makes the design job radically easier and means we can delete a lot of complexity from the chip. Like I can't emphasize how important this is. So like when you look at the various logic blocks in the chip, as you increase the number of logic blocks, you also increase the interconnections between the logic blocks. So you can think of it like there's highways, like how many highways do you need to connect the various parts of the chip.

And especially if you're not sure how much data is going to go between each logic block on the chip, then you kind of end up having giant highways going all over the place. It's a very -- like it becomes an almost impossibly difficult design problem. And NVIDIA has done an amazing job of dealing with almost an impossibly difficult set of requirements. But in our case, we're going for radical simplicity. And the net effect is that I think AI5 will be the best performance per watt, maybe by a factor of 2 or 3 and the best performance per dollar for AI, maybe by a factor of 10. So that's -- we'll have to -- the proof is in the pudding. So obviously, we need to actually get the chip made and made at scale. But that's what it looks like.

Great. Thank you, Elon. We've already covered unsupervised FSD. So the next question is, instead of trying to replace Hardware 3 with Hardware 4, why not give an equal incentive to trade in for a new vehicle?

Yes. We've not completely given up on Hardware 3. However, over the last year, we've offered the customers the option to transfer FSD to their new vehicle, which at times we've been running some promotions. If they got FSD, they could get better preferential rates. So we've been definitely taking care of this, but we do want to solve autonomy first, and then we'll come back with a way to take care of these customers. These customers are very important. They were the early adapters. For what it's worth, my daily commuter is a Hardware 3 car, which I use FSD on a daily basis. So we will definitely take care of you guys.

In addition, once the V14 release series is fully done, we are planning on working on a V14 light version for Hardware 3 probably expected in Q2 next year.

Awesome. Thanks, Ashok. Our final question from Say is, how long until we see self-driving Tesla Semi trucks? And could you see this technology replacing trains?

Yes. So I guess I'll start with that in terms of the Semi production plan and schedule. So the factory is going on schedule. We've completed the building and are installing the equipment now. We've got our fleet of validation trucks driving on the road. We'll have larger builds towards the end of this year and then our first online builds in the first part of next year, ramping into the Q2 timing with real volume coming in the back half of the year. So that's going quite well, and that's the first step, obviously, getting autonomous trucks on the road.

In terms of trains, they're really great for long point-to-point deliveries. They're super-efficient, but that last mile, the load, unload can be better served for shorter distances with autonomous Semis, and that would be great. And so we do expect that to probably shift as we really, as Elon said, change the way transportation is considered. And so we're looking forward to that time line. And Ashok, I know you can take the full self-driving part.

Currently, the team is super focused on solving for passenger vehicle autonomy. That said, the same technology will extend quite easily to the Semi truck once we have a little bit of data from the Semi trucks.

Great. And now we will move over to analyst questions. The first question comes from Emmanuel at Wolfe.

So Elon, you talked about expanding production of vehicles as fast as possible now that you have confidence in the unsupervised autonomy. How should we think about that in the context of your existing capacity of 3 million units? Is that where you're hoping to get volume to? What sort of time line are we talking about? And would this require some level of boosting or incentivizing demand? Like would this basically be prioritizing volume over near-term profitability given the longer-term opportunity.

Well, our capacity isn't quite 3 million, but it will be 3 million at some point. Aspirationally, it could be 3 million within -- we could probably hit an annualized rate of 3 million within 24 months, I think, maybe less than 24 months. Bearing in mind like there's an entire supply chain, like a vast supply chain that's got to also move in tandem with that. So we're going to expand production as fast as we can and as fast as our suppliers can sort of keep up with it. And then we're going to think about where do we build incremental factories beyond that. The single biggest expansion in production will be the Cybercab, which starts production in Q2 next year. That's really a vehicle that's optimized for full autonomy.

It in fact, does not have a steering wheel or pedals and is really an engineering optimization on minimizing cost per -- like fully considered cost per mile of operation. So that's -- for the -- for other vehicles, there's still have a little bit of the horseless carriage thing going on where obviously, you got -- you still -- if you've got steering wheels and pedals and you're designing a car that people might want to go very fast acceleration and tight cornering, like high-performance cars, then you're going to design a different car than one that is optimized for a comfortable ride, but doesn't expect to go past sort of 85 or 90 miles an hour.

And it's just aiming for a gentle ride the whole time. That's what Cybercab is. So -- yes, so it's -- do I think we'll sacrifice margins? I don't think so. I think the demand will be pretty nutty. Like here's the killer app really, what it comes down to is can you text while you're in the car? And if you tell someone, yes, the car is now so good, you can be on your phone and text the entire time while you're in the car. It's -- anyone who can buy the car will buy the car and its end of story. So that's what everybody wants to do. In fact, not everyone wants to do, they do, do that.

And that's why, in fact, the reason you've seen like there's been an uptick in accidents pretty much worldwide is because people are texting and driving. So Autopilot actually dramatically improves the safety here because if somebody is looking down their phone, they're not driving very well. So that's really the game changer. And we do see like -- at this point, I feel essentially 100% confident -- I'd say not essentially, 100% confident that we can solve unsupervised full self-driving at a safety level much greater than human. So we've released 14.1.

We've got a technology road map that's, I think, pretty amazing. We'll be adding reasoning to the car. Our world simulator for reinforcement learning is pretty incredible, like -- when you see the Tesla Reality Simulator, it's -- you can't tell a difference between the video that's generated by the Tesla Reality Simulator and the actual video, it looks exactly the same. So that allows us to have a very powerful reinforcement learning loop to further improve the Tesla AI.

We're going to be increasing the parameter count by an order of magnitude. That's not in 14.1. There are also a number of other improvements to the AI just that are quite radical. So it's -- this car will feel like it is a living creature. That's how good the AI will get with the AI4 computer just before AI5. And then AI5, like I said, is, by some metrics, 40x better. Let's just say safely, it's a 10x improvement. So it might almost be too much intelligence for a car. I do wonder like how much intelligence should you have in a car. It might get bored actually.

And then one of the things I thought like, if we got all these cars that maybe are bored, while they're sort of -- if they are bored, we could actually have a giant distributed inference fleet and say like, well, if they're not actively driving, let's just have a giant distributed inference fleet. At some point, if you've got like tens of millions of cars in the fleet or maybe at some point, 100 million cars in the fleet, and let's say they had at that point, I don't know, a kilowatt of inference capability of high-performance inference capability, that's 100 gigawatts of inference distributed with power and cooling -- with cooling and power conversion taken care of. So that seems like a pretty significant asset.

The next question comes from Adam from Morgan Stanley. Adam, go and ask your question. It seems like we might be having some audio issues with Adam. So we'll come back to you. The next question will then come from Dan from Barclays.

Elon, I know that Tesla is really focused on with master plan for bringing AI into the physical world. And I think we've seen over the past this willingness for Tesla to engage and go into new markets, new TAMs. So when you think about the growth prospects, how do we define the areas that are really within Tesla's core competency versus where do you draw the line for markets or AI applications that are outside of Tesla's core competency?

Actually, I'm not sure what you mean by AI applications outside of Tesla's core competency. But we kind of -- we didn't have any of these core competencies when we started. So it's like we had 0 core competencies, total competency of 0 actually. So I mean, you can think of Tesla as like, I don't know, a dozen start-ups in one company. And I've initiated every one of those start-ups. So it's -- we didn't used to make battery packs, stationary battery packs, but now we do. We make them for the home, make them for utility scale with Powerwall, Megapack. We've created the Supercharger network globally.

No one else has created a global Supercharger network. In fact, that North American Supercharger network is so good that basically every other manufacturer in North America has converted to our standard and uses our -- the Tesla Supercharger network. But if it was so easy, why don't they just do it? And the chip design team, started that from scratch. The Tesla AI software team was started from scratch. I literally just say, hey, we're going to start this thing. I post it on Twitter, now X and then join us if you'd like to build it. In fact, Ashok was, I believe, the first person I interviewed for the Tesla Autopilot team, which we now call Tesla AI software team because it is the AI software team.

So it's -- core competencies created while you wait. And Optimus at scale is the infinite money glitch. It's like this is -- it's difficult to express the magnitude of -- like if you've got something like that -- like if Optimus, I think, probably achieve 5x the productivity of a person per year because it can operate 24/7, it doesn't even need to charge. It can operate tethered. So it's plugged in the whole time. And what -- so that's why I call it like if you're true of sustainable abundance, where working will be optional. There's a limit to how much AI can do in terms of enhancing the productivity of humans, but there is not really a limit to AI that is embodied. That's why I call the infinite money glitch.

I mean one thing which I'll further add is, I mean, people forget like our first attrition of Autopilot was 10 years back. So Elon had started this way back in the day.

Yes, we got the Tweets to prove it.

Exactly. And then even on the Optimus side, right, as much as people think, okay, this is a new thing. I still remember, was it 4-plus years back, we were in a finance meeting with Elon and Elon said, hey, our car is a robot on wheels. And that's where we started developing. In fact, most of the engineering team, which is working on Optimus has come from the vehicle side. And that's why when we talk about manufacturing prowess, we have the wherewithal because the same engineers who worked back in the day on drive units are working on actuators now. So that's where we can -- if there is any company which can do it at scale, that is going to be us.

But we also have actually added a lot of new engineers as well to the team. So there's actually a lot of the credit for the Optimus engineering is actually also new engineers, many of them that are just out of college actually. So the Optimus engineering team is a very talented engineering team. I'd say like, wow, actually. So -- and the Optimus reviews at this point are there's the engineering review and then there's the manufacturing review being done simultaneously with an iterative loop between engineering design and manufacturing because then we see -- we design something and we say like, oh man, that's really difficult to make.

We need to change that design to make it easier to manufacture. So we've made radical improvements to the design of Optimus while increasing the functionality but making it actually possible to manufacture. Like I'd say, Optimus 2 is almost impossible to manufacture, frankly. But [indiscernible] point, we've gone from a person in a robot outfit to what people have seen with Optimus 2.5 where it's doing Kung fu. It was like Optimus was at the Tron premier doing Kung fu just out in the open like with Jared Leto. Like there wasn't -- nobody was controlling it. It was just doing Kung fu with Jared Leto at the Tron premier. You can see the videos online.

And actually, the funny thing is like a lot of people walked past it, thinking it was just a person. Even though with Optimus 2.5, you can see that it has a waist that's 3 inches wide, that results in not a human. So -- but the movements were so human-like that people didn't realize -- a lot of people didn't realize they're looking at a robot. So -- and what I'm saying is like Optimus 3 will be a giant improvement on that and made at scale. But like I said, a very difficult thing. The Optimus sort of engineering and manufacturing reviews and the Friday night meeting with Optimus, which sometimes goes to midnight. And then my Saturday meeting is the Saturday afternoon with the AI5 chip design team. So those 2 things are crucial to the future of the company.

Dan, did you follow up?

Yes. Just as related, maybe you could just talk about to what extent are the AI efforts at Tesla and xAI complementary? Or are they just different forms of AI? Maybe you could just help distinguish for the audience.

Yes. They are different forms of AI. So the xAI, Grok is like a giant model that you could not possibly squeeze Grok onto a car. That's for sure. It is a giant beast of a model. It's -- with Grok is trying to solve for artificial general intelligence with a massive amount of AI training compute and inference compute. So for example, Grok 5 will actually only run effectively on a GB300. That's how much of a beast that Grok 5 is. So -- whereas Tesla's models are, I don't know, maybe about less than 10% of the size, maybe closer to 5% the size of Grok.

So yes, they're really coming at the problem from very different angles. xAI and Grok are -- they're competing with Google Gemini and OpenAI ChatGPT and that kind of thing. So -- and some of it is complementary. I mean for example, for Grok voice, being able to interact with Grok in the car is cool. Grok -- for Optimus voice recognition and voice generation is Grok. So that's helpful there. But they are coming at it from kind of opposite ends of the spectrum.

Adam let's give another try. Unfortunately, still having audio issues. So we're going to move on to Walt from LightShed.

Just getting back to Austin. If you can remove the safety driver at year-end, is the limitation in the Bay Area just regulatory? Or is it kind of the market-by-market learning process? And I guess, similarly, in the 8 to 10 markets that you mentioned to get added, is the decision there to put a safety attendant in the passenger seat or the safety driver in, is that like your step-by-step process to opening up a market? Or is it really just the regulation in the individual market?

Well, I think even if the regulators weren't making us to it, we'd still do that as the sort of right sort of cautious approach to a new market. So just to make sure that we're being paranoid about safety, I think it makes sense to have it sort of either safety driver or safety occupant in the car when we first go to new markets just to confirm that there's not something we're missing because all it takes is like 1 in 10,000 trips to go wrong and you've got an issue.

So it's just to make sure like is there some peculiarity about a city like a very difficult intersection or I don't know, something that's an unexpected challenge in a city for that 1 in 10,000 situations. So I think we probably could just let a loose in these cities, but we just don't want to -- we don't want to take a chance. And like what we're talking about here is maybe 3 months of safety driver in a new metro to confirm that it's good and then we take the safety driver out, that kind of thing.

Okay. And then on FSD 14, it has a different feel than 13, and it's also, I think, a little different than what it feels like in Austin. Is it basically different development path that you're doing in terms of the Robotaxi stuff versus what you're dropping to the early adopters? And when you push these new builds, is it that you're looking for notable improvements in intervention rates? Or is that largely solved and it's more about adding the functionality like the parking and the drive modes or just the overall comfort?

Now the first priority when we release a major new software architecture for Autopilot is safety. So it starts off with safety -- obviously, safety prioritized and then we solve comfort thereafter, which is why I don't recommend people take the initial version, like -- that's why I say like most people should wait until 14.2 before they actually download version 14 because by 14.2, we will have addressed many of the comfort issues. The priority is very much safety first and then thereafter, the comfort issues. That's why most people are like, probably -- it will be a little -- like it will be safe, but jerky.

And we just need time to kind of smooth the rough edges and solve for comfort in addition to safety with a major new Autopilot architecture change. But it really is -- I mean, I know what the road map is for the Tesla real-world AI at a very granular detail. Obviously, Ashok is leading that. And -- I mean, I spent a lot of time with the team going in like excruciating detail here on what we're doing to improve the real-world AI. And like I said, this car is going to feel like it is a living creature, and that's with AI4 before even AI5.

Yes, the road map is super exhilarating, like it's -- waiting so much like to release all the stuff we are working on. In terms of like what we ship to customers versus Robotaxi, it's mostly the same. Obviously, customers have some more features like they can choose the car wants to park in a spot or drive something like that, which is not super relevant for Robotaxi. But there's only a few minor changes like those ones. But the majority of the algorithms and the architecture, everything is the same between those 2 platforms.

Yes. But -- and as I mentioned earlier, like we'll be adding reasoning to -- I don't know, Ashok, is that like reasoning in like 14.3, maybe 14.4, something like that?

Yes, by end of this year for sure.

Yes. So with reasoning, it's literally going to think about which parking spot to pick, so it's going to say, this is the entrance, but actually, probably there's not a parking spot right at the entrance if it's a full -- if the parking lot is fairly full, the probability of an open parking spot right at the entrance is very low. But actually, what it will simply do is drop you off at the entrance of the store and then go find a parking spot. But it's going to get very smart about figuring out a parking spot. It's going to figure out -- it's going to spot empty spots much better than human. It's got a 360-degree vision. And it's going to -- yes, like I said, just -- it's going to use reasoning to solve things.

And putting that all inside the computer that has AI4 is the actual challenge, and that's what the team is working on because obviously, you can do reasoning on the server, that takes whatever. But then in a car, you need to make real-time decisions. So putting all that into the computer that's in the car, that's the challenge.

Yes. That's why I say like I have a pretty good understanding of like AI, sort of the giant model level with Grok and with Tesla. And like I'm confident in saying that Tesla has -- Tesla AI has the highest intelligence density. When you look at the intelligence per gigabyte, I think like Tesla AI is probably, in order of magnitude better than anyone else. And it doesn't have any choice because that AI has got to fit in the AI for computer. But the discipline of having that level of AI intelligence density will pay great dividends when you go to something that has an order of magnitude more capability like AI5. Now you have that same intelligence density, but you got 10x more capability in the computer.

Great. The next question will come from Colin at Oppenheimer.

I appreciate you bringing up the challenges of hand dexterity and humanoids, along with the complexity of the supply chain and the vertical integration you guys are pursuing. I'm just trying to harmonize the time line for the start of production next year with the current state of the supply chain. And what sounds like a fair amount of work remaining on the dexterity before you can really freeze the hardware design and start to scale up production.

Well, the hardware design will not actually be frozen even through start of production. There will be continued iteration because a bunch of the things that you discover are very difficult to make. You only find that pretty late in the game. So we'll be doing rolling changes for the Optimus design even after start of production. But I do think that the new hand is an incredible piece of engineering. And that's -- like say we'll have a production intent prototype ready to show off in Q1, probably February or March.

And then we're -- yes, we're going to be building a 1 million unit Optimus production line hopefully, with the production start towards the end of next year. But that production ramp will take a while to get to an annualized rate of 1 million because it's going to move as fast as the slowest, dumbest, least lucky thing out of 10,000 unique items. But it will get to 1 million units. And then ultimately, we'll do Optimus 4, that will be 10 million units. Optimus 5, maybe 50 million to 100 million units. I mean, it's really pretty nutty.

That is unfortunately all the time we have for Q&A today. Before we conclude, though, Vaibhav has some closing remarks.

Thanks, Travis. I want to take the time to talk about an extremely important vote, which is being held on November 6. The meeting will shape the future of Tesla, and we are asking you as our shareholders to support Elon's leadership through the 2 compensation proposals and the reelection of Ira, Kathleen and Joe to the Board. Note that it is a team sport. And here at Tesla, the Board is an integral part of the winning team. Shareholders are at the center of everything we do at Tesla and our special committee has laid out a compensation package. Like Elon said, we don't even want to call it a compensation package.

Yes. The point is I just like there needs to be enough voting control to give a strong influence, but not so much that I can't be fired if I go insane. But -- and I think that sort of number is in the mid-20s approximately. As a company that has already gone public, there's no -- we've investigated every possible way to how do you achieve increased voting control without -- is there some way to have like a super voting stock, but there really is -- there is no way to have a super voting stock after you've gone public. But for example, Google, Meta, many other companies have this, but they had it before they went public. And so it sort of gets, I guess, grandfathered in.

Tesla does not have that. So it's just -- like I said, I just don't feel comfortable building a robot army here and not -- and then being ousted because of some [indiscernible] recommendations from ISS and Glass Lewis who have no freaking clue. I mean those guys are corporate terrorists. And the problem -- so let me explain like the core problem here is that so many of the index funds, the passive funds vote along the lines of whatever Glass Lewis and ISS recommend. Now they have made many terrible recommendations in the past that if those recommendations have been followed, would have been extremely destructive to the future of the company.

But if you've got passive funds that essentially defer responsibility for the vote to Glass Lewis and ISS, then you can have extremely disastrous consequences for a publicly traded company if too much of the publicly traded company is controlled by index funds. It's de facto controlled by Glass Lewis and ISS. This is a fundamental problem for corporate governance because they're not voting along the lines that are actually good for shareholders. That's the big issue. I mean, that's what it comes down to, ISS, Glass Lewis corporate terrorism.

Yes. And I would say the special committee did an amazing job in constructing this plan for the benefit of the shareholders. There is no -- nothing which gets passed on till the time shareholders make substantial returns. So that's why in the end, I would say, I would urge you to not only vote on the plan but also vote on all the 3 directors because of their exceptional knowledge and experience.

And literally, we at Tesla work with these directors' day in, day out. I mean there is not even a single day that one of the directors I haven't spoken to or one of my colleagues hasn't spoken to. And even the directors out here are not just reading out of PowerPoint presentations, they're actually working with us day in, day out. So again, I just urge you guys as shareholders to vote along the Board's recommendation. Thank you, guys.

Great. Thank you, Vaibhav. We appreciate everyone's questions today. We look forward to talking to you next quarter. Thank you very much, and goodbye.

Good afternoon, everyone, and welcome to Tesla's Second Quarter 2025 Q&A Webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk; Vaibhav Taneja, and a number of other executives. Our Q2 results were announced at about 3:00 p.m. Central Time in the update deck be published at the same link as this webcast.

During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. 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.

[Operator Instructions] Before we jump into Q&A, Elon has some opening remarks. Elon?

Thanks, Travis. So we've had a very exciting quarter. We're able to successfully launch robotaxi, so providing our first drives with no one in driver seats, both paying customers and Austin. And as someone have noted we've already expanded our service area in Austin. It's bigger and longer, and it's going to get even better and longer. We were expecting to really greatly increased the motion service area to well in excess of what competitors can, and that's hopefully in a week or so, 2 weeks?

Yes. A couple of weeks.

A couple of weeks or so. And then we're getting the regulatory permission to launch in the Bay Area, Nevada, Arizona and a number of -- and Florida and a number of other places. So as we get the approvals and we improve our safety, then we will be launching the autonomous ride hailing in most of the countries. And I think we'll probably have autonomous ride handling and probably half of the population of the U.S. by the end of the year, That's at least our goal, subject to regulatory approvals. I think we'll technically be able to it, so we have regulatory appeals, it's probably addressing half of the population of the U.S. by the end of the year. But we are very, very cautious. We don't want to take any chances. And so we're going to, yes, go cautiously. But the service areas and the number of vehicles in operation will increase at a hyper-exponential rate.

So add some other notable things. Model Y in June became the best-selling car in Turkey, Netherlands, Switzerland and Austria. It is, I believe, the best-selling car of any kind in the world still. And autonomy is a big factor there. So even without -- even absent -- even without supervised -- even with just supervised self-driving, it's a huge selling point. And it's worth noting that we do not actually yet have approval or supervised FSD in Europe. So our sales in Europe, we think, will improve significantly once we are able to give customers the same experience that they have in the U.S. This is, I think, a very important point to convey.

We've been working with bank country regulator, which is the Netherlands. And I think we're close to getting approval in Netherlands. Then it's got to go into the EU. It's quite [indiscernible]. In fact, KAFKA has not idea that's probably not EU [indiscernible], but KAFKA challenges with bureaucracy, but we will get the approvals. And I think we'll get -- some people in Europe will have an experience, some also have the U.S. in most of Europe, this year, hopefully, at least partially in this quarter. And then we also have some regulatory challenges in China, which we're hoping to unblock shortly where we figure we also cannot provide [indiscernible] in China currently, but we are going to unblock that [indiscernible] that's another major. It really is the single biggest demand driver.

And then within the U.S., as we get confident about safety in different geographic areas, the -- we'll loosen up on how much somebody has to be laser focused -- have their eyes laser focused on the road because that's been a common complaint. In fact, it does create odd safety issue where people will disengage autopilot than do something, change the radio, may be look at the phone, drive with their knee and then reengage on a buy, which obviously is not just less, say, than simply keeping what [indiscernible]. So we get that experience will improve in the next summer weeks.

Because of our focus on [indiscernible] with no one in the driving seat, the production release of Autopilot is actually several months behind what people experience on robotaxis in Austin. So now we have the robotaxis in Austin launched will we provide adding back those elements so that there will be a step change improvements in the what a pilot experience, what people ask [indiscernible].

This is really -- as you can tell, this is very much sort of autonomy is the story. We need the physical product without which you cannot have autonomy. But once you have a physical product, you need the autonomy is what amplifies the value to stratospheric levels.

We also launched the Tesla Dyna, which has been a huge hit. It actually got worldwide attention, which is unusual for Dyna. Dyna don't typically get the headline news out [indiscernible], but this is a pretty special dine in. And if you're in the area, it's worth visiting. It's sort of a shiny beacon of hope and we're not otherwise sort of leak over [indiscernible], frankly. So it's really quite lovely experience. A great [indiscernible] team there.

On the full stop driving front, continue to talk about that. We have -- we're continuing to make significant improvements just with the software. So the -- we're expecting to increase the parameter count. Actually at this point, we think we can probably 10x the -- almost 10x the [indiscernible] roughly 10x the [indiscernible] account. So this is actually a very tricky thing to do. Because if you -- as you increase the primary account, you get choked on memory bandwidth, but we currently think we can 10x the parameter count from what people are currently experiencing.

So not just the 4x, actually 10x increase in parameter count. And, yes. So still a lot of improvement on the existing hardware to happen.

Energy is growing really well despite headwinds from tariffs and [indiscernible] supply chain changes. The [indiscernible] bank as quickly and we have upgrades to the [indiscernible] that we may be even better. And we had record power deployment gain in Q2. So I think batteries are going to -- just going to be a massive thing. The scale of batteries, battery demand is, I think, not that many people appreciate just how gigantic the scale of battery [indiscernible] is. The way to think about it is that the U.S. sustained power output for the U.S. grid is around 1 terawatt, but average usage is less than 0.5 terawatt. If you add batteries to the mix, you can run the power plants 24/7 at full capacity, thus more than doubling the energy output per year of the United States just with batteries. That's again a big deal. It's a really big deal.

Optimus, so we're evolving the Optimus design and really getting Optimus to the point where it is a phenomenal design. [indiscernible] Optimus version to right now, sort of 2.5. Optimus 3 is an expression design, in my opinion. And will be an -- as I've said may times before, it will predictive -- it will be the biggest product ever. It's a very hard problem to solve. You have to design that every apartment from physics first principles. There's nothing that's off the shelf that actually works. So you're going doing every motor, gearbox, power electronics, control electronics, sensors, the mechanical elements. We also got to train Optimus to use its lense and it's sensors with a neural net, but we'll be applying the same techniques that we apply for a car, which is essentially a 4-wheel robot, and Optimus is a robot with arms and legs.

So the same principles that apply to optimizing AI inference on the car apply to Optimus because they're both really robots in different forms. And Tesla, it is important to note that Tesla is by far the best in the world at real-world AI. Like a clear proof point for that would be, if you compare it to Tesla to [indiscernible], [indiscernible] has got the car is best done with condos how many sensors. And it isn't Google good at AI? Yes, but they're not going to real world AI. Thus far, they have Tesla is actually much better than Google by far and any -- much than anyone at real world AI. And can I by far, Tesla has the best inference efficiency, like I think a key figure of a for AI is what is the intelligence per gigabyte? And people talk about parameters bla, bla bla, but I think start talking about parameters and talk about gigabytes because with the parameters, you can have 4-bit parameters, 8-bit parameters, 16-bit parameters. But the actual constraints in the hardware are how many gig at a run and how many gigabytes per second can you transfer from in? Therefore, it is not a frame constraint, there's a bite constraint. And Tesla has the highest intelligence density of any AI by far.

And I have a lot of insight into this with [indiscernible] AI. AI is -- [indiscernible] is the smartest overall, but it's -- [indiscernible] is the giant beast at the the terabyte levels. And -- so just kind of important to know Tesla has the best intelligence density. And intelligent density will be a very big deal in the future. It is now.

So with Optimus 3, which is really the right designs like it doesn't have -- at this point, there's no significant flaws with the Optimus 3 design, but we are going to retool a bunch of things. So it'll probably be prototypes of Optimus 3 in this year and then scale production next year. We're going to to try to scale Optimist production as fast as it's seemingly possible to do so trying to get to 1 million units a year as quickly as possible.

We think we can get there in less than 5 years, it's my sort of guess. That's a reasonable aspiration is 1 million units a year, 5 years [indiscernible].

In conclusion, so far, 2025 has been very exciting year. A lot of major milestones. We've made clear demonstrable progress in autonomy that A lot of -- as said we would not achieve. But that's worth noting, but we have done what we said we're going to do. I don't mean [indiscernible] on time, but we get it done. [indiscernible]. So great progress by the Tesla team.

Yes. I do think if Tesla continues to execute well with [indiscernible] economy and [indiscernible] autonomy, it will be the most valuable company in the world. So a lot of execution between here and there. It doesn't just happen. But provided we execute very well, I think Tesla [indiscernible] company in the world.

Obviously, I'm extremely optimistic about the future of the company. Best way to predict the future is to make it happen. And we're going to make it happen here with Tesla team. So I'd just like to say thanks to all of our quarters. And I think we're going to tell you an incredibly exciting future.

Great. Very much, elon, and Vaibhav does have remarks as well.

As Elon mentioned, Q2 was an interesting quarter in a few respects. We started ramping up the production of the new Model Y at all our factories. We rolled out our robotaxi service in Austin and delivered a car completely autonomously from -- directly from the factory to the customer's hall. It is a seminal point to get to this thing. I mean, it took a lot of effort, and I really want to thank everybody at Tesla to make this happen. It wasn't an easy thing to do, but we do it. It took time, but we've just begun the next phase for the company. The one big [indiscernible] has a lot of changes that would affect our business in the near term. The first among those changes is the repeal of the IRA EV credit of 7,500 by the end of this quarter. Given the abrupt change, we have limited supply of vehicles in the U.S. this quarter as we have already with the lead times to order parts with cars. We've rolled out all our planned incentives already, and we'll start gearing them back as we start to sell.

Here in the U.S. and looking to buy a car, [indiscernible] now as we may not be able to guarantee delivery for orders placed in the later part of August and beyond. We will also make changes to sort on emission standards by releasing the amount of penalty to [indiscernible]. This, in total, will have an impact on the new sales of regulatory credits to other OEMs and in turn, will lead to lower revenues.

While we never plan our business around our sales hit to nonetheless impact our total revenues quite full.

On the automotive product portfolio, the entire lineup is updated. Globally, we are seeing an increase in the number of test drives. We started the production of the lower cost model as planned in the first half of '25. However, given our focus on building and delivering as many vehicles as possible in the U.S. before the EV credict expires and the additional complexity of ramping a new product, the ramp will happen next quarter, slower than initially expected.

One thing which is grossly appreciated and Elon talked about it is that all our vehicles in the lineup are capable of autonomy. This is by far the biggest differentiator between us and the competition. Our vehicle's stop safety standard [indiscernible], but with FSD, they are and will continue to set a new standard for safety within vehicular transportation. We published our vehicle safety report earlier today. And you can see that [indiscernible] on FSD is 10x safer than the car not on FSD.

We've started seeing an uptick in FSG adoption in North America in recent months, which is a very promising trend. And just to give you a perspective, since the launch of -- since we moved to version 12 of FSD, we've seen the adoption rates really increase. We started seeing the -- on the automated revenue front, despite reduction in regulatory debt revenue and the total automotive revenue increased by 19% sequentially, given the product deliveries only improved 14%. This was primarily due to an improved ASPs because of the new Model Y. This helped in improving margin sequentially as well, along with improved mix and higher cost, fixed cost absorption despite an increase in cost from tariffs.

We started seeing the impact of tariffs in our P&L. Sequentially, the cost of tariffs increased around $300 million, with approximately 2/3 of that impact in automotive and rest in energy. However, given the latency in manufacturing and sales, the full impacts will come through in the following quarters, and so cost will increase in the near term.

While we are doing our best to manage these impacts, we are in an unpredictable environment on the tariff front.

The margins for the energy generation storage businesses improved sequentially, while deployment reduced primarily due to the ramp of power deployments at higher margins. We were able to achieve our highest gross profit for the business yet. Note that the overall deployments will continue to vary quarter-to-quarter. [indiscernible] not covered best that industrial storage will make a difference in this drive towards AI and data center growth. The energy requirements are increasing at a rapid scale as AI application applications are very energy hungry. The quickest path to scale up energy is deployer. This is something that our customers have started realizing. And destroyed this business having the largest impact of tariffs, we are seeing customers willing to accept some of the tariff impacts.

The big bill has certain and worse impacts even for the energy business, most notably on the residential storage business due to the early expiration of consumer credits by the end of this year. The challenges of the storage business, therefore, remain both from the bill and from tariffs, and we're doing our best to try and manage through this, but it will -- we will see shifts in demand and profitability.

The margins for our service and partner businesses improves sequentially, primarily due to higher profits from supercharging and improvement in insurance and service center profitability. Operating expenses also grew sequentially as we continued our investment in AI projects. including additional expenses related to employee-related costs, including higher stock-based compensation and depreciation for AI compute.

Our operating expenses, especially in R&D related spend will continue to grow. We believe even in the current environment, it is the right strategy to keep making investments in these areas to position us for the long term.

Other income grew sequentially, primarily from the mark-to-market adjustment on [indiscernible], which was $284 million gain in Q2 while being $125 million loss in Q1. Just want to remind people that this would keep creating volatility based on the bitcoin pricing.

While operating cash flow has increased sequentially, so did our CapEx, resulting in $146 million of free cash flow. We continue to make investments in various aspects of manufacturing like Cybercab, [indiscernible] and other [indiscernible] spend and the expansion of our AI initiatives. Our latest expectation for the year in terms of CapEx is in excess of $9 billion.

To summarize, we have near term challenges in our business due to the negative impacts of the bill and tariffs. However, the investments that we have made for AI, robotics and our lead in energy sets us up for a bright future. I would like to thank the whole Tesla team, our customers, by investors and supporters for their continued belief in us.

Great. Thank you very much, Real. So now we're going to move on to state com questions. The first question is, can you give us some insight how Robotaxis have been performing so far? And what rate you expect to expand in terms of vehicles, geofence, cities, sensor providers?

Yes. Robotaxi has bring great so far and as and customers really love the experience, like super small, very safe and like just a great experience overall. And we already did the first day of expansion in Austin, and we'll continue to expand in Austin to probably more than 10x our current operating region. We're also testing in a lot of other cities, as mentioned. The next thing to expand in the San Francisco BayArea. We are working with the government to get approval here -- and in the meanwhile, launch the service with the person in the driver seat just to expedite and while we wait for regulatory approvals. We are also testing a lot of other cities in the U.S., including Florida, Nevada, et cetera.

Great. Thank you very much, Chuck. The next question is, what are the key technical and regulatory hurdles still remaining for unsupervised FSD to be available for personal use -- can you provide a time line?

I think it's -- it will be available or in [indiscernible] personal use by the end of this year in certain geographies. We're just being very careful about it so...

This is not something which we don't want to rush. We want to make sure that everything is set before we [indiscernible] available broadly.

Yes. We're just being extremely paranoid. But I'd be -- I'm confident that by this year within a number of cities in the U.S. will be available to end users.

Yes. And for the same hardware in the Austin robotaxi vehicles has some customer vehicles, and we did deliver a car autonomously from the factory to a customer this quarter. And every Tesla manufacturer in the U.S. and in Europe, autonomous drives itself from the end of line to the loading docks. And so it's just a [indiscernible].

Yes. I think we'll be -- we'll end up delivering cars in the -- [indiscernible] area and the Bay Area by default from the factory by the end of this year. Like a car will deliver itself to where you are unless you say you don't want it.

The next question is, what specific factory tasks is Optimus currently performing? And what is the expected time line for scaling production to enable external sales? How does Tesla envision Optimus contributing to revenue in the next 2 to 3 years?

The Optimus 3 design, as I mentioned earlier, is, I think, finally the right design, the way further optimizations, but there are no fundamental changes to -- that are needed for the Optimus design. It has all the degrees of room that we really want you need. So it's -- we'll have prototypes of that in, I don't know, 3 months and it [indiscernible] production, wholesomely start production on that in the beginning of next year. The production around [indiscernible] it's always predict the S curve of your production ramp when something got an entire -- when everything is new because the rate of production will move as fast as the least lucky and least confident element of the entire supply chain as well as internal processes. So more use of [indiscernible] that in product, the slower the ramp to be because of unexpected supply chain interruptions or mistake me to internally.

It's much easier to predict sort of the end of the S curve or late in the S curve than the beginning of S curve. And the beginning of the S curve of the production and is in any case, not really material for revenue purposes. The beginning of the S curse is year usually you always negative gross margins and you're debug an amount of issues. So that's why it's -- I feel like fairly confident predicting things, at least median confident in predicting where we are in 5 years, but it's hard to predict where we are in a year or 2 years.

So that's why I think 5 years, I think we could be at the -- I'd not be surprised at the end of 5 years, 60 months from now, if we are not, roughly making 100,000 autonomous robots in month in 60 months, I would be shocked.

All right. Next question is, can you provide an update on the development and production time line for Tesla's more affordable models? How will these models balance cost reduction and profitability? And what impact do you expect on demand in the current economic climate?

I think Vaibhav did a good job of answering this question is opening the lungs. As we said, we started production in June and we're rating-based things throughout the quarter. And given the -- that we started in North America and our goal is to maximize production at higher rates ending Q3, we're going to keep pushing hard on our current models with line complexity. Then fortunately, that rolls away, we'll be running with more affordable models available for everyone in Q4. And the goal of those products was not to negatively impact revenue or gross margin, but just to make a car that everyone loves and wants at a more affordable price.

Thank you, Lars. The next question is, can you talk about the benefits of Tesla investing in X AI?

This is not the forum to discount the topic. I mean if there is something which we need to discuss we'll discuss that separately.

I think obviously, we're a publicly traded company. Shareholders are welcome to put forward any shareholder proposals that they'd like and recently encouraged that. And then have shareholders vote and we'll act in accordance with the shareholder wishes.

Great. Thank you very much. The next question is, can you tell us a little bit more about what goes on in the Tesla design studio?

Do you want me to take that one? Can we kind of generally say that what happens in the studio stays in the studio and that earnings calls are not the place to disclose new product stuff. But we're working to make sure that we have an exciting future for Tesla and in the product lineup.

Yes, there's a lot of exciting things happening in the design studio. It's not like static. And really, what's going to happen over the next several years is a fundamental transformation of the company from a pre-autonomy world to a post autonomy. And I'm working on a new master plan to articulate that Tesla team. And there will be some teething pains as you transition from pre-autonomy to the post auto mony world, but I think the future vision for Tesla is incredibly exciting, and we will profoundly change the world in a good way. This may sound like sort of mindful ever, but I think if -- well, let's just say if we execute on that plan effectively, which is -- you have to actually do that, tesla will be the most valuable company in the world by far.

Great. Thank you. The next question is actually a duplicate on [indiscernible] customer vehicles, so we will skip that. After that is, are there any news for hardware 3 users getting retrofits or upgrades? Will they get Hardware 4 or some future version of Hardware 5?

I mean what we want to do is we want to get unsupervised done on Hardware 4 first. Once it's done, then we will go back and look at what we need to do with the Hardware 3 cars. I mean like I said, the focus is first to get on supervised out, and then we'll go back and see what work we need to do.

Great. The next question is, can you give an update on Dojo, and could AI be a customer for Dojo?

Dojo 2, we expect to have Dojo 2 operating at scale sometime next year, with scale being somewhere around 100,000 to [indiscernible] equivalents. And and then AI 5, which is really spectacular to [indiscernible] those words, likely spectating to. [indiscernible] The AR [indiscernible] be -- hopefully be in volume production by the end of next year. And that has a lot of potential.

I think thinking about Dojo 3 and the AI 6 inverse chip, it seems like intuitively, we want to try to find convergence there where it's basically the same chip that is used when we say 2 of them in a car or an Optimus and maybe a larger number on a board kind of 5, 12 on a board, something like that. If you want high bandwidth communication between the chips at of course, survey, doing [indiscernible], I think. That sort of seems like intuitively the full way to go.

Great. The next set of questions have all actually been covered. So we'll end with how will the EBV elimination of tax credits for solar projects affect your sales pipeline for Megapac?

Our sales pipeline is quite diversified across customers and market segments. So we aren't heavily weighted in Megapack projects that are paired with solar. And as we talked about in the opening remarks, we're seeing storage quickly being recognized for its ability to unlock efficiency and how quickly it can be deployed to help the grid. Additionally, although the recent bill was not favorable towards solar, we believe solar projects will still get built because the energy is necessary, that projects are well developed and they're ready for execution, and there's really no alternatives in the near term given gas turbine lead times and pricing.

We also continue to see growth in the data center segment and in stand-alone storage projects, providing capacity to the grid in several markets across the U.S. Overall, we are forecasting a very strong second half of the year as we increase deployments. And lastly, we continue to invest heavily in U.S. manufacturing to mitigate policy and tariff impacts, expecting our first cell manufacturing facility to be online by the end of the year and then launching our third mega factory near Houston in 2026.

Great. Thank you, Mike. We will now be moving to analyst questions. The first question comes from Emmanuel Rosner at Wolfe Research.

Can you hear me?

Yes.

So Elon, are you able to share any KPIs with us in terms of the robotaxi business? How many vehicles are you operating miles driven autonomously or the number of safety critical intervention. Just curious how the rollout it generally is going? And any sort of like targets that you could share more broadly?

[indiscernible], do you want to...

We have more than 7,000 miles operating in Austrian area. It's just because service is new. We have a handful of vehicles right now, but then we are trying to expand the service in terms of both the area and also the number of vehicles within Austin and other locations. So far, there's no notable [indiscernible] incidents. Sometimes we have our own restrictions as to, for example, we are in our speedy mid- to 40 miles per hours and the vehicles wants to go on higher speed or we can stop the vehicle, but there was a lot of convenience opposed to safe critical nature. So for the service has been really well received, and we continue to expand on it.

Great. I mean -- and the longer term, from an economics point of view, longer term, you've previously talked about working to drive down the cost per mile on robotaxis maybe towards $0.30 or $0.40 per mile over time. Now that your service is live, how should we think about the main milestones to getting there?

Yes, well the Cybercab, which is really optimized for autonomy, that, I think, has got to probably sub $0.30 per mile potential over time, mid-'25. It's really -- like if you design a car from scratch to be a cost optimized robotic taxi like Cybercap, like for example, we're not trying to make it corner like incredibly well, like a Model 3 would or Model S or even Model Y, it's got model -- all of our cars that are driven by people, our superfund. They've got incredible acceleration, incredible coring capability, but we're confident that very few people in Cybertruck want to be hurdling around.

So we reduced the top end speed, which means we can use more efficient tires. We don't need as much acceleration. We don't need as much breaks to sort of -- we want stopping distance, but we're not expecting it to be heavily used. It's a gentle ride. Essentially, you design it for a gentle ride, and the you have a much more optimized design point. So that's why it seems probably that we could achieve that, especially with Optimus sort of is cleaning up the car and doing maintenance and stuff.

And you doing automatic charging. So I think it's going to -- the actual cost per mile of Cybercap will be very low. The cost from [indiscernible], our existing fleet, will be higher, but still very competitive. So yes. Maybe some over $0.50, I am just guessing. So this really tells robotaxi will go from tiny to gigantic in terms of operations in quite short period of time. Like my guess is that it has a material impact on our financials around the end of next year.

Great. The next question comes from Adam at Morgan Stanley.

So Elon, as Tesla moves into this next phase of physical AI, autonomous humanoid, robotaxis, et cetera, world-changing civilizational species changing technology with dual purpose, are you comfortable moving Tesla in this direction while only having a 13% stake in the economy -- sorry, in the company. Is that sustainable? Or does -- do you still insist that something needs to happen given your current lack of control and the types of technology you're getting into?

SP1 Yes. That is a major [indiscernible] as I've mentioned in the past, and I hope that is addressed at the upcoming shareholders' meeting. But yes, it is a big deal like I want to find that like so little control that I can easily be [indiscernible] by activist shareholders after having bolstered these - a few million robots. I think as I mentioned before, I think my control over Tesla should be enough to ensure that it goes in a good direction, but not so much control that I can't be thrown out if I go crazy.

Okay. You're not going to go crazy. We trust you. You can stay a little crazy. A little crazy is okay. Elon, though, we understand the Board of Directors of a major U.S. investment bank recently toward Optimus production. That's -- I don't know if you want to confirm that or not, it's just what we heard. That's cool. But when do you think others will be able to get a firsthand view of Optimus like that? And is the second half of this year too soon to have an AI day? Because it seems like everybody else in the world is doing it and this talent war is getting freaking crazy. And I know you mentioned for recruiting purposes. This is a very important thing that you've done. I think people have copied you on this. And I'm wondering if this year is too early for that?

Yes. It's a bit of a tough thing because like when we're doing AI day, we find that some computers have literally done a frame-by-frame examination of our slides and everything we say and then copy it. So I would say like what's the trade-off, which it does help with recruiting, but then competitors look very closely and copy us. I mean that said, we should probably -- I mean, I guess, we could consider the shareholder beginning to be sort of -- we can do -- we can maybe go into depth -- low amount of depth at the Annual Shareholder Meeting with respect to Optimus and AI and sort of actual chips perhaps. Yes. It has us really underrated in terms of AI chip design as well as AI software.

So like there's still not a chip that we were -- that exists that we would prefer to put in our car. That is an AI that we would prefer to win the car over our own, even though it's been now out for several years. And we're confident that the AI 5 will be a profound game changer.

In fact, it's so powerful that we'll have to [indiscernible] it for -- to some degree, for markets outside of the U.S. because it flows way past the export restrictions, so less export restrictions change we actually will have to know if our AI 5 chips -- hopefully, we keep raising the bar on export restrictions otherwise the [indiscernible]. We'll have a bunch of optimism words [indiscernible] stage at the shareholder meeting. The Optimus lab is cool to see. It looks like -- it like the [indiscernible]. It could robot in various stages. Some of them in various stages of prepare, like, I don't know, some combination of like the [indiscernible] and the West [indiscernible]. very cool. And Optimus is walking around the office here in Palo Alto, so 24/7 is just walking around like it's more, and we so Optimus the Tesla diners [indiscernible].

Yes. So it's -- we'll go from a world where robots are rare to where they're so common that you don't even look up.

The next question comes from Edison at Deutsche Bank yourself. All [indiscernible] that out, we will go to the next question, which is going to come from Dan Levy at Barclays.

Elon, you've talked about the opportunity to put non-Tesla owned vehicles into the robotaxi network. Can you just talk about the gating factors to enabling that and what time line we should expect on personally owned vehicles in the robotaxi network?

We haven't really thought hard about that, but we need to make sure it works when the vehicles are fully under our control. And it's kind of 1 step at a time here. We don't want to jump again. As I said, we're being paranoid about safety. So so it's like -- but I guess -- I guess we -- like next year is, I'd say confidently next year, I'm not sure when next year, but confidently next year, people would be able to have to subtract their car to the successful fleet.

I mean 1 thing to keep in mind is that we will have some criteria because like even when you put your car in an Uber of Lyft feet, it go through a more checklist process of making sure things are working.

Air BNB or...

So we will do something like that.

[indiscernible].

Yes. We want -- like Elon said, we want to be parallel about security. And assets, long things like tread on the tire can have an impact on safety. So that's why we would want to do some proper validation before we let other cars come in.

Dan, do you have a follow-up?

Yes. Could you just unpack the different costs associated with scaling the robotaxi business? And how you think about funding those costs? Are the cash flows in the auto business sufficient to fund it? And if not, what other funding sources do you think could use would you just fund it off the balance sheet?

Well, as soon as there is a clear cash flow stream associated with any product, you can debt finance it.

And in the interim?

In the interim, we will use our balance sheet, but like once we get to a certain scale in terms of the current revenues, like Elon said, we could get into a -- easily in kind of transaction to try and get funding.

We will now move on to Mark from Goldman Sachs.

With the FSD trials that Tesla has been offering to consumers and the attention on self-driving more generally, are you able to comment more specifically on what you're seeing with FSD subscription trends and take rates, and help us better understand how large FSD revenue may be currently?

So we've definitely -- I mentioned it in my opening remarks. Since we have launched Version 12 of FSD in North America, we've definitely seen a marked improvement in the FSD adoption. And the other thing which we had also done last year is we didn't bring down the pricing and we've made subscription much more affordable. So we have seen 25% increase since that time. So -- which is an encouraging trend. But honestly, we've just started the story around explaining the benefits of FSD. Like I said before, we released our concept robot. Even if you don't believe in anything else, a car on FSD being 10x safer should be a motivator. Plus, the other thing is, people don't realize even at $99 a month, it's like you're getting a foreshow for almost $3.33 a day. And this is, by far, the biggest game changer, which I know we've been talking about it because part of it is we live and breath it, but I feel like...

[indiscernible] people still don't the vast people don't know it exists. And it's still like half of Tesla owners who could use it, haven't tried it even once. They don't actually willing. And this is something we want to educate them on. So we've got a -- when they come in for service, we'll reach out to them, send them like videos of how to make it work. And it's such a shocking thing they don't think a car is capable of this. So you have to actually show them and get them comfortable with turning it on if. It's so trivial, but it's like saying you've got a car can you sing and dance, but it just looks like an oil cut. And like until you see the cat sing and dance, and talk like you're assuming is just a [indiscernible]. That's as car is intelligent.

And so what we are going to do to Elon's point, like we've been giving the free time to try and try FSD, but we'll start giving more prompt to say, okay, this particular try FSD. So that -- I mean, because it's literally seeing is believing, like Elon said, it's -- think of it like a cat, it looks like a normal cap, but this cat can sing and dance. Same thing...

Great. Yes. And the 25% comment was 25% increase in the penetration since we've seen the release of V12 and B3 in North America. Great. Mark, did you have a follow-up question?

Tesla has historically said it would use pricing as 1 tool to help drive auto vehicle growth as long as free cash flow stay positive. Given the ability to monetize products like FSD, I'm curious how you're thinking about pricing from here as a potential tool to drive increased volumes given where you stand with FSD as well as the fact that the IRA purchase tax credits are poised to go away in the U.S. starting in the fourth quarter. So should we expect more meaningful price reductions given that monetization potential? Or do you envision price reductions be more limited compared to cost downs given where free cash flow now stands?

Well, we're in this -- we are in the transition period where we will lose a lot of incentives in the U.S. We have incentives actually in many other parts of the world, but we'll lose them in the U.S. And because [indiscernible] the relatively early stages of autonomy. On the other hand, autonomy is most advanced and most available from a regulatory standpoint in the U.S. So -- I mean does that mean like we could have a few rough quarters? Yes. We probably could have a few rough quarters. I'm not saying it will, but we could. Q4, Q1, maybe Q2, but once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I think the -- I'd be really surprised if test economics are not very compelling.

Great. The next question is going to come from Will from Truist.

First, I'd like to ask for a little bit more detail about the lower cost model that you talked about having, I think, started production in the first half, but you said will ramp later. At the last Analyst Day, as I recall, you talked about some aspects of this, like 2/3 or 3/4 reduction in silicon carbide and not using rare earths in the in the motor and perhaps other cost downs. You also had this unboxed architecture that I think you said would not be part of this sort of interim approach. Can you update us on what we should expect this thing to actually look like?

We wouldn't the looks because...

Let's [indiscernible] let the cat out of the bag here, dancing cat can talk and sing, but that's the core part. Yes. I mean, fundamentally, the biggest obstacle remains that people are just doing have some people don't the desire to buy the car is very high, just people don't have enough money in the bank out to buy it. Literally, that is the issue, not a lack of desire, but [indiscernible]. So the more affordable, we can make the car and the better. I think it's just going to be -- it will be a very big deal when people can release their car to the fleet and have it earn money for them, which like I said, I'm I feel confident in saying that will happen next year in the U.S. at least. In the U.S., we're legally allowed, appropriate disclaimers. And that will make the affordability dramatically greater. Just like if you have an Airbnb and you rent out your home when you're not there or rent out a guest room or guest house or something like that, your the affordability of your home is much greater.

Okay. Trying another topic then. Can -- we see all these wonderful developments at XAI like Grock. And obviously, Tesla is trying to do quite a bit in AI. Elon, how do you manage the division of efforts and recruiting and talent and capital between these 2? That seem like there is a very high potential that they can, in fact, compete.

Well, they are doing different things here. So the XAI is doing like terabyte scale models and multiterabyte scale models, Tesla is 100x smaller models. So 1 is real-world AI and wins kind of I guess, artificial super intelligence type of thing. The -- I mean the really kind of the genesis for AAI was that there were some would not join Tesla AI engineers because they wanted to work on AI. They wouldn't join Tesla. And I was like, well, maybe we'll join a new company.

And I think the Tesla [indiscernible] is extremely important, but not everyone agrees with me on that. And so rather than have them join OpenAI up Google or whatever some other company, [indiscernible] we'll haven't created a company in that regard, which is XAI. So that's -- and [indiscernible] make a decision do they want to work on like super intelligence data center or real world AI. They're both compelling problems, but some people want to work in 1, some people want to wok on the other.

Great. And unfortunately, that is all the time we have today. Thank you, everyone, so much for your questions, and you'll see you next quarter.