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Tesla Q2 2026 earnings conference call

Key Takeaways (AI-Generated)

Financial Performance

- Record Q2 deliveries with sequential growth: Americas 60%, APAC 27%, EMEA 12%

- Automotive margins excluding credits declined from 19.2% to 16.3% sequentially

- Energy storage deployed 13.5 GWh (53% increase) but margins fell from 39.5% to 20.4%

- Free cash flow negative due to CapEx more than doubling sequentially

Business Highlights

- Model Y became best-selling car globally, setting records across all markets

- FSD take rate reached 55% in North America with 1.5 million paid customers globally

- Robotaxi fleet expanded to 7 US markets, 380,000+ unsupervised miles, zero incidents

- Started production of Cyber Cab, Tesla Semi, and ramping Optimus humanoid robot

Financial Guidance

- CapEx expected to exceed $25 billion in 2026, continuing growth for 2-3 years

- Secured debt facilities allowing up to $30 billion borrowing for investment acceleration

- Energy business margins expected to normalize in mid-to-low 20% range long-term

- Operating expenses to continue growing, largely driven by R&D investments

Opportunities

- FSD approval in new countries expected to drive demand similar to approved locations

- Optimus humanoid robot positioned as potentially 'biggest product ever' with full human dexterity

- Vertically integrated Optimus 4 targeting 10x production increase over previous generation

- Deepened SpaceX collaboration on projects including Terafab semiconductor facility development

Risks

- Robotaxi scaling constrained by need to maintain perfect safety record avoiding regulatory issues

- State-level evolving regulations around sensor requirements for autonomous vehicles creating compliance challenges

- Energy business facing growing competition leading to declining average selling prices

- Massive CapEx requirements potentially straining financial resources over next 2-3 years

Full Transcript (AI-Generated)

Operator

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

Travis Axelrod

My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk, Vaibhav, and a number of other executives. Our Q2 results were announced at about 3:00 PM Central Time in the update deck, we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to one question and one follow up. Please use the raise hand button to join the question queue. Before we jump into Q&A, Elon has some opening remarks. Elon, thank you.

Elon Musk

So yeah, it's been a great quarter. We achieved a record Q2 deliveries. Model Y I believe it's now I think it's the best selling car of any kind in the world and is setting records across the board. So its popularity is increasing tremendously and we're seeing in locations that have FSD approved, we're seeing a very high take rate of FSD. And in fact, I think for a lot of people they're actually buying FSD with a car attached as opposed to a car with FSD. They're coming into our stores in the US and saying they want the full self driving and with whatever car it comes with essentially.

So clearly this is a significant demand driver. And as we get approval for FSD in different countries, I think we'll see a similar uptick in demand. So yeah, it's looking very good on that front. The energy business is also growing incredibly fast and I think will be crucial for the scale up of artificial intelligence data centers. We're investing a lot in growing the core business and really preparing for the future. So this is a massive CapEx here, but I'm confident that all the things that we're investing in will yield incredible returns, really the best CapEx returns that we've ever seen. And just the Tesla team has performed incredibly well.

The Cyber Cab has started production and we also have started production and are ramping well. We will soon start production with Optimus. We have started production with the Tesla Semi truck. We'll soon start production with Megapack 3. We've started production with the lithium refinery, the cathode refinery. We also have we're scaling up battery cell production and we're also preparing to do a massive solar panel like solar cells and panel production. Actually, this is going all the way from silicon refinement to producing the solar cell and then deployment of solar because there's going to be tremendous need for electricity in the future due to electrification of transport and AI, obviously.

So we're working on what we believe is the most ambitious build out of advanced infrastructure manufacturing capacity ever in history. It's a big deal. So with Robotaxi, our goals are very ambitious for robotaxi, but we do need to be cautious about causing any accidents or causing any harm to anyone. Although there are I think 30 to 40,000 automotive deaths per year in the United States alone. Most of those do not generate any press or maybe there's that they're you don't really read about almost any of those. But if we injure even one person and we worldwide headline news and regulators will immediately clamp down our activities. So and we don't want to injure anyone.

So we're going as fast as humanly possible in scaling robotaxi, but with trying to ensure that we do not harm anyone at all and ideally do not even run over a pet. So that's really the constraint is we want to grow as fast as possible with Robotaxi without harm to anyone and we're providing live updates for the robotaxi launch as we open up in the city. Where we immediately post down X. So if you just follow the Tesla account X, we'll keep you informed as we scale to new cities. We've opened up a number of cities in Florida and in Texas and obviously in the Bay Area. So we'll continue to scale I think very, very rapidly on with it looks like more than 10% a week in terms of miles driven. So it's a very high compound growth rate.

So let's see Optimus, as you've heard me say before, I think Optimus will be the biggest product ever, but it is a very complex problem to solve. It's one of the hardest things to solve to make an autonomous humanoid robot that can do tasks that you simply ask it to do something or show it a video. It can do the task without any programming like no one's ever achieved this. And you've got that. There are many challenges in the electromechanical design of the robot to achieve sufficient dexterity and reliable to be very reliable and have long wear, long wear and tear, but meaning it needs to be out in the field and not breakdown. Otherwise you can convert to a 70 kilogram robot that just flopped over and you got to carry it like a body. You know, there's no wheels.

So, and we don't want optimists to go haywire. So it's a lot of work to scale, to get the design right and to scale production. And I really want to emphasize here that the production scaling challenge is a very, very substantial. This is going to be the hardest product to scale manufacturing that we've ever made at Tesla because everything on the robot is new and the difficulty of scaling the production ramp is proportionate to the newness of the parts in the robot. And you know, at least with electric cars, the non electric powertrain portions of the cars had an existing supply chain. So you could go to existing suppliers for wheels and side mirrors and Springfield glass and that kind of thing, body panels and but with optimist, there is no supply chain.

So we've had to build up a supply chain in its entirety or in house the production and we actually in house a tremendous amount the Optimist production line that we're building out in Fremont in place of what used to be the model SX production. It looks incredible. I mean, it's quite stunning to see. So so I just want to be make sure to calibrate people correctly. It's I'll just we'll follow the sort of normal S curve of manufacturing of a manufacturing ramp, but the initial portion of the S curve will be will be quite flat and long because of the newness of the parts in the robot.

So, but if you've probably seen lots of impressive demonstrations of robots on the Internet, but those demonstrations are seeing are pre programmed or remote controlled. So there is no humanoid robot that is actually able to do generalized tasks. Optimus will be the first one that is capable of doing that where it's not just a demo, it's genuinely useful in day-to-day life. So, and Optimus is designed to have full human dexterity. So a hand that has the same level of dexterity, if not higher than a human hand. And the human hand is an incredible, incredible thing. The more you study the human hand, the more amazing you realize how amazing hands are there. It's more than just a possible thumbs. I mean, the nuances of how human hands work are amazing as the like, the closer you look, the more amazed you are. And Optimus, we'll have that capability. We'll have human and then superhuman dexterity. So it's really going to be quite something.

Let's see Terafab, you know, the Terafab. We expect to announce a location soon and provide some more details about our plans in that regard. We'll leave that to the product. So the launch announcement rather than try to squeeze it into an earnings call because I think this is a very big announcement and it deserves to have its own sort of day in the spotlight and not be sort of squeezed into an earnings call. But I do think Terafab is going to be an amazing initiative and a necessary one, and one without which we will be constrained in our ability to scale Optimus production because we simply won't have enough AI chips. So it's crucial to solve that and we'll have to solve memory logic and packaging for in order to scale Optimus.

So, but anyway, like I said, we'll leave that to its own announcement. We've placed equipment orders for our development fab in Austin. And that development fab, I think is pretty cool because it's intended to be to have lithography, mask production and then logic, memory and packaging and chip testing all under one roof. So you can have a very fast iterative cycle and try out new chip designs very quickly and see if they work. I don't think such a building exists anywhere on Earth. So this is really going to be super helpful as we try some exciting, adventurous, high risk, high payoff bets on AI chips. But they focused, like I said, on primarily optimists. Like how do we make optimists as useful as possible?

Then we have like we're digital optimist, which is basically driving, driving a computer screen. I guess you could call it computer use or something like that, but driving a computer screen the same way that you drive a car. So for the car with it's sort of pixels in or photons in and controls out. The same thing is true for optimists and digital optimists. It's photons in controls out. So we feel confident we can adapt the same Tesla AI technology that we developed for self driving cars to have a self driving computer screen or a self driving computer. Essentially the self driving computer where the Tesla, the very low cost Tesla AI for computer can handle all of the for four time tasks. They're doing real time video control of the screen of the computer. So it's not like screenshots everything, it's real time video and high frame rate.

And that is going to digital options will be important obviously for physical optimists because physical optimists needs to be able to operate computers. It's like it can't come up to a touch screen and not know what to do. It's got to have a generalized touchscreen and computer use capability. So that's looking promising that this is in partnership with SpaceX. SpaceX is Grok. So the big model that is kind of like the manager of digital optimists and kind of tells digital optimists what to do, provides it with a series of tasks and then digital optimists goes and does those tasks.

We're also building out a Megapod design that has Tesla AI4 computers with X86. This is a pairing X86 computer with the Tesla AI4 computer in a box and it's got just Digital Optimus in a box and in a Megapod, kind of like the Megapack packaging. And so where we put just a large number of AI4 plus X86 combos in in a giant box essentially. And that these boxes can be placed anywhere in the country or outside the country. And this allows us to scale AI compute using this aggregated electricity production. So because there's lots of places around the world, including our superchargers, I think we've got something like 7 gigawatts of power and our superchargers and growing and we can place megapods at many of these. Supercharges and have distributed power for AI. So I think that could be quite a big deal.

So in conclusion, we're super excited about our autonomy and robotics road map. There's so much awesome stuff coming. It's like I said, hard to squeeze into an earnings call, but we'll have a lot of product announcements and this is going to be a great year for Tesla, I think one of our best years ever. And then I think next year will be even better. So in conclusion, I want to thank the Tesla team for their excellent execution and all of our supporters for joining us in Australia. Thank you.

Travis Axelrod

Great. Thanks so much, Elon. And now Vaibhav has some opening remarks.

Vaibhav

Thanks, Travis. So Q2 continued the trend that we saw at the end of Q1 a resurgence in demand for vehicles across the globe. We achieved record Q2 deliveries globally with sequential growth across the Americas, APAC and EMEA of 60%, 27% and 12% respectively. Additionally, Model Y set records in several key markets, including the Netherlands, Australia and New Zealand. The efforts of the Tesla team to create compelling products at a reasonable price with the capability of autonomous driving are coming to fruition. We exited Q2 with our largest order backlog since 2023. We are therefore focused on increasing production at all our factories. To meet this growing demand, production growth will be limited by our supply chain. This includes not just batteries, but also electronic components. We've been here before and like always, our Tesla team is working actively to unblock the obstacles ahead by securing strategic deals with suppliers.

Like Elon mentioned, one of the key factors for growth for vehicle demand has been FSD. Our sales data suggests one of the main reasons customers are coming and looking at the car is because of FSD. In Q2, we had in North America about 55% of our deliveries had FSD subscription at the time of delivery enabled. Overall, FSD attached rates continue to improve reaching nearly 1.5 million paid customers globally, of which 55% is upfront purchases and the remaining 45% is subscriptions. We expect that the bulk of the growth in FSD monetization will come from subscriptions as we've removed the purchase option in most markets.

Automotive margins, excluding regulatory credits declined sequentially from 19.2% to 16.3%. As a reminder, we had highlighted in Q1 that we had a 230 million benefit from warranty, downs and some tariff relief, which did not repeat in Q2. Controlling for the impact of those benefits from the prior quarter, our automotive gross margins excluding credits would have been approximately flat. This demonstrated the effective pricing and cost management done by the Tesla team as we continue to drive demand. Commodity price increases and interest rate changes all continue to add to our costs. Note that interest rates of pension costs are recognized upfront as revenue offset. So as interest rates have risen this year, the cost of subvention has risen along with them, which had a negative impact on automotive margins.

As we have previously noted, energy business is inherently lumpy. Deployments are tied to customer timelines and largely out of our control. In Q2, we deployed 13.5 GW hour of energy storage, a 53% sequential increase and the second largest quarter for energy business. Despite this growth, energy gross margins declined from 39.5% to 20.4%. This margin decline was a result of several dynamics. First, there was a warranty true up in the quarter of about 240 million related to certain vendor cell issues for our legacy deployments. Also the tariff benefits we recognize in Q1 of more than 200 million did not repeat. And lastly, we had previously guided that ASPs for industrial storage is coming down amidst growing competition. Long term, we believe the energy business should normalize at a gross margin rate in the mid to low 20% range. Our order backlog of this business is robust and we are doing our best to build.

Based on both existing demand and future demand, we expect from data center growth and overall electrification of the economy, service and other margins improved sequentially from 9.2% to 14.1%, an all time high. This was mainly driven by an uptick in volume and better cost management of our vehicle fleet that supports businesses such as used car supercharging, service centres and insurance. While marginal today, also included in this business are deliberate investments we are making in infrastructure that will help scale robotaxi in the future. We continue to grow the Tesla robotaxi fleet and have expanded to a total of seven markets in the US We expect the ramp of the fleet to accelerate throughout the year along with expansion into new US markets.

As previously guided operating expenses increased sequentially. The increase came primarily from significant research and development related activities including pre production ramp costs for new products like the semi truck, Optimus Cyber Cab and other AI initiatives as well as depreciation for an additional compute that we brought online. Additionally, we had charges related to litigation expenses in the quarter. Note that we are in a big investment cycle and expect our operating expenses, largely driven by R&D to continue to grow in 2026 and beyond.

Net income was positively impacted by a mark to market gain of 1 billion on our SpaceX holdings, which was offset by losses on FX of approximately 300 million and on Bitcoin of about 100 million. As previously guided, our free cash flow ended up being negative for the quarter. Most of the reason for the IT going negative is because CapEx more than doubled sequentially and we expect it to increase further in the second-half of 2026. We continue to expect that CapEx for this year will be more than 25 billion.

CapEx will grow for the next two or three years as we expand our robotaxi fleet, expand our production capacity for Optimus, make investments for semiconductor fab install, solar manufacturing capacity and AI compute infrastructure in addition to all the other expansions we'll do for other manufacturing for automotive. In addition to using our cash for such investments, we are being opportunistic in securing certain debt facilities that will give us the capacity to borrow up to 30 billion to help accelerate such investments. We believe this is the right strategy to position the company for the next era and we'll always make such investment in a very capital efficient manner. The path to amazing awareness is ever challenging and requires making bold bets. Our progress will be non linear. The future is going to be great and we are ready to rise to the occasion. I would like to end by thanking the Tesla team, our customers, investors and suppliers for their confidence in us on this journey.

Travis Axelrod

Thanks so much for that, Bob. As everyone on the call may have noticed, we've covered several of the say.com questions already in opening remarks, including Optimist, Production, Terafab and Digital Optimists. Ashok is joining us today, our VP of AI, and he's to cover questions related to Robotaxi. Ashok.

Ashok

Thank you, Travis. Many of the questions on say.com relate to robotaxi deployment and scaling, So we thought we'd provide a comprehensive view of where we are now and where we are going in the future. First of all, I'd like to state that the robotaxi program has been operating extremely well, especially in terms of safety. The program has had an impeccable safety record. We have driven more than 380,000 miles of unsupervised robotaxi now across 6 cities in two different states. We have had 0 notable incidents. Any reports have been of other actors impacting us when we were stationary. Again, I'd like to emphasize how safe the operation has been so far. 0 notable incidents or 380,000 miles.

Historically, the so-called experts have always claimed that you need lidar, radars, HD maps and the entire kitchen sink to drive safely. Here we show that such is not true. You can have safe, comfortable, and affordable autonomy with just cameras. This record should be a huge validation of Tesla's entire AI approach. Second, I'd like to discuss scaling. We started the robotaxi program roughly a year ago in Austin. We had safety monitors in the passenger seats of the cars back then. Around the end of last year, we had the first fully unsupervised robotaxis in Austin. Since the beginning of this year, we have grown at double digit growth rates to the number of unsupervised miles that the fleet drives every week. I repeat, we have grown at such a high compounding rate on a week over week basis over the last several months. Not only that, we expect to continue growing at such a large rate through the rest of this year.

The other thing to note is that for expanding the new cities, it has been relatively less effort on our front. We expect that the time to launch to a new city will continue to trend towards 0, towards an end where we operate in the entire states as a whole instead of going by city by city. Such growth was only possible because we have a world class engineering team on the frontier AI development here at Tesla. The currently operating Robotaxi fleet is already running early versions of the V15 FSD software that we had referred to in the past. For V15, we had planned roughly about 7 major improvement tracks, and they're all happening in parallel. The early V15 builds that are running on Robotaxi have already 40% of those tracks merged together and that's what's running in the fleet right now.

As we continue to complete our work on V15, we will see that the card is going to be ridiculously safe and capable. We're already seeing internal signs that all of these bets that we have made for technology improvements are all starting to work and we expect that the payoff will be huge and that's what is going to help us sustain the same growth rate through the rest of this year and so on. Finally, regarding the cyber cab, first of all, it's a phenomenal product. Anyone who rides in it instantly falls in love with the experience. We have aligned our manufacturing targets to roughly match the projected growth rate of the unsupervised miles. The same V15 models that Power Model Y and other platforms will also work on cyber caps. In conclusion, robotaxi growth so far has been literally exponential while keeping an impeccable safety record. Our technology bets are paying off, helping us sustain the exponential growth for the foreseeable future. And the cyber cab is going to be awesome.

Travis Axelrod

That's great. Thanks so much, Ashok. And there was 1 remaining question on data collection for Optimist training. Would you mind covering that as well?

Ashok

Yeah, definitely regarding Optimus, especially Gen. 3. Optimus has been designed to not just match the appearance of human beings, but also the functionality and dexterity of humans. One of the main reasons for this approach is that having the human form factor and function allows us to learn from humans on how to perform a wide variety of tasks. This opens up the entire world to provide data for training Optimus. Just like FSD, we have access to a broad fleet of humans giving U.S. data from all of the workers at our factory. Optimists can learn quite a bit from observing them perform their tasks at the factories. We also have a dedicated data collection team who can provide relatively small amount, but of very high quality demonstrations to do the post training of these models. This is all on top of any training we can do off of the entire Internet of data that shows demonstrations of people doing various tasks both in industrial settings and home settings.

The second flywheel is when we have a large number of Optimus robots practicing their tasks in what we call the Optimus Academy. The data from the bots experiencing the tasks themselves will be invaluable and help us close any minor form factor gaps that may exist between the bot and the humans. This is also when the reinforcement learning loop kicks in where the bot initially attempts some task fails, sometimes learns from both the successes and failures of those tasks, and eventually learns to master those tasks and perhaps a superhuman level. Our strategy for Optimus is aligned with the same, it's the same end to end strategy that drives FSD pixels in, controls out. And just like FSD, we expect it to work broadly in FSD, you know, you can get in the car, type in an address and then hit start and then it's like handles all of driving from park to park. And the same thing is going to be true for Optimus as well. You're going to just ask it to do anything and then you just perform the entire task on its own without you having to do anything along the way. And it's the same team that produced the FSD, you know, the V 12/13/14 and now V15 software that now works on Optimus as well. And so I'm very confident that Optimus will be an extremely capable robot.

Travis Axelrod

Great. Thank you so much, Ashok. So that covers the say.com questions. And now we will move over to analyst questions. The first question comes from Tom from RBC. Tom, please feel free to unmute yourself when you're ready. Tom, you're still on mute. So please unmute yourself and go ahead and ask your question. All right. We're not getting any audio from Tom at the moment. So we will try to move on to Andrew and we'll add Tom back to the queue to come in next. So Andrew, as soon as you can, please unmute yourself and ask your question.

Andrew

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

Elon Musk

Elon, you may be on mute right now. We can't hear you. So yeah, our suppliers have been great and they've made tremendous investments in support of Optimus and robotaxi and whatnot. You know, Samsung and TSMC in particular are building fabs at TSMC in Arizona and Samsung again Texas and putting in 10s of billions of dollars for AI compute for Optimus and robotaxi. Panasonic has also been invested many billions in increasing battery cell production. Probably I'm a little under the weather here, but I'll so it's not a lot of fun kind of struggling with some a little bit I'll today. So, yeah, but our parties have been great and I'd like to thank them for their support and their investment and their hard work.

Travis Axelrod

Great, thanks. Thanks for that. And maybe just as a so sorry Andrew, we're going to have Karn hop in here for additional color briefly.

Karn

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

Elon Musk

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

Andrew

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

Travis Axelrod

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

Lars

Yeah, sure, Travis. I mean, I think, you know, we talk about regulation, particularly in the US We've made a lot of headway. You know, just good initiatives from the federal government in terms of VSS rules moving towards, you know, acceptance and adoption of purely built AVs and I really appreciate the support from NHTSA on that. When it comes to like a state to state level, obviously the stuff in New Jersey, you know, it is a little bit disheartening. I think ultimately, as Ashok said in his opening remarks, we really focus on the performance of the vehicle and ultimately that's what's going to drive regulators and the public to adopt it. You know, I think, you know, the best regulations are those that provide companies and innovators with a goal or a task and allow us to figure out the solution. And when we see regulations that provide a solution before it identifying the problem, we really don't, you know, appreciate those. But as Tesla always has and we'll continue to do, we'll let a performance speak for itself. And I think it showed played that out really clearly and that'll be the foundation of our expansion moving forward.

Andrew

Great. Thanks for the questions.

Travis Axelrod

Thanks so much. We're to try Tom again from RBC. Tom, can you unmute and try to speak, please? Unfortunately, Tom, we see you unmuted, but we're not hearing you. So we're going to have to send you back into the queue. Next is Alex from Bank of America. Alex, as soon as you can, please unmute yourself.

Alex

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

Elon Musk

Yeah, we expect to be vertically integrated with Robotaxi as we are in the rest of our business. So I don't think we're going to have any demand challenges with Robotaxi. So this is the economics will be so compelling that I think we will really have a lot more desire to use the service than you know, like I think demand will ask for our ability to service the demand. And so obviously you just, there's no, no, you can just go vertical in that situation. So it's really just about going through and it work hold the March of 9th of reliability where you need like, like how many ninths of reliability do you need to scale? Ideally you want 99.9999999% reliable. And so that's the it's just the March 9th of reliability. I think the only thing really constraining our growth and road taxi.

Alex

Great. Thanks, Elon.

Travis Axelrod

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

Colin

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

Elon Musk

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

Brandon

Thanks, Elon. And that's exactly right. We continue to benefit from our relationship with SpaceX and we've had, they've been a great partner and we have numerous beneficial transactions with them. And earlier this year, we deepened our relationship through an investment in a framework agreement. And this will allow us to continue work with them on projects that Elon mentioned like terafab and digital optics.

Elon Musk

Yeah, and there's many other things too. Obviously you've got you've got Grok in the car and so and Grog helping, Yeah drive digital optimists. You've also got Starlink being integrated into. The cyber cab and Starlink will be integrated into all of our vehicles and at least for markets that Starlink is active because for a robot taxi situation, you need to have, you know, coverage everywhere. And there are many, many, many places even in Silicon Valley where the cellular coverage is terrible or sometimes non existent, which is surprising for Silicon Valley. But but I don't want to drive to work with first 10-15 minutes. I can't actually do any calls because the cell connectivity is so bad. So we can't have robo taxis getting stuck in these like Bermuda triangles of lack of cellular connectivity. So it's still like with its ability to do connectivity anywhere is actually quite important. So we don't have, you know, robo taxis missing in action.

And then obviously if if people are sitting in the car, they're going to want to do high productivity stuff or what entertainment. And with Starlink, you can watch, you know, 4K live sports in the car and with very low cost per GB of data as that's really not feasible via the cellular system. And there's many, I think there's many other situations. Yeah, I mean, I would say think of it like Ashok was mentioning about Cyber Cab, right, that the experience is great in a world when you don't have to focus on driving. You have you have all the play all the time in the car to do whether it's a conference call, watch a movie or anything. That's why if you look at the Cyber Cab design, it has a big. Screen and you know we've started doing cyber cab rights in. Our factory in Austin and when you go through that experience you, I mean soon customers would be able to do it in not too distant future and then you'll understand why that connectivity becomes so important.

Colin

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

Ashok

Yeah. The reason we have been expanding across different cities instead of just doubling down on a single city is that we want to make sure that our stack is very general one. It is a general one. We just want to like, you know, both prove to ourselves and to other folks that it is working across a lot of different cities without too much effort per city. And that's what we see internally. And then as Elon mentioned earlier, the growth rate has been literally exponential, just it's in the early part of the exponential. That's why it's hard for others to comprehend in terms of like miles versus the vehicles, since these vehicles operating the robot taxi fleet drive basically continuously as opposed to human drivers who lose vehicles for maybe a couple hours a day or something like that. These vehicles are in mostly operation, which means that even for a few vehicles you can get a lot of miles out of them. And that's why we are tracking the amount of unsupervised miles or just the number of vehicles or something like that. And we want to be operating in a very efficient fleet. So all of the work that goes into the efficiency makes it even more so that we get a lot of miles per vehicle available in the fleet.

Vaibhav

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

Elon Musk

Yeah. One of the things for Cyber Cab should be noted is because it is a new vehicle chassis, we need, we need to accumulate driving data that is specific to the Cyber Cab before we can put a lot of them on the road. So I'd like to say Model 3, Model Y and our other vehicles where we've got a lot of, lot of vehicles on the road, millions of vehicles on the road. We, we don't have that for cyber caps. So we actually have to accumulate miles with the cyber caps that are retrofitted with steering wheels and and brakes, acceleration, braking battles, that kind of thing to calibrate to the the Cyber caps chassis. So so you'll see as as as we are confident about that the number of cyber caps in cities will increase dramatically.

Travis Axelrod

Great. Our next question. Yeah, go ahead Lars.

Lars

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

Travis Axelrod

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

Walt

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

Lars

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

Walt

Got it. And just Elon, just kind of a road map question, I guess Starlink obviously is integrated in cyber cab and and you guys just talked about the connectivity for watching movies, But what about the flip side of that? Can these can the cyber cabs become remote hotspots for Starlink mobile? And then similarly road map question on the semi, you know, when you anticipate looking at autonomy for the semi, because that seems like a pretty sizable market as well in terms of autonomous trucking and the need for a given what's going on in our country right now.

Elon Musk

Yeah, absolutely there, as you allude to, there is a really serious shortage of truckers. So there just aren't enough people who around who who want to drive trucks, which are crucial for transport throughout America. So so an autonomous semi is actually going to be very important to address the shortage of truck drivers and and also will be great for improving safety and and, you know, making it easier on truck drivers to have a self driving semi is is going to yeah, dramatically improve safety and and comfort for truck drivers that can yeah, use this Tesla semi. The, you know, the since the, the units, the total number of units of the Tesla Semi is still low and, and, and will continue to be a very small percentage even by the end of this year of our total vehicle fleet. It makes sense for us to focus our, our efforts, our self driving efforts on our high volume vehicles. So Model 3 and Y and and solving self driving for and and really getting to, you know, to the point where it's generalized and to advised self driving for for for those vehicles in cyber cab.

So so we expect to do get get self driving and working on the set, the Tesla Semi probably around the end of this year or early next year. And I just want it to be a distraction on the, you know, on the March of 9th of, of self driving of set of safety for self driving on three-way in cyber cab. That's so that it's taking a bit of a backseat. But for the next 6 months or so for what time in the semi. But it will be, you know, it will definitely be a bit working next year and in time for the scale up to high production of Tesla Semi for, for, for communications. Yeah. I think, I think there's an interesting angle there where you you could use the starting terminals that are in the Tesla cars as like sort of cell towers, I suppose for connectivity towers basically for providing relays on the ground to to cell phones and to anyone who who would like Wi-Fi basically. But yeah, this is a different subject. But obviously we could do that with the stationary styling terminals too.

Travis Axelrod

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

Will

Great. Thanks so much for taking my question. Elon, you teased us a little bit about sort of the supply chain relative to Optimist, highlighting how difficult it's going to be. But we'd be really interested to understand what your propensity. Is to manufacture. Semis for this yourself. When we think about microprocessors, microcontrollers, actuators and other semiconductors that are going to be used it, it occurs to me that you have many that are commercially available. You have an option to design something of them made at at third party fabs. You also have the option potentially to design and make them yourself. What? What should we think about your? Propensity to source these components in these different manners.

Elon Musk

You're talking about the making, like, microcontrollers and smoking, like the various computers that are in the car that operate, you know, like the steering system and the braking system. I'm talking about for optimists, not for yeah, Optimus has a lot of really specialized power electronics and circuit boards. It's all Tesla design, design stuff. But it is fabricated by suppliers for Optimus 4, which will be built in Austin, that that will be a much more vertically integrated supply system for Optimus 4. And that and that would, you know, would aim to have an order of magnitude more production of Optimus 4 than Optimus 3. So sort of aspirationally 10 million units a year versus 1,000,000 units a of Optimus 3. But you know, with all the caveats there, which is insanely difficult to scale production. So and and yeah, Optimus, Optimus 4 will be much more vertically integrated. So probably doing a lot of the sort of PCB work in in house with that as a follow up.

Will

Well, first maybe you could talk about the timing as to when. When Optimus 4 should be let's say start production but. The actual thought I wanted to ask was the plan to upgrade hardware 3 to hardware 4 in order to be able to process. I suppose it's version 15 of the and and future versions of FSD. Is that still the plan to do hardware upgrades on the cars?

Elon Musk

I think it's going to make sense for for to upgrade all cars with that are have less than hardware for almost any cars that have cameras basically because otherwise it would be probably too many modifications. But anything that's got sort of that's that's set up for cameras, it will be financially sensible at some point to upgrade them. But I think we'd want to upgrade them to the next generation of you know, like next generation AI board. So it would be either like we haven't we haven't upgraded AI four trip that's sort of a medium sort of moderate improvement over AI4 probably reaches production around the middle of the build up next year. And then it's also AI 5, which hopefully is in blind production around the building next year. AI5 will initially go into optimist and actually making very good progress. That's how the trip team is really doing great work and making incredibly fast progress on AI5. And we're I'm very excited about the design of the Tesla AI6 trip. I think it's going to be the best edge computing trip in the world. And if somebody's got a better one, I'd like to meet that person and shake their head because the AI six trip is just so good. So I think we've got, we got to things going really well, really well on the trip front. Yeah, again, I'd like to thank our thank TSMC and Samsung and Micron for the support.

Travis Axelrod

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

Dan

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

Elon Musk

Yeah, it's a good question. I've actually, you know, my, what I've asked the team to do is like really we should be spending on CapEx as fast as we can, spend as fast as we can without it being too wasteful. So we're not trying to aim for like some extremely high efficient efficiency capital spend because that would slow things down. So it's trying to it's a balance between like how much you know, sort of capital efficiency versus time. So if, if we can be, it's OK to be a little less capital efficient if we get things done sooner because that's actually going to be the, the higher MPV outcome for the company. So. Overall, I'm pretty happy with how things going. I mean, we're doing an incredible amount of construction and and production growth in so many different arenas simultaneously. I don't think there's ever been a company that's done this at the skill, you know, but maybe proportionately back in when Henry Ford did the Model T or something like that. But that World War 2 when you know companies were making scale up reference production, but I think probably this is the fastest industrial scale up since World War 2 in America.

Vaibhav

Yeah. And I will just add a little bit on that. Basically if you look at it, you know, all our spend on CapEx is trying to do productive assets, right. We're basically scaling factories, whether it's Optimus, whether it's Cyber cap, whether it's LFP factory which went into operation earlier this year or the semi factory or even putting in a semiconductor fab in there as well as you know, we are trying to get a lot of solar manufacturing in the US in fact. Yeah, Very important, right. But, yeah. But this is underrated, by the way. We're good. Just go ahead. Yeah, I was gonna. Yeah. Basically, you know, the amount of solar manufacturing which happens in the US, we're just going to multiply it with an order of magnitude. And none of these things are easy, right? Because what you have to do is in order to build a factory. Have to start from Ground Zero. So just so you know, again, I don't think we have shared this. We end up being the general contractor for almost all our construction facilities because we are doing that much construction. And so going back to what dealer was saying, we're going at a very rapid scale. And yes, you know, this means that we have, we are doing a lot of things all at the same time. And that's why, you know, we just have to go as fast as we can humanly make things work in the real world.

Elon Musk

Yeah. But our CapEx efficiency I think is off scale good already.

Travis Axelrod

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

Dan

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

Elon Musk

Well, it's still mostly such as peak shaving, but it's also grid balancing. So it's not just like the facts are on briefly, but for balancing, for balancing power from wind generation and solar generation batteries are are awesome. I mean, the solar battery combination will be how the vast majority of energy in the world is produced in the future. That's really, of course, how all of the Starlink satellites are are powered with is with solar panels and batteries. So and you can just think of Earth like a giant satellite. There's there's formal power available from the sun than anything else by far. And, and we think power constraints are going to be there really are a major issue for, for AI, you know, just turning on the AI computers, the AI compute demand is so high that people having even the, you know, the hyper scales are having trouble turning on their, their, their AI compute and finding that the power and then smoothing the power with, you know, especially for the training runs where the power cycles dramatically in a, in a very short period of time. You can have during a training run, the, the power consumption can drop by, you know, 70% for 100 milliseconds. And you really need fast acting advanced power electronics to be able to smooth out these. Massive the massive, massive changes in power and. Especially during during their training runs. So that's why SpaceX has bought so many megapacks for the data centers. It's actually mostly for for smoothing out the power for the training runs. But it will also be useful for being able to have more power from the the grid by, you know, if you tell utilities that they can, you know that that, that they won't, they will not need to supply power during the, you know, the worst hours of the worst days of the year because the batteries can handle it. Then that makes it much easier for them for them to to give you power. In fact, I mean, the probably the best way to scale total energy production in the United States is simply using batteries because there's I think around 1.2 or 1.3 terawatts of power production in the US, but the average power usage is only half a terawatt. So you've got 2 1/2 times as much power generation as the average usage. That means you could potentially double the energy app for the United States just with batteries. So, so really we see demand for Megapack being very, very high in the future.

Travis Axelrod

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

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