Tesla Q1 2026 earnings call (2026)
Questions on ElonsFAQ asked in this interview (2)
Transcript
6:59Travis AxelrodGood 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.
7:14Travis AxelrodOur Q1 results were announced at about 3pm 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.
7:26Travis AxelrodThese 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.
7:39Travis AxelrodDuring the question and answer portion of today's call, please limit yourself to one question and one follow up. Please use the raise hand button to join the question queue.
7:49Travis AxelrodBefore we jump into Q and A, Elon has some opening remarks.
7:53Elon MuskElon, thank you.
7:54AnalystSo
7:57Elon MuskI 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 should expect to see significant, a very significant increase in capital expenditures, but I think well justified for a substantially increased future revenue stream.
8:19Elon MuskAnd obviously Tesla's 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.
8:36Elon MuskI 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 expand, laying the groundwork for significantly increased manufacturing production.
9:00Elon MuskWe are also strengthening our supply chain across the board. Batteries, energy, silicon, everything. And laying the groundwork, like I said, for what we expect to be a significant increase in vehicle production in the future.
9:17Elon MuskAnd of course a very significant increase. Well actually releasing Optimus but increasing our tunnel production for testing and then probably being able to have Optimus be useful outside of Tesla sometime next year.
9:39Elon MuskAs 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.
9:58Elon MuskSo on our vehicle side, it's always, I think worth noting that
10:05Travis AxelrodTesla car
10:06Elon Muskis 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 will begin production of Our semi truck soon.
10:30Elon MuskNow 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 Cybercap 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.
10:55Elon MuskAnd 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.
11:15Elon MuskDemand 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.
11:27Elon MuskAnd RoboBo Taxi version 14.3 was a major architectural update and we have a whole pipeline of major improvements to full self driving that we believe will
11:46Tesla Executivelead
11:47Elon Muskto unsupervised full self driving being available anywhere in the world that it is legal to do so. And then, and then there's a version 15, hopefully later this, hopefully by the end of this year, but certainly by early next year.
12:07Elon MuskAnd that will be a complete overhaul of the software architecture and we'll run on AI4. And at that point we're really just increasing the safety level of FSD
12:28Analystabove
12:28Elon Muskhuman safety level even more meaning. I think Even within version 14 we're significantly safer than human, but B15 will take that to another level. We've expanded Rover taxi to Dallas and Houston using the same software source in the Bay Area.
12:49Elon MuskAnd the limiting factor for expansion is really rigorous validation making sure things are completely safe. We don't want to have a single accident or injury with the expansion of Robotaxi and we have to the credit of the team not had a single one to date.
13:13Elon MuskAnd then Optimus, we're preparing Fremont for startup 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.
13:29Elon MuskBut we'll ramp up to significant numbers next year and we're constructing a second Optimus factory at our Giga Texas location and that will probably start production around summer next year.
13:47Elon MuskThe 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.
14:12Elon MuskWe'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.
14:23Elon MuskSo I think there's some value to not showing new technology until it's close to production.
14:36Elon MuskThe 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 unequivocally the best value for money team did a great job and we're already have a lot of momentum for designing AI6 and we've begun to discuss ideas for Dojo 3.
15:11Elon MuskSo this is all very exciting. We've also. Finalized plans for the chip fabric, the research chip Fab on the Giga Texas campus and we'll start construction of that this year.
15:34Elon MuskIn conclusion, Tesla is working on a lot of large ambitious projects. They're all very, very challenging, but I think they're going to be revolutionary. And this is what the team does best, solve the hardest problems and build amazing products.
15:47Elon MuskAnd I'd like to thank the Tesla team for all the hard work and thank you to all of our supporters.
15:54Travis AxelrodGreat, thank you very much Elon and Vabhav also has some opening remarks.
15:59Vaibhav Taneja (CFO)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 and certain countries like France and Germany showing over 150% growth, quarter over quarter growth in deliveries.
16:20Vaibhav Taneja (CFO)In APAC we witnessed growth in South Korea and Japan again in terms of deliveries. Even out here in the US we have seen a slight growth in terms of quarter quarter deliveries.
16:32Vaibhav Taneja (CFO)On the order backlog front, we ended the quarter with the highest Q1 order backlog in over two years. Whilst the recent increase in gas prices has had a positive impact on the order rate, this improvement started before the uptrend in gas prices.
16:49Vaibhav Taneja (CFO)This is due to the work done by the Tesla team in bringing more compelling and affordable vehicles to market. Ten years back when we launched Model 3 in the US with a promise of 35,000 starting price which if you adjust today for inflation translates to about $48,000 in today's dollar terms.
17:11Vaibhav Taneja (CFO)The starting price of Model 3 today is way less than that while the product is way more compelling from where it started. Given this setup, we're focused on increasing our overall production volume, something that we already started in Q1.
17:25Vaibhav Taneja (CFO)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.
17:39Vaibhav Taneja (CFO)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've had certain one time benefits from warranty true downs around 230 million and some relief on tariffs.
18:04Vaibhav Taneja (CFO)We have not realized any benefit from the recent Supreme Court ruling on IPAR 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.
18:20Vaibhav Taneja (CFO)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.
18:39Vaibhav Taneja (CFO)The bulk of the growth came from subscriptions, while upfront purchases only increased 7% as we removed the purchase option in some markets in Q1 we recently received approvals for FSD in Netherlands.
18:53Vaibhav Taneja (CFO)This sets up us well for EU wide approval later in Q2 and you know we're just gated by how the regulators go about it. Additionally, we've also received approvals in China.
19:10Vaibhav Taneja (CFO)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.
19:28Vaibhav Taneja (CFO)With all this in mind, have evolved our vehicle sales strategy where we now emphasize FSG as a product and vehicle as only the delivery mechanism. As we have noted previously, the energy storage business is inherently lumpy tied to customer deployment timelines.
19:48Vaibhav Taneja (CFO)In Q1 we deployed 8.8 gigawatt 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 one time benefits from certain tariff recognitions of more than 250 million from certain tariffs which we paid in prior quarters on a normalized basis.
20:19Vaibhav Taneja (CFO)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.
20:36Vaibhav Taneja (CFO)Our order backlog for this business is robust and we're doing our best to build not just based on existing demand but also unexpected demand. Services and others improved sequentially from 8.8% to 9.2%.
20:53Vaibhav Taneja (CFO)This includes a collection of efforts meant to support our customers like service centers, used cars, paid supercharging, part sales, insurance and even our Robotaxi business. We're making deliberate investments in the infrastructure to help the Robotaxi in the future.
21:09Vaibhav Taneja (CFO)We grew up the Robotaxi fleet quarter over quarter and we expect to keep ramping the fleet as we exit 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.
21:34Vaibhav Taneja (CFO)Additionally, our spend on AI related initiatives, including expense on development of our own AI5 chip and new products like Cybercap, Semi Optimus and Megablock, etc. Continue to be at elevated levels and we expect this trend to continue for the full year 2026.
21:55Vaibhav Taneja (CFO)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 effects primarily from our large intercompany borrowings on free cash flow.
22:12Vaibhav Taneja (CFO)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.
22:26Vaibhav Taneja (CFO)So based on that our current expectation for 20252026 is over 25 billion of CAPEX. And you know, just to remind you, we are paying for six factories which we're going to go into operation.
22:41Vaibhav Taneja (CFO)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.
22:55Vaibhav Taneja (CFO)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 we will have the impact of negative free cash flow for the rest of the year, we believe this is the right strategy to position the company for the next era.
23:13Vaibhav Taneja (CFO)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.
23:30Vaibhav Taneja (CFO)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.
23:44Vaibhav Taneja (CFO)Thanks.
23:47Travis AxelrodThank you very much vyvhav now we're gonna go to investor questions starting with questions from sei.com the first question is when will we have the Optimus 3 reveal? Which we already touched on.
24:01Travis AxelrodBut the rest of the question is when will Optimus production start? Since we ended the Model X and S production earlier this mid year. And then what's the expected Optimus production rate exiting this year and what are the initial targeted skills?
24:16Elon MuskWell, as I was saying, what we found is that when we've unveiled various Optus versions, we've Optimus versions, we found out how competitors literally do a frame by frame analysis and copy everything we're doing.
24:29Elon MuskSo I think we want to push the Optimus 3 unveil maybe closer to production. Startup production is, we're assuming is
24:43Analystsomewhere
24:44Elon Muskaround the late July, August time frame.
24:50Tesla ExecutiveAnd
24:52Elon MuskI mean just to inject some reality into these questions, since these questions are not, you know, the square of this question does not fully understand what happens with the production line.
25:07Elon MuskThe last Essex production will be in early May, but you have to look at the entire upstream portion of the production line. So you have to start with cells, battery packs, motor production, all the parts production.
25:24Elon MuskAnd so we've been dismantling the SX production line from the more base level parts, the more basic level parts to as you get to more larger sub assemblies, you start dismantling the line from the small parts first, not from the final assembly first.
25:43Elon MuskSo the first final assembly line will, that'll be dismantled next month and after the last of the SX vehicles done. Now you can't dismantle some gigantic production line like overnight.
26:00Elon MuskIt 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.
26:21Elon MuskSo that also takes several months. So frankly, if we're able to go from stopping production on one line, dismantling that entire line, reinstalling a whole new line and turning that on in a matter of four months, that is an insanely fast speed.
26:42Elon MuskI 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,
26:57Elon MuskI don't know what the production rate of Optimus will be this year. It is impossible to predict these things.
27:08Elon MuskWhen you have a brand new product in an entirely new production line and you have 10,000 unique items, all of which have to go right to ramp production, it will move as fast as the least lucky, slowest, dumbest part in the entire 10,000.
27:26Elon MuskAnd this is Optimus is a completely new product with a completely new production line.
27:36Vaibhav Taneja (CFO)So
27:39Elon Muskit's just literally impossible to predict, except that I think it will be quite slow at first as we iron up the 10,000 plus unique items that have to be sold for Optimus to reach volume production.
28:00Elon MuskInitial skills will be, obviously we're going to start with simple skills in the factory and then build up from there.
28:13Travis AxelrodGreat, thank you, Elon. The next question is, what milestones are you targeting for unsupervised FSD and robo taxi expansion beyond Austin this year and how will that drive recurring revenue?
28:39Elon MuskWell, we certainly hope to be have unsupervised FSD or Robotaxi operating, you know, in, I don't know, a dozen or so states by the end of this year. Initially, you know, we're taking it very, we're taking a very cautious approach to the rollout here, like we do.
29:10Elon MuskWe haven't had any injuries and certainly no fatalities to date with the unsupervised. Unsupervised FSD and Robotax expansion. We want to keep it that way. And so. I don't, I think probably unsupervised FSD or Robotaxi revenue will not be super material this year, but I do think it will be material.
29:38Elon MuskIt'll be material probably in a significant way next year.
29:46Travis AxelrodGreat, thank you very much. The next question is, when do you expect FSD unsupervised to reach customer cars?
30:02Elon MuskI'm just guessing here, but probably in the fourth quarter.
30:10Elon MuskIt's difficult to release this, like to everyone, everywhere, all at once because we do want to make sure that they're not unique situations in a city that, you know, particularly complex intersection or, you know, actually they tend to be places where people get into accidents a lot because they're just, you know, perhaps there's an, like I said, an unsafe intersection or bad road markings or, you know, a lot of weather challenges.
30:39Elon MuskSo I think we would release unsupervised gradually to the customer fleet, you know, as we feel like a particular geography is confirmed to be safe.
30:57Travis AxelrodGreat. And the next question is, how will Hardware 3 cars reach unsupervised FSD?
31:06Elon MuskUnfortunately, Hardware 3, I wish it were otherwise, but Hardware 3 simply does not have the capability to achieve unsupervised FSD. You know, we did think at one point it would have that, but relative to hardware 4, it has only one eighth the memory bandwidth of hardware 4.
31:31Elon MuskAnd memory bandwidth is one of the key elements needed for unsupervised fsd. It's just generally a thing that's needed for AI. If you're doing an auto aggressive transformer, memory bandwidth is the choke point.
31:48Elon MuskSo for customers that have bought fsd, what we're offering is essentially a trade in, like a discounted trade in for cars that have AI4 hardware. And 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.
32:21Elon MuskSo 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.
32:37Elon MuskBecause 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.
32:51Elon MuskAnd 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.
33:09Tesla ExecutiveAnd 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.
33:20Tesla ExecutiveAnd people should be able to start the drives from Park State and basically have all the features that V14 for hardware 4 has. And that's expected to come end of June.
33:35Travis AxelrodGreat, thank you very much. The next question is, what enabled you to finish the AI5 tape out early and were there any changes to the original vision? Last week Elon said AI5 will go into Optimus and the supercomputer, but one month ago said it would go into the robo taxi.
33:51Travis AxelrodHas AI5 been dropped from the vehicle roadmap?
33:56Elon MuskWell, the reason AI5 tapeout finished early was because the team worked incredibly hard to make it happen. And just over time we gathered a lot of momentum. But we did have to work every weekend for six months straight, including every holiday.
34:15Elon MuskSo it was a lot of sacrifice by the 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 that were at least that we're aware of that required pushing out the tape out.
34:36Elon MuskSo the team just did a great job and worked incredibly hard is the reason.
34:46Elon MuskYeah, 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, which means it's certainly not immediately needed in the car.
35:20Elon MuskAt 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 pressing issue to do so. So.
35:32Elon MuskBut at some point the AI4 hardware is going to get like so old that it's like, okay, you know, the only reason they're keeping the factory Open is for AI4.
35:42Elon MuskWe are planning an AI4 upgrade to use newer generation RAM. So it'll go from 16 gigabytes to I think 32 gigabytes per SoC. So a total of 64 gigabytes and probably a 10% increase in compute and sort of into trillions of operations per second and in memory bandwidth.
36:13Elon MuskSo that's AI for 0.1. AI4 probably goes into production middle of next year I think. Depends. It depends on Samsung's 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.
36:39AnalystGreat.
36:40Travis AxelrodThe 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?
36:52Elon MuskWell, we're probably jumping gun here on robotaxi in Europe since it took us an immense amount of time just to get supervised self driving approved in Europe. And you know, these, we don't control the regulators, you know, it's, we push as hard as we can, but it's ultimately up to the government in Europe and the EU to decide what to do.
37:26Elon MuskSo yeah, as it is, we've only been approved in the Netherlands. We expect to be approved in a lot of other countries. I think the supervised FSD goes to Brussels for EU review in May.
37:42AnalystYeah.
37:43Elon MuskSo.
37:49Elon MuskObviously the next thing beyond that is to aim for unsupervised self driving or rover taxi in Europe. I actually don't know what the timeframe for that is and would be somewhat at the mercy of the regulators as to when that approval would, would take place.
38:09Tesla ExecutiveAnd from a technology standpoint, what we deployed in Netherlands and Europe is the same exact architecture and the training procedure and so on, except it had more Europe data.
38:20Tesla ExecutiveAnd I suspect the same thing will be true for unsupervised FSD as well. Whatever we use to solve in the US will work in other places in the rest of the world too, provided we were able to add the data from the local regions.
38:35AnalystGreat.
38:36Travis AxelrodThe 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?
38:51Elon MuskDo you want to take that?
38:52Tesla ExecutiveYeah, 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.
39:03Tesla ExecutiveSaf, like Iran mentioned, we are absolutely focused on safety and so far we have zero incidents. And that's what the NHTSA filing also shows. In addition to safety, we are also solving some of these so called scaling issues.
39:17Tesla ExecutiveFor 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 are, you know, is close to driving 10 billion miles on FSD in the next few weeks.
39:41Tesla ExecutiveAnd also scaling up the amount of QA fleet that we have across the entire US to accelerate our safety validation while also scaling the rest of the factors that can, you know, throttle the increase of unsurprised vehicles.
40:01Travis AxelrodAll 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?
40:16AnalystWell,
40:21Elon MuskNo, I think 14.3 is the last piece of the puzzle for unsupervised FSD. Now the question is like degrees of safety, like how safety and convenience. I suppose we have a lot of known improvements, like major architectural improvements that we know would improve the probability of safety significantly.
40:50Elon MuskSo I think it's not going to make sense for us to deploy, you know, unsupervised FSD or Robotaxi at large scale when we know that there are major architectural improvements to the software that can improve safety.
41:07Elon MuskSo I think we're going to want
41:09Analystto
41:11Elon Muskfinish 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 three cities and we'll expand to, like I said, probably a dozen states or more later this year.
41:36Elon MuskSo 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 and to FSD when we know that there are software improvements in the pipeline that would improve safety.
41:57AnalystYep.
41:58Tesla ExecutiveAnd I'd like to Note that the version of Robotaxi that's running in Austin, 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.
42:13Tesla ExecutiveAnd we continue to expand based on the V13 for V14 3 base for a while until V15 lands. And V15 is going to be a major upgrade.
42:24Elon MuskYeah,
42:27Travis Axelrodgreat, thank you. The next two 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.
42:46Travis AxelrodWill Tesla move to regional solar and battery farms, perhaps coupled to superchargers? Will we deploy solar through utilities?
42:57Tesla Executive (Energy)Yeah, the overall US residential solar market is going through a bit of a correction after the loss of the homeowner tax credit last year. But we still see strong demand shaping up for the second half of the year.
43:08Tesla Executive (Energy)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 and aesthetics, as well as our own best in class mounting system that gives us a fully integrated home energy ecosystem.
43:28Tesla Executive (Energy)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.
43:38Travis AxelrodGreat, 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.
43:54AnalystHi, can you hear me?
43:57Travis AxelrodYes, yes we can.
43:58AnalystGreat, great. Thanks for taking my question. Considering the various parties involved in the Tarifab 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.
44:14AnalystFunding it, designing it, building it, operating, taking production and the like. We'd love to hear some, some more details.
44:26Elon MuskYeah, so we're still working out the 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, you know, a $3 billion ish initiative and capable of maybe a few thousand wafers per month.
45:04Elon MuskBut it's really intended to try out ideas the research lab, both in terms of maybe we have some ideas for improving the fundamental technology of how chips are made and some of the.
45:20Elon MuskThere's some new physics we'd like to test out but we also want to test out the ability to,
45:29Tesla Executiveto see
45:29Elon Muskif something is working in production. So you need kind of like a few thousand wave 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 Terrafab.
45:54Elon MuskAnd that's what we've figured out thus far. You know, any kind of intra company thing has to be approved by both the SpaceX and Tesla board of directors. It's got to go through a conflict resolution.
46:12Elon MuskIt'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 are served and strike the right balance there.
46:23Elon MuskSo it takes a while to work through the kind of independent director reviews on this. So that's basically what we've figured out thus far is Tails is doing the research fab, SpaceX doing the initial part of the large scale Terrafab, and then we got to figure out the rest of the.
46:46Elon MuskAnd what about Intel's involvement? Yeah, 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.
47:16Elon MuskSo. But given that by the time terapab 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, the new team there.
47:42Elon MuskSo we think it's going to be a great partnership.
47:45AnalystYeah.
47:46Vaibhav Taneja (CFO)And the other thing on the research Fab, I think we've said it before, we plan to do memory, logic, everything in the same place, including mask, because we want to have a quick iteration loop so that we can see and basically scale the technologies which we're trying to bring up.
48:05Elon MuskYeah, I think this will be unique in the world, or at least I'm not aware of any place where you have the lithography, mask creation and then logic, memory and packaging under one roof in one building.
48:23Elon MuskThat's about the fastest I could possibly imagine doing recursive research and development and being able to try out some pretty radical ideas, some of which have, you know, it's kind of long shot stuff, but if some of these long shots pan out would be radical improvements in the way chips work.
48:50AnalystGreat.
48:51Travis AxelrodThe next question is going to come from Pierre at New Street. Pierre, please feel free to unmute yourself.
48:58AnalystHey, thanks a lot for taking my question. A quick one first on fsd adoption. So you have 180,000 new users paying users this quarter. And I compare that to your installed base, it might be 15%.
49:14AnalystBut then if I shrink that to the US or to North America where most of them are, it's probably more like 30, 35%. And I'm trying to. And I compare that you probably sold about 100,000 cars in North America in the quarter.
49:31AnalystSo you're winning twice more FSD users and you're selling cars. And then if I add to that picture the fact that I guess it's mostly hardware for owners who subscribe to fsd, it sounds like most drivers in North America who have hardware for would already be using fsd.
49:55AnalystIs 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?
50:04Vaibhav Taneja (CFO)Yeah, I think you're thinking about it the right way, Pierre. And the other thing which I'll share is that you know, you can't just look at 1/4 versus the other quarter in terms of churn.
50:16Vaibhav Taneja (CFO)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.
50:30Vaibhav Taneja (CFO)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.
50:43Vaibhav Taneja (CFO)And I mean I've said this before, if I just use my own personal behavior, I literally get in the car, I press a button and it just goes. And earlier I used to park, now I don't even have to park.
50:58Vaibhav Taneja (CFO)And that is the experience which we want everybody to get. And that's why you're starting seeing it in the numbers come through.
51:09Elon MuskExcellent, thank you.
51:10AnalystAnd if I maybe a quick follow up, completely different. It's more on the Optimus architecture and you talked about the partnership with XAI and Groq and I was wondering if you can share with us anything about how the system to intelligence is going to be implemented.
51:30AnalystIs that going to be onboard on chips inside Optimus or if we should think about like your fleet of like a million Optimus being produced a year actually driving very significant inference demand in data centers as well for system to thinking.
51:52Elon MuskWell, we think we can put a lot of intelligence locally in the robot and certainly needs to be enough intelligence that if the robot gets disconnected, like if it's a bad cellular signal or there isn't WI fi, you know, Octopus can't just get stuck.
52:09Elon MuskIt needs to have enough local intelligence that it can still do useful things, you know, even if it loses connection. Kind of like the car, like the car does not need any cellular or WI FI connection to be able to drive safely.
52:26Elon MuskNow I guess you can think of like Optimus needs kind of a manager to tell it what to do, broadly speaking, like if, you know, otherwise it's going to keep doing the same thing it did before.
52:39Elon MuskSo, you know, I think you need kind of an orchestration AI which, you know, Grok would be good for orchestration and then for, you know, for Optimus's voice, you know, having a low latency intelligent voice AI Grok is actually very good for that.
53:05Elon MuskSo if you want to talk to optimists and have kind of a, you know, a GROK level conversation, you kind of need to connect to a GROK level AI for, for that.
53:19Elon MuskBut, but I would expect the amount, the amount of interaction, apart from like, you know, the voice, voice stuff and asking complicated questions of the robot that necessarily needs a large AI model to answer the, you know, Gronk would probably have about as much interaction with Optimus as a manager would have with the people on their team.
53:44Elon MuskSo. Meaning, meaning Optimus could probably work for several hours without any management oversight.
53:54AnalystGreat.
53:55Travis AxelrodThe next question is going to come from Dan at Barclays. Dan, please feel free to unmute yourself.
54:05AnalystGreat. Good evening, thank you for taking questions. Elon, your chip suppliers generally generate pretty good economics on the chip they sell. Your approach has historically been on vertical integration.
54:20AnalystPart of that has been to get better economics. So I know the longer term goal of Terrafab is to get the supply you need, but how much of Tarifab is also motivated to get better economics on your midterm chip purchases?
54:34AnalystAnd how long is it going to take to ramp to get to yield that achieves that type of economic parity?
54:43Elon MuskNo, 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, sufficient quantity of AI chips down the road as we scale production to high levels.
55:04Elon MuskJust the rate at which the industry is growing in logic, but even more so in memory is just doesn't, you know, we just anticipate hitting the wall if we don't make chips ourselves.
55:21Elon MuskSo that's, that's the reason for the Terafab. I think that we do have some ideas for how to make maybe radically better AI chips. These are kind of research ideas there, you know, which Means like long shot.
55:42Elon MuskBut 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 lab and are developing our own production technologies.
55:57Elon MuskSo. And if you look sort of long term at say, having AI satellites making chips for those, there's just no way in hell the existing industry can keep up with that.
56:12Elon MuskIt's impossible.
56:16Travis AxelrodAll right, and our next question is going to come from Mark at Goldman Sachs. Mark, please feel free to unmute yourself.
56:25AnalystYes, good afternoon. Thank you very much for taking my question. I recognize the importance of FSD and that FSD can help to drive vehicle sales, and nice to see some of the improvements in the FSD technology more recently with version 14.
56:39AnalystHowever, I'm also hoping to understand if the company's view on new vehicle models has evolved. And I ask, given that Elon, you posted on X recently, that Tesla could develop a family vehicle.
56:48AnalystThere's also been some past discussion about a compact vehicle.
56:54Elon MuskWell, I mean, Cybercap is the compact beagle. It's actually, I mean, it's very roomy, but it's a, it's a two person vehicle. And we do think probably most of our production long term will be cybercap because 90% of miles driven are with two or one or two people.
57:10Elon MuskSo it would mean that, you know, you'd want a vast majority of your production to be Cybercap then, but over time it's going to make sense for our whole lineup to be autonomous vehicles of different sizes.
57:28Elon MuskAnd I did talk a bit about this when we did the kind of AI day in LA at Warner Brothers and you know, showed like, this is our current lineup and this is what, you know, some idea of what our future lineup will be, which is that it's going to be almost entirely autonomous.
57:45Elon MuskIn 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.
58:01Elon MuskIt 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.
58:16Elon MuskI'm not sure. I don't think it moves the needle massively from a revenue standpoint, but it is very cool. I think it might be one of the most spectacular demos ever.
58:31Travis AxelrodAll right, Mark, did you have a follow up question?
58:35AnalystThanks, Travis. My other question was on batteries and the company mentioned batteries as a constraint on its growth. Can you speak more to how Tesla expects to resolve this and to what extent that might come from ramping up your own LFP and 4680 battery cell manufacturing?
58:51AnalystOr is this something that you would expect to resolve primarily with increased sourcing from suppliers? Thank you.
58:57Vaibhav Taneja (CFO)Yeah, so at the moment, I think the limiter is not the cells itself, it's the battery pack capacity. And, you know, we're, like I said in my opening remarks, we're actively working on resolving this.
59:10Vaibhav Taneja (CFO)There's more capacity being added as we speak, and I'll let Lars add a few more things to it.
59:17Tesla ExecutiveYeah, thanks. As you guys may have seen in Berlin, we started launching a model Y battery pack with our in house 4680 cells a few months ago. And that is ramping up nicely, adding to Berlin's output and helping with the demand surge that we've seen in Europe as well.
59:34Tesla ExecutiveWe're adding additional capacity in our Reno facility, sort of retooling it as it's been building packs now for, you know, almost 10 years. And in order to put in some more efficient lines and get, you know, additional output out there.
59:47Tesla ExecutiveAnd then, you know, we continue to have growth in China as well, ramping in house LFP module production and battery
59:55Analystpacks associated with that.
59:56Tesla ExecutiveSo all of those things are happening now and in the next months. And that's, you know, really plans we laid out a few months back to increase that, that output with the growing demand.
1:00:09Travis AxelrodAll right, thank you guys. And our next analyst is going to be Colin from Wells Fargo. Colin, please feel free to unmute yourself.
1:00:19AnalystOh, great. Thanks for taking my questions. 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?
1:00:34AnalystIs it sort of miles per intervention, miles per accident per fatality? And where do you stand on that now?
1:00:44Tesla ExecutiveYeah, we track basically all the metrics that you mentioned. We have a pretty large QA fleet spread across all of the United States. And then we, you know, look at any intervention that could happen and then sort of simulate both in practice and also in our simulators that are very, very good nowadays, using neural networks as what would have happened.
1:01:06Tesla ExecutiveAnd then based on all these analysis, in the end make the call to expand. And so far all of the expansions have gone according to our expectations.
1:01:18Elon MuskA lot of the limiting, a lot of what limits wider deployment of robotax are actually not safety issues, but convenience issues or the car basically gets paranoid and gets stuck.
1:01:30Elon MuskLike 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 it sometimes gets scared to cross railroads, for example, or it'll get stuck at a light where there's.
1:01:52Elon MuskThe light never changes from red. Or I mean, there was one kind of amusing situation where a whole bunch of robotaxis got stuck in the left turn lane 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.
1:02:12Elon MuskAnd so you had this like long line of like, I don't know, a dozen or more Tesla Rover taxis that were waiting for the bus to move, but the bus was never going to move because the Waymo has crashed into the bus.
1:02:26Elon MuskSo that obviously drives people crazy if there's a whole bunch of robo taxis 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.
1:02:43Elon MuskWe'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 with construction, goes around the block, tries to turn the road.
1:03:01Elon MuskAnd so you have to stop the infinite looping, the literal infinite looping. So those are actually, those are by far the issues that we have to resolve as opposed to direct safety issues.
1:03:17AnalystGot it.
1:03:18Travis AxelrodGreat.
1:03:18AnalystAnd then did you have a follow up comment? Yeah, just last year I asked about, you know, FSD and camera and the issues with sun glare and you noted that there was a breakthrough with direct photon counting that addressed this issue.
1:03:31AnalystBut a month ago there was a NHTSA filing saying that they haven't received an update when the solution was deployed and the number of vehicles. Is this, did it require a retrofit of the camera?
1:03:42AnalystIs this fully deployed? I guess I was just curious since the filing mentioned it.
1:03:47Elon MuskYeah.
1:03:49Tesla ExecutiveFirst I want to say we did, you know, change the cameras some months ago and those are out. And the NHTSA flying is referring to like older vehicles. We always work directly with NHTSA
1:03:59Analyston
1:04:00Tesla Executiveall of the issues that they raise with us. And they're asking for quite a bit of information and you know, we're complying with that in as timely a manner as possible.
1:04:08Tesla ExecutiveAnd so we expect to resolve that and any of the other investigations in short order.
1:04:13AnalystYeah.
1:04:14Tesla ExecutiveAnd we have also implemented shifter measures for the visibility of the camera. So in recent software builds, if the camera is not able to see things clearly because of, you know, residue buildup or what have you, then the FSD won't be available for those cars.
1:04:30Elon MuskIt just needs you have to clean the inside of the windscreen.
1:04:35AnalystGreat.
1:04:36Travis AxelrodThat, 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.
1:04:58Tesla ExecutiveIt.