Transcript: Tesla (TSLA) Q3 2026 Earnings Call

So it can’t wear out after a month. And there’s still quite a lot of work to do with regard to the AI and the robot for it to be truly useful for open-ended tasks.

But if— but like I said, if I would expect that the AI, the electromechanical design and the reliability and duration, usage duration, the usage life of the robot. I expect these. I do expect these issues to be solved around the end of next year. So that’s the time to expect when we’re delivering Optimus to companies outside of Tesla.

And I remain convinced that Optimus will be the biggest product on Earth. And humanoid robots in general will be the biggest product on Earth. So Optimus is a very big deal.

I don’t want to temper expectations that we still have a lot to get through. And it’s about a year or so that it’ll take us to get through all that stuff. But as to the best of my knowledge, there is no one that is even close to Tesla with respect to a general-purpose humanoid robot.

Terafab Update

Regarding the Terafab, the Austin-based research fab is progressing quickly. We’ll begin commissioning machinery in the first half of next year. And hopefully, if things go well, we’ll make our first test chip just to see if we can make any chip at all around May or June. So that’s pretty exciting. And then our aspiration is to be making some kind of useful chip at Bosch volume around Q3 of 2000— of 2028.

And as I said publicly on X, the Terafab, I think, will be the most valuable building in the world. And we’ll probably have an economic value that will place it in the top 20 of countries. So it’s an epic project.

And this will be an incredibly important asset, if not a necessary asset, in order to scale, especially Optimus. As we can address bottlenecks in semiconductors, whether it’s memory packaging, logic, or whatever the case may be.

With regard to a potential merger with SpaceX, I think I said everything that should be said yesterday, tap dancing through a minefield there. And yeah. That’s it.

In conclusion, we’re super excited about our autonomy and robotics roadmap. There’s a lot of incredibly awesome stuff coming, and I’d like to once again thank the Tesla team for their strong execution and all of our supporters for joining us on this journey.

CFO Vaibhav Taneja on Financial Results

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks very much, Elon. And Vaibhav has opening remarks as well. Vaibhav?

Vaibhav Taneja, Chief Financial Officer – Tesla: Thanks, Travis. We continued our progress on a lot of fronts in Q3. Elon already covered a lot of them. Additionally, which I’d like to add is we also started deliveries of Megapacks with our in-house LFP batteries.

And for the first time, 2 consecutive quarters of vehicle deliveries of over 480K. On the automotive business, we exited the quarter with our highest backlog in 4 years. Delivery is constrained primarily by production. We’re therefore focused on increasing production at all our factories to meet this growing demand.

While we are actively working to increase production, it does take some time to get every aspect dialed in. From supply chain to manufacturing to delivery logistics.

The Model Y continued to outperform in the quarter and set delivery records in several key markets. Based on the preliminary data which we’ve gathered, we believe that it was the number one selling BEV in Europe and the number one selling passenger car in South Korea. Set new record in key markets, including Australia, Japan, and Taiwan.

As Elon said, FSD continues to be the key driver for demand. In Q3, over 75% of deliveries in North America included a sign-up for paid FSD subscription at the time of delivery, which is approximately 20% higher than Q2. Overall, the FSD attached rate continued to improve, reaching over 1.7 million paid customers globally, of which for the first time, 50% is based on subscriptions.

Given the strength of FSD in the US, we are taking extra steps to sell certain cars in Europe with some benefits to try and get more fleet out there before a broader FSD approval is obtained.

On automotive margins, excluding credits, increased sequentially from 16.3% to 18.1%. The improvement in margins is driven by a higher mix of deliveries in APAC. While commodity price increases and interest rate changes continue to add to our cost, including to mitigate further headwinds, we have adjusted the vehicle financing programs to partially offset for such costs.

On the energy business, we had our second-best quarter of deployments of 13.7 gigawatt-hour of energy storage. Energy gross margins improved from 20.4% to 33.1%. The sequential margin improvement is primarily attributed to tariff refunds recognized in the quarter and warranty true-downs resulting from alignment with our vendor on certain cell-related costs to be reimbursed by them.

As Elon said, the business is witnessing extreme demand from data centers, and we are doing our best to increase production. And accordingly, we’ll see improvements in ASP and further improvements in margins as we move forward.

Services and other margins improved sequentially from 14.1% to 15.9%, an all-time high. This was the result of strength across service, across several of the businesses and services and other, including Supercharging and Insurance.

The Robotaxi business which is part of Services and Others, continued to grow with the launch of Cybercab rides in Austin. Accumulative unsupervised miles 8x in the quarter as we had weekly double-digit growth throughout the quarter.

We’re taking all the learnings from our Austin expansion to help us prepare for broader Cybercab launch in other markets. Our priority is progressing the density and expansion of the network through vehicles that provide the best experience, like the Cybercab.

We will also continue to augment the fleet with other variants over time to address the terrestrial transportation needs of the total population. I’d like to stress that what we are trying to do is literally take over every part of terrestrial transportation. Not just getting people, I mean, we’re starting with getting people from one place to the other, but we want to basically own this transportation of any kind on Earth.

Operating Expenses, Cash Flow and Capex Guidance

We are in a huge investment cycle to set us up for the future. Therefore, as previously guided, operating expenses continue to increase sequentially.

Most of the increase came from significant research and development-related activities, including AI development costs such as depreciation from additional compute, chip development, and pre-production ramp costs. Costs for new products like the Optimus, Megapack 3, and Semi truck. This trend of growing opex would continue till we commercialize these new products.

Net income was impacted from a mark-to-market reduction of our SpaceX holding of $142 million, which was offset by a Bitcoin mark-to-market gain of approximately $290 million.

We continued our efforts to manage cash efficiently and responsibly. We ended the quarter with positive free cash flow of over $1.5 billion and an overall cash and investment balance of over $45 billion.

We’re revising our capex guidance to be approximately $20 billion for the current year as a result of managing our capital deployment efficiently and plan to fund it primarily from our cash flows from operations.

Additionally, during the quarter, we secured capacity to borrow up to $30 billion to support the expected growth in capex. Our confidence in the cash generation capacity of our business and the investments we are making drove our belief to secure shorter-term financing. We don’t plan to make any draws under any of the new facilities in this calendar year.

The money that we received from the tariff refunds is being reinvested to expand production capacity in the U.S. I’d like to stress on this that we like to do a lot of hardcore real grunt work to get production facilities up and running.

And so our capex for the next few years would continue to expand as we add more robotaxi fleet, we expand our production capacity for Optimus, install manufacturing capacity for solar, purchase additional AI compute infrastructure, and build a semiconductor fab. This strategy will position the company for the next era of growth and disrupt many existing markets while creating new ones.

This is by far the most exciting time to be at Tesla. The foundation being laid around autonomy, robotics, and energy is setting us up for an extremely bright future.

I would like to end by thanking the Tesla team, our customers, investors, and suppliers for the confidence in us on this journey.

Shareholder Questions from Say.com

Travis Axelrod, Head of Investor Relations – Tesla: Fantastic. Thank you, Vaibhav. Now we’re going to go to questions from say.com. The first question is, “How does the Cybercab fleet scale past Austin and what’s the regulatory path outside Texas given NHTSA’s open safety review?” Ashok, did you want to take that?

Ashok Elluswamy, Vice President of AI Software – Tesla: Yeah, I’ll start here. First of all, we launched Cybercab this quarter, which is very exciting. We achieved that by mostly learning from data from the other vehicle platforms, for example, Model Y, Model 3, etc., all of the data helped make the Cybercab without requiring a ridiculous amount of vehicles to produce the data. So we are seeing very good scaling in terms of Cybercab’s capabilities.

We launched in Austin, but that’s only because we had some cabs and we want to swarm Austin with Cybercabs everywhere, but there’s no fundamental reason that we are limited to Austin. In fact, next month we’ll be launching in Dallas, and then the same software just scaled to lots of other cities along with the Model Y robotaxi.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks very much. The next question is, “What are your thoughts on crowdsourcing training data for Optimus versus your internal Optimus Academy approach? Is data currently the primary bottleneck?” I think you covered this quite a bit, but any other color there?

Elon Musk, Chief Executive Officer – Tesla: Mostly talked about this already, but crowdsourcing is not the issue for Optimus. There’s a lot of things we have to get right about the AI architecture that we’re still working on. We’re making good progress, but that needs to be sorted out.

And really, in order for Optimus to get the training data we need, we actually need to make a lot of Optimai. So we need to make, I think, on the order of 10,000 or 20,000 bots and then have them do self-play. And we’re building up an Optimus Academy where Optimus can practice doing a very wide range of tasks, and then we can use that data in sort of a flywheel to make it better and better at these various tasks.

A big difference with Optimus versus the cars is we don’t have this vast fleet of cars from which we can gather training data. So with Optimus, we have to bootstrap it by making the robots and having them do self-play, which is really how a human learns to navigate the world.

It’s— that’s— you can see this when you have a toddler and they grow up and they initially are sort of wobbly and they don’t know how to do things and they eventually learn to wipe their own ass, which is a big milestone. As anyone who’s had kids knows. And then they learn to read and do all sorts of things and be able to do these things. And they learn this by playing. And we actually need Optimus to play at scale in order to have it be really good at tasks in the real world.

And Ashok, you may want to add to that.

Ashok Elluswamy, Vice President of AI Software – Tesla: Yeah, like you mentioned, Elon, for the car, we actually have the data from the car’s embodiment itself. But for Optimus, there’s no exoskeleton for humans to get into and make Optimus into a puppet or something like that. We have to learn, Optimus has to learn by watching other people do tasks initially and then start practicing the task yourself.

For example, you can imagine, for example, if you’re watching a soccer game, just because you’re watching it doesn’t mean you’ll be good at soccer yourself. You’ve got to start practicing and get good at the game and learn from the bot’s own experience.

And we are setting up this huge reinforcement learning cycle with initial base training done from humans to bootstrap and then put it on Optimus and do a lot of self-play, both in simulation and in the real world, to learn on the embodiment of Optimus itself. I think we’re pretty close to having very good results in this big loop.

Elon Musk, Chief Executive Officer – Tesla: Yeah, I think we may be ready to release an Optimus video in a month or so.

I want to make sure that when we release this video, that it’s not a canned demo that, when you see these robot humanoid robot demonstrations, some of them look very impressive. But they’re not really using any kind of advanced AI or SI. I mean, they’re pre-programmed deterministic tasks. And if you actually try to use that humanoid robot in the real world, you would have a lot of trouble. It wouldn’t work, basically.

So I want to release a video that’s where it’s Optimus doing things that are not preprogrammed. And I think that’s— that would be maybe a month or 2 for that. To have a demo that you can believe what you see type of thing.

And then there’s another milestone that’s, I think, important we want to get to, which is to integrate our Tesla AI5 chip into Optimus, which if things go according to plan, will be in approximately April of next year.

And that’s a giant improvement in capability with an order of magnitude more sort of more operations per second. It’s an order of magnitude more compute, AI5 versus AI4. And that will help Optimus a lot because the degrees of freedom that a humanoid robot has to deal with are far greater than what a car has to deal with.

So it is a bit of a struggle to squeeze the everything needed to operate with all the degrees of freedom of Optimus and the wide range of tasks. Can you think of a humanoid robot is going to do 1,000 times more things than a car would do. That’s some very big number, basically. So I think the additional compute of AI5 will make a big difference. And that comes in, hopefully in volume around April of next year.

And that’s why I think all the pieces, the refinements in electromechanical dexterity, making sure Optimus can operate for long periods of time without wearing out, getting the AI software right. And the AI5 chip integrated, all of these things kind of come together. That’s why I think about a year from now is when it’s something that would be— that you could ship to customers. And it would also be reaching scale in production. So that’s probably the right timing to think about.

And in terms of the initial customers for Optimus, I think it probably would be things that are industrial applications at first. Things that are dangerous repetitive tasks. Things that people really don’t want to do. So, and that you want done basically 24/7. So around the clock stuff. That’s going to be the highest value for Optimus in the beginning.

As we scale production, of course, it would be something that people can buy for their home. But the initial high-value use will be— the highest value use, I think, will be kind of heavy industry, dangerous tasks. Or things that may cause repetitive stress injuries and that you want done 24/7. So that’s the way to think about it.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thank you, guys. The next question is very similar. It’s about Optimus scaling. So we can go past that one.

Elon Musk, Chief Executive Officer – Tesla: Yeah, just answered that one basically.

Travis Axelrod, Head of Investor Relations – Tesla: And the next question is, “When can we anticipate FSD unsupervised in customer cars?” Ashok, did you want to kick that off?

Ashok Elluswamy, Vice President of AI Software – Tesla: Yeah, like I mentioned earlier, the software for Cybercabs and Model Y is the same. And pretty soon we’ll be able to release the same software as part of the V15 release to customers.

The only additional requirement is to make sure that, for example, the customer Model Ys can be part of the geofences and the fleet management that Tesla has for it to be fully autonomous. We suspect somewhere around Q2 next year is when we can turn on some of the first customer vehicles to be part of the robotaxi fleet.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thank you, Ashok. The next question is, “When will the Cybercab be available for customer purchase/ownership?” Lars, did you want to kick this one off?

Lars Moravy, Vice President of Vehicle Engineering – Tesla: Sure. Thanks, Travis. I think it builds a little bit on what Ashok just said. But in short, we’re trying to get Cybercabs to customers by the end of this year, 2026. Obviously, we’re producing them in our line in Texas. But all of those are currently going to our own internal robotaxi fleet. And as Tesla grows, we’ll mainly deliver fully designed autonomous vehicles to our customers.

And Cybercab will be the first. And so as we start small this year and we learn about all the things Ashok mentioned about delivery and ownership and fleet management of autonomous vehicles in customer hands, we’ll continue to scale that. Elon, I don’t know if there’s anything you want to add to that.

Elon Musk, Chief Executive Officer – Tesla: No, I mean, Cybercab is primarily going to be something that is offered as transport as a service, whereas our other cars would be more the cars that you’d want to own, like the 3 and the Y and whatnot. And the Roadster, obviously.

But the vast majority of the Cybercab stuff will be essentially Tesla-owned and transport as a service.

Robotaxi and Optimus Unit Economics

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks, guys. The next 2 questions are quite similar around unit economic costs. The first one is on per paid robotaxi mile. And the second one is cost per Optimus unit. And we already covered what the first customer, paying customer looks like. So VT, did you want to, Vaibhav, did you want to get into the unit economics question here?

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah. So on the robotaxi side, the main geographies where we are operating, we’re already seeing utilization improving. And week by week, as Elon was talking about, we look at the miles and how many paid rides are happening. So are we at our goal of $0.30 today? No. Do we see a path to get to that? Very— yes, we do.

And it’s all about scaling operations. And what you’ll see over the next few months is that we’ll— today Cybercab, which is the primary robotaxi product is available only in Austin, but we do plan to bring it out in some other cities before the end of this year.

And as we add more Cybercabs, we are also learning from the operational experience of managing a fleet, pickup and drop-off, cleaning, all those things. So all those costs are being dialed in. And that’s why, like I said before, we definitely see a path to get to our $0.30 target.

Travis Axelrod, Head of Investor Relations – Tesla: And then did you want to cover the Optimus costs?

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah, I mean, I think Optimus cost internally we are tracking pretty well in terms of how the design has matured.

But it would be a little too early to say that we have got there because like Elon was saying, we’re still making a lot of design iterations. The good thing is, when you look at it from a cost perspective, we’re trending closer to where we would say our Cybercab costs would end up being.

FSD Mapping and Navigation

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thank you very much for your help. The next question is, “When do you—” we’ve kind of already answered this— “When do you anticipate Optimus will be generating revenue?” So we covered that in the prior question.

The next one is, “Mapping for FSD continues to be a problem. The 3 biggest issues are recognizing proper speed limits, parking, and typical routes. I understand you use various third-party maps, but why not use your own maps? Authorized, trusted, and verified Tesla owners to provide the input.” Ashok, did you want to kick off here?

Ashok Elluswamy, Vice President of AI Software – Tesla: Yep. Yeah, you’re totally right that we shouldn’t be depending on external people’s maps. So we are building our own maps. But not the same way as Waymo maps. We are building an entirely new architecture with essentially AI-based mapping and navigation.

It’s going to be super awesome. It’s going to be integrated with voice. You can talk to it, ask for different routes. It’s going to learn your personalized preferences, plus also the fleet preferences. The collective intelligence of all the cars are going to flow into making the maps and navigation be super cool.

We’ll see start— you’ll see the start and end of trips already use this technology pretty soon as part of the V15 release. And over the next several months, it’s just going to take over all of the navigation functions, parking, destination information handling and just will know you better than you know yourself in some regard for the driving task. And I handled fully.

Factory Production Rates and Expansion

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thank you, Ashok. And then our last question is, “What is the current production rate at your 4 existing factories? Do you anticipate building new ones?” Lars, did you want to kick that off?

Lars Moravy, Vice President of Vehicle Engineering – Tesla: Yeah, sure. I think Vaibhav kind of touched a little bit on this in his opening remarks. And I’ll say our factories are operating at record rates this quarter. And of course, they can only build at the rate of the least lucky process or component. And Vaibhav mentioned that we are actively managing all the aspects of production.

As we’ve spoken in our past calls, we’ve made strategic investments globally to increase rates of our current factories over the last year plus. And this quarter we are starting to see that and we expect that to continue in coming quarters as those investments come to fruition.

I mean, beyond that, we’ve also are working to ramp Cybercab, obviously in Giga Texas, and we applied for the proper permits to expand the factories in Berlin. And as also Elon mentioned, we just started our new Semi factory in Reno. So in short, we are building new factories, yes. And we’re aiming to hit that 5 million goal by 2030, as Elon said.

Analyst Q&A

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thank you very much. That’s it for the say.com questions. Now we will be going to analyst questions. As a reminder, as Elon said, we will not be addressing any questions today on a potential merger with SpaceX. With that, the first question comes from Tom from RBC. Tom, please unmute yourself when you’re ready.

Tom Narayan, Analyst – RBC Capital Markets: Yeah, thanks for taking the question. It’s on FSD. So the attach rate, I think according to my math, is 30% to 40% in North America on a paid basis. It’s becoming a flywheel, as you said, for more car sales. And the attach rate exceeds other automakers’ subscription-based autonomy by a lot.

I guess in a weird way, could you guys be a victim of your own success and seeing other carmakers noting the success and trying to aggressively come up with similar L2+ type products, maybe partnering with NVIDIA or Qualcomm? And if that happens, could that be deflationary for FSD pricing?

Elon Musk, Chief Executive Officer – Tesla: I think people take this thing very simply that you can ease if the software can be solved. It’s not because, I mean, I’ll let Ashok get into it, but basically it’s a very hard problem. It’s a super hard problem.

Ashok Elluswamy, Vice President of AI Software – Tesla: Yeah, it’s easy to get to the first 90% and make a cool-looking demo, but when you get in the long tail of this problem, it’s so long that people don’t realize anyone with their sane mind should not attempt to solve this problem. It’s so difficult and so long-tailed, and especially to get to a safety point where you can drive safely for millions of miles with no injuries and so on, that’s going to be extremely hard.

As we release unsupervised FSD to the broader customer fleet, it’s just going to be— I don’t think anyone can match it in several years.

Vaibhav Taneja, Chief Financial Officer – Tesla: And one other thing which I’ll say, if it wasn’t clear, that when especially in our showrooms here in the US, customers are now coming in and saying, “Can we get into an FSD drive?” They’re not asking for 3Y or Cybertruck. They’re saying, “Can we get an FSD drive?”

And that has become the key driver because what it does is it actually opens up a lot more flexibility for different parts of the population wherein they had issues driving conveniently before. Now they’re getting their freedom back by being able to use FSD.

And a lot of folks are just, I mean, it’s a game changer. I mean, if you haven’t tried it, I keep saying it every time, if you do it, you won’t be able to go back to driving any other car.

Tom Narayan, Analyst – RBC Capital Markets: No, I get it.

Travis Axelrod, Head of Investor Relations – Tesla: Tom, did you have a follow-up?

Tom Narayan, Analyst – RBC Capital Markets: Yeah. Follow-up is similar to that question on China. I mean, there it seems autonomy is table stakes. Is it the same kind of answer on this question one that they’re not going to be able— those carmakers aren’t going to be able to develop similar products that you guys have had on FSD? Or do you see there that being definitely a different pricing dynamic?

Vaibhav Taneja, Chief Financial Officer – Tesla: I mean, at the beginning, definitely the leapfrog which we have in terms of this technology isn’t there with any of the other Chinese OEMs today.

And we’re working very diligently to try and get broader— I mean, FSD approval in China. It is hard, but for certain cars, we have been able to have FSD operating and whatever people have tried, whoever has tried it there, they understand how much better it is as compared to any of the competition.

And in fact, I don’t know if you’ve seen this, there have been some competitor CEOs who have come and done FSD drives here in the US, and they themselves have been blown up as to what FSD is capable of doing. So it is a similar answer.

And again, we’re not taking it lightly. We’re actively working with the regulators in China because I don’t know if you saw this, but we did release our— we’ve released our safety report on FSD before. We’ve also released our unsupervised or robotaxi safety report.

We just think this is the right way to get people into a safe environment because the amount of accidents which happen because of drivers not being alert. And this is the only way we can ensure that there are less casualties in the world. And any regulator who looks at the data, it would be very hard for them to refute it.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks so much. Our next question comes from Emmanuel from Wolfe. Emmanuel, please unmute yourself.

Emmanuel Rosner, Analyst – Wolfe Research: Great. Thank you. Hi, team. So on robotaxi, you’ve talked about sustaining double-digit week-over-week growth in unsupervised miles. I’m curious if there’s a way you can triangulate that for us into revenue and maybe profitability of the robotaxi business?

If you sustain, let’s say, 15% week-over-week growth in these miles, you’ll probably cross 10 million miles by the end of the year. How many of those— how many miles would you need to generate gross profit?

Vaibhav Taneja, Chief Financial Officer – Tesla: I mean, so I think Elon talked about this a little bit at the beginning that using exponential math, this would become a significant part of our revenue and profitability in ’27.

Elon Musk, Chief Executive Officer – Tesla: Yeah. I wouldn’t say it’s, it’s not going to move the needle this quarter. But yes, but if you say maybe I think it starts to become noticeable probably in Q2 and then probably a big deal by Q3 or Q4 of next year.

Vaibhav Taneja, Chief Financial Officer – Tesla: Exactly.

Emmanuel Rosner, Analyst – Wolfe Research: Got it. And then if I think about it in terms of fleet size, so I think your Cybercab line capacity is listed at more than 125,000 units a year. Production just recently started. How do you expect the ramp-up curve to be on the Cybercab line?

Vaibhav Taneja, Chief Financial Officer – Tesla: I mean, I’ll kick it off, but then I’ll also let Lars chime in. But I would give kudos to the engineering team. They have designed a product because not only do I talk to the engineers, I also talk to their manufacturing guys. They think this is one of the easiest products for them to scale in terms of manufacturing.

So scaling would not be that much of a challenge. I think the key thing which we’re trying to make sure is that we have all the regulatory approvals where we can start deploying the Cybercabs as fast as we can produce them. And again, Lars, feel free to chime in.

Lars Moravy, Vice President of Vehicle Engineering – Tesla: Yeah, thanks, I appreciate the accolades. The team definitely crushed it on the Cybercab design and manufacturing. Just to beat your point, we have 50% less parts than any other vehicle we’ve ever built. So that’s 50% less things to go wrong.

We’ve definitely been bursting the Cybercab line to see how fast we can run it. I think the listed capacity is more of a rate at which we’re capable of running today, but the actual capacity, I think, will significantly vehicle line is significantly higher. Right now we’re building at the rate that the robotaxi service needs the vehicles.

And I’ll say Ashok and I are at a bit of a race for who’s going to stay ahead. He’s got exponential growth coming on the miles month over month. And we’re going to look to meet that as well with the vehicle production.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks, guys. The next question is going to come from Andrew from Morgan Stanley. Andrew, please unmute yourself.

Andrew Percoco, Analyst – Morgan Stanley: Great. Thanks so much for taking the question. So I want to start on your energy business. You’re clearly seeing a lot of demand on the energy storage Megapack side, and you’ve got some goals to bring on your own solar manufacturing.

But I was just hoping to get a little bit more insight in terms of how you’re thinking about Tesla’s role in enabling both distributed power but also distributed compute. I think last quarter you alluded to a Megapod product. So just hoping to get a little bit more insight in terms of what you’re envisioning there and ultimately how big this could be for Tesla.

Elon Musk, Chief Executive Officer – Tesla: I think it’s still early days on that front. We don’t know the full extent of how what that’ll— how that’ll unfold. I think we’ll have a better sense for that probably in maybe end Q1 or Q2, but it does have a lot of potential. It’s just hard to say how much potential right now.

Andrew Percoco, Analyst – Morgan Stanley: Okay. Understood. And then maybe just a follow-up on Robotaxi. It does seem like you’ve kind of hit an inflection point here in Austin over the last month or so since you launched the Cybercab.

So would you generally say that the bottlenecks at this point to growth are more regulatory-driven as you think about expanding into new geographies and that you’ve kind of gotten through most of the hurdles on the software side. Just kind of curious how you generally kind of categorize some of those growth hurdles in some of the incremental regions you’re planning on scaling into over the next few months.

Vaibhav Taneja, Chief Financial Officer – Tesla: I think the— I mean, there are still certain software challenges which we are still working through. Ashok talked about it. So maybe Ashok, maybe Okay, Simon.

Ashok Elluswamy, Vice President of AI Software – Tesla: Yeah. For example, we are initially at the Robotaxi service from 6:00 AM to 9:00 PM, and then we expanded to 10:00 PM, 11:00 PM. Now it’s going to be pretty soon 2:00 AM. So we slowly expanding the availability of Robotaxi, and that is driven by the capability of the software.

And we just want to make sure that there’s not a single safety incident. That is our operating principle. And even if there’s the slightest possible risk at all, we don’t take on that risk. And so we are very risk-averse in that sense, as in we want zero injuries or anything bad happening. And that is the driving principle.

And we will see that over the rest of this year, we will unlock 24/7 operation, go to higher-speed roads. And we think all of that is necessary to sort of scale and offer a great product to a lot of users.

And that’s why we wanted to both do the breadth first of doing multiple cities. We did 6 cities. We do 6 cities now. We are also doing the depth of having a lot of vehicles in a single city, which is in Austin, and we’ll expand to more weather conditions, day and night conditions, highways and high speeds, and all of that will be done hopefully by the end of this year.

At which point you will see a lot more. Scaling a lot more cities being covered by Robotaxi. So it’s not purely regulatory or something like that. It is technology-driven, but we do see that pretty quickly become regulatory, perhaps in Q1, Q2 timeframes.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks, guys. The next question is going to come from Edison from Deutsche Bank. Edison, please unmute yourself.

Edison Yu, Analyst – Deutsche Bank: Great. Thank you for taking our questions. First, I wanted to ask about Terafab. I know, Elon, you mentioned that you had an aspirational goal of 2Q ’28. Do you have a sense on how much capital needs to be invested to get there and also what kind of milestones we should be on the lookout for on the way there.

Elon Musk, Chief Executive Officer – Tesla: Well, it’s going to be some pretty significant capital. You know what, it’s certainly in the tens of billions for Terafab.

Well, we got to figure out what the sort of relative split is between SpaceX and Tesla in terms of who pays for what at Terafab. But it’s not going to be less than tens of billions in capital equipment up through early 2028. And then it will be— it’ll be a lot more. It’ll probably be north of $100 billion long term.

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah. And I’ll just add, the first set of equipment for the fab which Tesla is building, we’ve actually already placed most of the orders. And that’s why when Elon was talking about middle of next year, that is from the first fab, which— the research fab.

Elon Musk, Chief Executive Officer – Tesla: Research fab. Yeah. That’s what we’re just figuring out how to work the equipment type of thing. Yeah. But real production would be late ’28, which is lightning fast by fab standards.

Edison Yu, Analyst – Deutsche Bank: Understood. And then just a quick follow-up on Optimus. I know you mentioned that we could see a video soon, that there’s quite a bit of progress. But you’re still making some refinements. I guess just generally speaking, where do you see most of the design changes still happening going forward? Is it still the hand that’s an issue? Anything you can call out there?

Elon Musk, Chief Executive Officer – Tesla: Yeah, it’s mostly— most of the difficulty. I mean, Konstantinos, why don’t you ask this question?

Konstantinos Laskaris, Optimus Program Lead – Tesla: So hand is one of the most challenging hardware areas, actually. Most of the electromechanical system, I would say, is relatively high confidence, meaning that it has converged to something that works decently well.

The hand is from an electromechanical point of view, more complicated than actuators for the locomotion system, for example. Also, there are some bespoke gears that are carrying a lot of burden for consumption and for reliability that we are developing still. Yeah, this would be the most— yeah, it’s mostly the hand.

Elon Musk, Chief Executive Officer – Tesla: And just the kind of the fine-tuning of the hand design and the fingers especially, it’s a hard problem because humans have self-repair, our hands repair, our body repairs itself, but robots don’t.

So you have to— and our fingers are kind of squishy and have lots of sensors in our skin. It’s hard to make a hand that can handle lots of wear and tear, but is still squishy enough to pick up delicate objects and has all the sensors and doesn’t damage the sensors when you do repeated actions.

There’s a lot of little things that you realize actually what an incredible thing the human hand is at the end of the day. So it’s mostly from an electromechanical standpoint, the hands. There are other things that are improving as well throughout the robot, but that’s the main thing.

And then as I mentioned, upgrading the intelligence, the onboard intelligence of the robot with AI5, which is a big step change in intelligence that will help a lot with the capabilities of Optimus.

So I’ve said before that humanoid robots, biggest product on Earth. And but it’s in its usefulness will be, it’s a rough approximation, a multiple of the electromechanical dexterity, the AI software, and the AI chip hardware. And all 3 of those things are improving exponentially. I think we use that word a lot, but— and the value is roughly those 3 things multiplied by each other.

And then the Optimus robots will build the future Optimus robots, so you have a recursive function. So when you have a recursive multiplicative exponential, things will really grow extremely fast. They may start from a small base, but they’re going to grow to crazy levels.

And I think at some point there will be more humanoid robots on Earth than there are humans.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Thanks so much. The next question comes from Alex from Bank of America. Alex, please unmute yourself.

Alex Perry, Analyst – Bank of America: Hi, thanks for taking our questions here. I guess just first on robotaxi. So it looks like for robotaxi you’re pricing lower than competitor rideshare and other robotaxi players in most markets. Is that the plan to do longer term, to take market share given some of your structural cost advantages?

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah, I mean, remember, when you’re comparing, you’re comparing us with rideshare, which has a driver in there. And we don’t. Plus we are manufacturing the car ourselves. So our cost basis overall is different.

And I think I said it in my opening remarks and I’ll say it again. Just don’t want to be too repetitive, but basically our goal is to take over any kind of transportation.

Elon Musk, Chief Executive Officer – Tesla: I mean, I think we— unless we are stopped by governments, which is certainly a possibility, if they’re trying to protect a domestic industry, I think Tesla will end up doing a majority of all passenger miles on Earth in any country where it is allowed to operate freely.

Yeah. And you can come back and look at this prediction, but I feel confident about this prediction.

Alex Perry, Analyst – Bank of America: Really helpful. And then just my follow-up question. I guess just on the key metric here, so unsupervised miles driven. So I think it grew at a high teens weekly growth rate since late July. Is this still the expectation you’ll continue to grow that at a double-digit weekly rate through the balance of the year?

And then what is really enabling that type of growth? It seems like you’ve definitely hit a comfort level in scaling much more rapidly. How much of that is Cybercab? How much of that is better safety validation with the latest version of FSD? And then just on fleet composition, do you expect Cybercab to represent majority of the robotaxi fleet over time?

Ashok Elluswamy, Vice President of AI Software – Tesla: Yes, we will continue the scaling for the foreseeable future. We don’t see any hurdles along the way. Obviously, there’s work required, but we do see a clear path towards scaling to millions of vehicles over the next several months.

This is happening due to primarily the technology investments we have made over the last several years and also in V15 stack that we alluded to earlier this year. All of the foundations is hard to see, is an iceberg. People only see the tip of the iceberg. There’s a ton of work that goes into it.

And now we are starting to see the payoff of all that work of developing end-to-end neural networks, learning from humans and so on. All of that is paying off. So that’s what you’re seeing, that you’re seeing the result of many years of work. It didn’t just happen in the last several months.

Elon Musk, Chief Executive Officer – Tesla: Yeah, and the same technology should scale to millions of vehicles across all over, wherever we are allowed to operate.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Our next question is going to come from Pierre from New Street. Pierre, please unmute yourself.

Pierre Ferragu, Analyst – New Street Research: Thanks for taking the question, guys. I just wanted to come back. I’m very, really fascinated by 75% of US gas sales with the FSD. And the interesting thing that if you look at the cars, they probably generate on sale the day they sell $7,000 of gross profits. But then, of course, FSD generates more than $1,000 a year.

And so it does— it makes a minimal impact on numbers in the quarter the car is sold. But over the lifetime of the car, it probably at least doubles the profit per car.

And so the place where I’m going to want to get to is, am I looking at it the right way? And are you at some point going to disclose for us the annual recurring revenues that FSD represents? And I did my own math and I’m thinking it’s probably now approaching $1 billion of ARR. Is that the right order of magnitude?

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah, I think the numbers which you shared are correct. And as it scales further, we will start sharing more metrics around FSD, not just the revenue, but also other key metrics around it.

Pierre Ferragu, Analyst – New Street Research: Okay. And as a quick follow-up, do you have a good sense already? And can you tell us about the retention rate? Do— how many people 3 or 6 months down the line still to stick to the monthly subscription and if you see a percentage of drivers falling off?

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah, I mean, like I said, we will share more metrics around churn rates and whatnot, but the reason we are not doing it at this stage is there are a lot of things which we are doing, especially with new countries being added. Do we offer free trials?

And one thing which I’d also like to make sure it’s clear when I say in North America that more than that 75% attached rate at the time of delivery, this is every car which we’re delivering comes with a month of free FSD subscription. And still people are signing up. Even though they have that free available.

Travis Axelrod, Head of Investor Relations – Tesla: Great. Our next question is going to come from Colin at Oppenheimer. Colin, please unmute yourself.

Colin Rusch, Analyst – Oppenheimer: Thanks so much, guys. Elon, can you talk about the strategy around ramping Optimus production just a little bit to start training, even if the hands aren’t fully baked with the final design? It seems there’s a lot that you could end up doing in terms of the training cycle and maturing some of the simulation technology even without perfected hands?

Elon Musk, Chief Executive Officer – Tesla: Well, that’s what we’re doing is we’re building robots that do not have affected hands. And we are making progress with Optimus training and ironing out all aspects of the supply chain and the production system.

So that’s— we’re doing all these things in parallel, this giant production line at our Fremont factory. Massive supply chain. And then fine-tuning the design and engineering simultaneously with the AI software. So all these things are happening simultaneously. And we’re going as fast as humanly possible here.

I don’t think anyone’s going to have— and in fact, I’d be stunned if anyone has a robot that is remotely competitive with Optimus when we go— when we start delivering it to customers, which is likely to be towards the end of next year.

Vaibhav Taneja, Chief Financial Officer – Tesla: Yeah, and you should know that not only the Fremont factory, we’ve also started constructing a factory here in Austin, which would be able to do a lot more robots as compared to the Fremont one. So going back to what Elon was saying, we’re doing whatever we can. We’re not stopping. We’re just going at the fastest pace as we can. Yeah.

Elon Musk, Chief Executive Officer – Tesla: We’re definitely, as they say in Vegas, betting on the come.

Colin Rusch, Analyst – Oppenheimer: Awesome. And then in terms of the semicap capacity availability, can you talk about how you’re navigating that with the suppliers? Obviously seeing some deposits get put down on equipment and getting deliveries moving forward is a net positive on Terafab. But are there some more aggressive things that you can do to start getting ready for the larger ramp now? And how should we think about that flowing through the capex budget?

Vaibhav Taneja, Chief Financial Officer – Tesla: It’s not a massive impact right now. I think our capex is actually ending up being a little lower than we anticipated. But it will start to become more meaningful next year and then noticeable in the tens of billions in ’28.

Closing Remarks

Travis Axelrod, Head of Investor Relations – Tesla: All right. But yeah, we are coming up on time here. We appreciate everyone’s questions and we look forward to talking to you next quarter. Thank you very much and goodbye.

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