Tesla, Inc.

Good afternoon, everyone, and welcome to Tesla's second quarter 2025 Q&A webcast. My name is Travis Axelrod, head of investor relations, and I'm joined today by Elon Musk, Babab Taneja, and a number of other executives. Our Q2 results were announced at about 3 p.m. central time in the update deck, be published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. 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? Thanks, Travis.

So we've had a very exciting quarter. We're able to successfully launch RoboTaxi, so providing our first drives with no one in the driver's seat with paying customers in Austin. And as some may have noted, we've already expanded our service area in Austin. It's bigger and longer, and it's going to get even bigger and longer. We were expecting to really It greatly increased the moisture in service area to well in excess of what competitors are doing. And that's hopefully in a week or so, couple weeks. Yeah, couple weeks. Couple weeks or so. And then we're getting the regulatory permission to launch in the Bay Area, Nevada, Arizona, and a number of get the approvals and we prove out safety, then we will be launching autonomous ride hailing in most of the country. And I think we'll probably have autonomous ride hailing in probably half of the population of the US by the end of the year. That's at least our goal, subject to regulatory approvals. I think will technically be able to do it. So assuming we get regulatory approvals, it's probably addressing half the population of the US by the end of the year. But we are being very cautious. We don't want to take any chances. And so we're going to go cautiously. But the service areas and the number of vehicles in operation will increase at a hyper exponential rate. So add some other notable things. Model Y in June became the best selling car in Turkey, Netherlands, Switzerland, and Austria. It is, I believe, the best selling car of any kind in the world still. And autonomy is a big factor there. So even without supervised Even with just supervised self-driving, it's a huge selling point. And it's worth noting that we do not actually yet have approval for supervised FSD in Europe. So our sales in Europe, we think, will improve significantly once we are able to give customers the same experience that they have in the U.S., This is, I think, a very important point to convey. We've been working with our main country regulator, which is the Netherlands, and I think we're close to getting approval with the Netherlands. Then it's going to go to the EU. It's quite a you know, Kafkaesque. In fact, Kafka had no idea that something like the EU could exist. Beyond Kafkaesque, it had challenges with bureaucracy. But we will get the approvals. And I think we'll get, you know, some people in Europe will have an experience similar to have the US in most of Europe, you know, this year, hopefully, at least partially in this quarter. And then we also have some regulatory challenges in China, which we're hoping to unblock shortly, because we also cannot provide supervised FST in China currently. But we're going to unblock that soon. That's another major. It really is the single biggest demand drive. And then within the US, as we get confident about safety different geographic areas, we will loosen up on how much somebody has to be laser focused, have their eyes laser focused on the road. You know, that's been a common complaint. In fact, it does create an odd safety issue where people will sometimes disengage autopilot then do something, change the radio, or maybe look at the phone, drive with her knee, and then re-engage autopilot, which obviously is less safe than simply keeping autopilot on. So anyway, that experience will improve in the next several weeks. Because of our focus on Austin with no one in the driver's seat, production release of Autopilot is actually several months behind what people experience on a Robotex in Austin. So now we have the Robotex in Austin launched, we'll be providing, adding back those elements so that there will be a step change improvement in the Autopilot experience for people outside of Austin. This is really As you can tell, this is very much sort of autonomy is the story. We need the physical product without which you cannot have autonomy. But once you have the physical product you need, the autonomy is what amplifies the value to stratospheric levels. We also launched the Tesla Dyna, which has been a huge hit. It actually got worldwide attention, which is unusual for a Dyna. Diners don't typically get headline news around Earth. But this is a pretty special diner. And if you're in the LA area, it's worth visiting. It's sort of a shining beacon of hope in an otherwise sort of bleak urban landscape, frankly. So it's really quite a lovely experience. Great job by the team there. On the full stop driving front, continue talking about that. We have we're continuing to make significant improvements just with the software so. The. We're expecting to increase the parameter count. Actually, at this point. I think we think we can probably 10 X that almost 10 X the power frame. Yeah, roughly 10x the parameter count. This is actually a very tricky thing to do because as you increase the parameter count, you get choked on memory bandwidth. But we currently think we can 10x the parameter count from what people are currently experiencing. So not just the 4x, actually 10x increase in parameter count. And yeah, so there's still a lot of improvement on the existing hardware to happen. Energy is growing really well despite headwinds from tariffs and various supply chain challenges. The mega pack is expanding capacity quickly and we have upgrades to the mega pack that will make it even better. And we had record power multipliers gaining Q2. So I think batteries are just going to be a massive thing. The scale of batteries, battery demand is, I think, not that many people appreciate just how gigantic the scale of battery demand is. The way you think about it is that the U.S. sustained power output for the U.S. grid is around one terawatt. But average usage is less than half a terawatt. If you add batteries to the mix, you can run the power plants 24-7 at full capacity, thus doubling, more than doubling, the energy output per year of the United States just with batteries. But that's again, big deal. It's a really big deal. Optimus. So we're revolving to Optimus design and really getting Optimus to the point where it is a phenomenal design. To run Optimus version two right now, sort of two and a half. Optimus three is, It is an exquisite design, in my opinion, and will be an incredible, as I've said many times before, predicted it will be the biggest product ever. It's a very hard problem to solve. You have to design every part of it from physics first principles. There's nothing that's off the shelf that actually works. So you're going to design every motor, gearbox, power electronics, control electronics sensors, the mechanical elements. We also got to train Optimus to use its lens and its sensors with a neural net. But we'll be applying the same techniques that we applied for our car, which is essentially a four-wheeled robot. And Optimus is a robot with arms and legs. So the same principles that apply to optimizing AI inference are the car applied to optimates, because they're both really robots in different forms. And Tesla, it is important to note that Tesla is by far the best in the world at real world AI. Like a clear proof point for that would be if you compare, say, Tesla to Waymo, Waymo's got, you know, the car is best doing with God knows how many sensors. And yet, isn't Google good at AI? Yes, but they're not good at real-world AI. Tesla is actually much better than Google by far, much better than anyone at real-world AI. And by far, Tesla has the best inference efficiency. I think a key figure of error for AI is, what is the intelligence per gigabyte? people talk about parameters blah blah blah but i think i'll just talk about stop talking about parameters and talk about gigabytes because with the parameters you can have four bit parameters eight bit parameters 16 bit parameters but the actual constraints in the hardware are how many gigabytes of ram and how many gigabytes per second can you transfer from ram therefore it is not a parameter constraint there's it is a there's a byte constraint and tesla has the highest intelligence density of any AI by far. And I have a lot of insight into this with XAI. XAI is, you know, Grok is the smartest AI overall, but it's a, you know, Grok 4 is a giant beast, you know, sort of at the terabyte level. And so it's kind of important to know Tesla has the best And intelligence density will be a very big deal in the future. It is now. So with Optimus 3, which is really the right design, it's like it doesn't have, at this point, there's no significant flaws with the Optimus 3 design. But we are going to retool a bunch of things. It'll probably be prototypes of Optimus 3 end of this year and then scale production next year. We're going to try to scale Optimus production as fast as it's seemingly possible to do so and try to get to a million units a year as quickly as possible. Do you think we can get there in less than five years? That's my sort of guess. That that's a reasonable aspiration is a million units a year. Five years, it seems like an achievable target. But in conclusion, so far 2025 has been very exciting year. A lot of major milestones. We've made clear progress, demonstrable progress in autonomy. A lot of naysayers said we would not achieve, but it's worth noting that we have done what we said we were going to do. Doesn't mean we're always on time, but we get it done. And our naysayers are sitting there with egg on their face. So great, great, great progress by the Tesla team. Yeah, I do think if Tesla continues to execute well with vehicle autonomy and humanoid robot autonomy, it will be the most valuable company in the world. It's a lot of execution between here and there. It doesn't just happen. But provided we execute very well, I think Tesla has a shot at being the most valuable company in the world. Obviously, I'm extremely optimistic about the future of the company. The best way to predict the future is to make it happen, and we're making it happen here with the Tesla team. So I'd just like to say thanks to all of our supporters, and I think we've got an incredibly exciting future.

Great. Thank you very much, Elon, and Fedlock has their remarks as well.

Thanks, Travis. As Elon mentioned, Q2 was an interesting quarter in a few respects. We started ramping up the production of the new Model Y at all our factories. We rolled out our robot taxi service in Austin and delivered a car completely autonomously directly from the factory to the customer's home. It is a seminal point to get to this thing. I mean, it took a lot of effort and I really want to thank everybody at Tesla to make this happen. It wasn't an easy thing to do, but we did it. It took time, but we've just begun the next phase for the company. The one big bill has a lot of changes that would affect our business in the near term. The first among those changes is the repeal of the IRA EV credit of $7,500 by the end of this quarter. Given the abrupt change, we have limited supply of vehicles in the U.S. this quarter, as we are already within lead times to order parts from different cars. We've rolled out all our planned incentives already and we'll start paying them back as we start to sell. If you're in the U.S. and looking to buy a car, place your order now as we may not be able to guarantee delivery for orders placed in the later part of August and beyond. The bill also made changes to certain emission standards by reducing the amount of penalty to sale. This in turn will have an impact on the new sales of regulatory credits to other OEMs and in turn will lead to lower revenues. While we've now planned our business around such sales, it will nonetheless impact our total revenues going forward. On the automotive product portfolio, the entire lineup is updated. Globally, we're seeing an increase in the number of test drives. We started the production of the lower cost model as planned in the first half of 25. However, given our focus on building and delivering as many vehicles as possible in the U.S. before the EV credit expires, and the additional complexity of ramping a new product, the ramp will happen next quarter, slower than initially expected. One thing which is grossly underappreciated in Elon talk about it is that all our vehicles in the lineup are capable of a downgrade. This is by far the biggest differentiator between us and the competition. A vehicle's top safety standard as is, but with FSD, they are and will continue to set a new standard for safety within vehicular transportation. We published our vehicle safety report earlier today, and you can see a car on FSD is 10x safer than a car not on FSD. We've started seeing an uptick in FSD adoption in North America in recent months, which is a very promising trend. And just to give you perspective, you know, since the launch of, since we moved to version 12 of FSD, we've seen the adoption rates really increase. We've started seeing the, on the automotive revenue front, despite reduction in regulatory revenue, And the total automotive revenue increased by 19% sequentially, even though total deliveries only improved 14%. This was primarily due to an improved ASPs because of the new Model Y. This helped in improving margin sequentially as well, along with improved mix and higher fixed cost absorption, despite an increase in cost from tariffs. We started seeing the impact of tariffs in our P&L. Sequentially, the cost of tariffs increased around $300 million with approximately two-thirds of that impact in automotive and rest in energy. However, given the latency in manufacturing and sales, the full impacts will come through in the following quarters, and so costs will increase in the near term. While we are doing our best to manage these impacts, we are in an unpredictable environment on the tariff front. The margins for the energy, generation, and storage businesses improved sequentially, while deployment reduced, primarily due to the ramp of power deployments at high margins. We were able to achieve our highest cross-profit for the business yet. Note that the overall deployments will continue to vary quarter to quarter. I think Elon covered this, that industrial storage would make a difference in this drive towards AI and data center growth. The energy requirements are increasing at a rapid scale as AI applications are very energy-hungry. The quickest path to scale up energy is deploying storage. This is something that our customers have started realizing, and despite this business having the largest impact from tariffs, we are seeing customers willing to accept some of the tariff impacts. The big bill has certain adverse impacts even for the energy business. most notably on the residential storage business due to the early expiration of consumer credits by the end of this year. The challenges of the storage business therefore remain both from the bill and from the tariffs, and we're doing our best to try and manage through this, but we will see shifts in demand and profitability. The margins for our service and other businesses improves sequentially primarily due to higher profits from supercharging and improvement in insurance and service center profitability. Operating expenses also grew sequentially as we continued our investment in AI projects, including additional expenses related to employee-related costs, including higher stock-based compensation and depreciation for AI compute. Our operating expenses, especially R&D, related spend will continue to grow. We believe even in the current environment, it is the right strategy to keep making investments in these areas to position us for the long term. Other income grew sequentially, primarily from the mark-to-market adjustment on Bitcoin holdings, which was $284 million gained in Q2, while being $125 million lost in Q1. Just want to remind people that This would keep creating volatility based on the Bitcoin price. While operating cash flows increased sequentially, so did our CapEx, resulting in 146 million of free cash flow. We continue to make investments in various aspects of manufacturing, like cybercap, semi lines, and other manufacturing spend, and the expansion of our AI initiatives. Our latest expectation for the year in terms of CapEx is in excess of 9 billion. To summarize, we have near-term challenges in our business due to the negative impacts of the bill and tariffs. However, the investments that we have made for AI, robotics, and our lead in energy sets us up for a bright future. I would like to thank the whole Tesla team, our customers, our investors, and supporters for their continued belief in us.

Great, thank you very much. So now we're going to move on to say.com questions. The first question is, can you give us some insight how Robo taxis have been performing so far and what rate you expect to expand in terms of vehicles, geofence, cities and supervisors?

Yeah, Robo taxi has been doing great so far in Austin. Customers really love the experience. Like super smooth, very safe and like just a great experience overall. and we already did a first wave of expansion in Austin, and we'll continue to expand in Austin to probably more than 10x our current operating region. We're also testing in a lot of other cities, as Ilan mentioned. The next thing to expand would be in the San Francisco Bay Area. We are working with the government to get approval here, and in the meanwhile, launch the service with the person in the driver's seat just to expedite while we wait for regulatory approval. We are also testing a lot of other cities in the US, including Florida, Nevada, etc.

Great, thank you very much Ashok. The next question is what are the key technical and regulatory hurdles still remaining for unsupervised FSD to be available for personal use? Can you provide a timeline?

Over. We're certainly getting there. I think it'll be available for personalized personal use by the end of this year in certain geographies. We're just being very careful about it.

This is not something which we want to rush. We want to make sure that everything is safe before we make it available broadly.

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

For what is supposed to be the same hardware in the Austin Robotaxi vehicles as or some customer vehicles, and we did deliver a car autonomously from the factory to a customer, the squatter. Yes. And every Tesla manufactured in the U.S. and in Europe autonomously drives itself from the end of time to the loading docks. And so it's just a software of Bay Area.

Yeah. I think we'll end up delivering cars in the greater Western area and the Bay Area by default from the factory by the end of this year. Like a car will deliver itself to where you are, unless you say you don't want that.

That'd be super cool. Yeah. Great. Thank you, guys. The next question is, what specific factory tasks is Optimus currently performing, and what is the expected timeline for scaling production to enable external sales? How does Tesla envision Optimus contributing to revenue the next two to three years?

Yeah. The Optimus Optimus three design, as I mentioned earlier, is, I think, finally, the right design the way further optimizations, but there are no fundamental changes to that are needed for the Optimus three design, it has all the degrees of freedom that you really want or need. So it's, you know, I'll have prototypes of that, and I don't know, three, three months, and it's so truly in production. We'll certainly start production on that beginning of next year. production ramp, it's always difficult to predict the S-curve of your production ramp when everything is new because the rate of production will move as fast as the least lucky and least confident element of the entire supply chain as well as internal processes. So the more new stuff that is in a product, the slower the ramp could be because of unexpected supply chain interruptions or mistakes made internally. It's much easier to predict sort of the end of the S-curve or late in the S-curve than the beginning of the S-curve. And the beginning of the S-curve of the production route is in any case not really material for revenue purposes. The beginning of the S-curve, you're usually, not usually, you're always negative gross margin you're debugging a lot of issues so um that's why like it's it's i feel like fairly confident predicting things or at least medium confident in predicting where we are five years but it's hard to predict where we are in a year or two years um so that's why i think five years i think we could be at the uh I'd be surprised if at the end of five years or 60 months from now, if we are not roughly making 100,000 Optimus robots a month in 60 months, I would be shocked.

Alright, thank you very much. Next question is, can you provide an update on the development and production timeline for tests as more affordable models? How will these models balance cost reduction, profitability, and what impact do you expect on demand in the current economic climate?

Well, I think Vaibhav did a good job of answering this question in his opening remarks. As we said, we started production in June, and we're ramping quality bills and things around the corner. And given that we started in North America and our goal is to maximize production with a higher rate for the pending Q3, we're going to keep pushing hard on our current models to avoid complexity. Then, fortunately, that rolls away and we'll be ready with the more affordable models available for everyone in Q4. And the goal with those products was not to negatively impact revenue or gross margin, but just to make a car that everyone loves and wants at a more affordable price.

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

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

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

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

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

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

Great, thank you. The next question is actually a duplicate on unsupervised SSD for customer vehicles, so we'll skip that. After that is, are there any news for hardware 3 users getting retrofits or upgrades? Will they get hardware 4 or some future version of hardware 5?

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

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

Dojo 2, we expect to have Dojo 2 operating in scale sometime next year. With scale being somewhere around 100K, 8100 equivalents. And then AI5, which is really spectacular too. I don't use those words. slightly spectacular chip. The AI5 chip will hopefully be in volume production around the end of next year. That has a lot of potential. I think, you know, thinking about Dojo 3 and the AI6 inference chip, it seems like intuitively we want to try to find convergence there where it's basically the same chip, but is used, what we say, two of them in a car or an Optimus, and maybe a larger number on a board, a kind of 512 on a board or something like that, if you want high bandwidth communication between the chips at a forced serving, during a burn serving. That's sort of, Seems like intuitively the sensible way to go.

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

Yeah, Mark, our sales pipeline is quite diversified across customers and market segments, so we aren't heavily weighted in MegaPAC projects that are paired with solar. And as we talked about in the opening remarks, we're seeing storage quickly being recognized for its ability to unlock grid efficiency and how quickly it can be deployed to help the grid. Additionally, although the recent bill was not favorable towards solar, we believe solar projects will still get built because the energy is necessary. The projects are well developed and they're ready for execution, and there's really no alternatives in the near term given gas turbine lead times and pricing. We also continue to see growth in the data center segment and in standalone storage projects, providing capacity to the grid in several markets across the U.S. Overall, we're forecasting a very strong second half of the year as we increase deployments. And lastly, we continue to invest heavily in U.S. manufacturing to mitigate policy and tariff impacts, expecting our first LFP cell manufacturing facility to be online by the end of the year and launching our third mega factory near Houston in 2026.

Great. Thank you, Mike. We will now be moving to analyst questions. The first question comes from Emmanuel Rosner at Wolf Research. Emmanuel, please feel free to unmute yourself whenever you're ready.

Great. Thank you so much. Can you hear me? Yep. Thanks. So Elon, are you able to share any KPIs with us in terms of the robotaxi business? How many vehicles are you operating miles driven autonomously or the number of safety critical intervention? Just curious, you know how the rollout is. It generally is going in any sort of like targets that you could share more broadly.

Sure, yeah, we have, you know more 7000 miles operating in Austin area. It's just because service is new. We have a handful of vehicles right now, but then we're trying to expand the service in terms of both the area and also the number of vehicles both in Austin and other locations. So far, you know the. There's like no notable safety critical incidents there. You know, sometimes we have our own uh restrictions as to for example we restrict our speed limit to 40 miles per hour course um and if the vehicle wants to go on like higher speed doors we can stop the vehicle but those are a lot of convenience as opposed to uh safer critical nature um so for the service has been really well received and we continue to expand on it great and that yeah longer term from an economics point of view longer term you've previously talked about

working to drive down the cost per mile on the robo taxis, maybe towards 30 or 40 cents per mile over time. Now that your service is live, how should we think about the main milestones to getting there?

Yeah, well, the the cyber cab is which is really. Optimized for autonomy. That that I think is got probably sub 30 cent per mile potential over time, maybe 25. If you design a car from scratch to be a cost-optimized robotic taxi like CyberCap, for example, we're not trying to make it corner incredibly well like a Model 3 would or Model S or even Model Y. All of our cars that are driven by people are super fun to drive. They've got incredible acceleration, incredible cornering capability. But we're confident that very few people in a cybercap want to be huddling around. So we've reduced the top end speed, which means we can use more efficient tires. We don't need as much acceleration. We don't need as much, you know, big brakes to sort of, we want stopping distance, but we're not expecting it to be heavily used. It's a gentle ride. Essentially, if you design it for a gentle ride, and then you have a much more optimized design point. So that's why it seems probable that we could achieve that. especially if Optimus is, you know, serving, cleaning up the car and doing maintenance and stuff. And it's, you know, doing automatic charging. So I think it's going to, the actual cost per mile of CyberCap will be very low. The cost per mile of our existing fleet will be higher, but still very competitive. So, yeah, maybe some over $0.50, I'm just guessing. Yeah, so this really, Taylor's row tax equity will go from tiny to gigantic in terms of operations in a pretty short period of time. Like, my guess is it has a material impact on our financials around the end of next year.

Great. Thank you very much. The next question comes from Adam at Morgan Stanley. Adam, please unmute yourself.

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

Yeah, that is a major concern for me, as I've mentioned in the past. And I hope that is addressed at the upcoming shareholders meeting. Um, but, uh, yeah, it is a big deal. Like, you know, I want to find that I've got like, so little control that I can easily be ousted by activist shareholders after having both, you know, these, this army of humanoid robots. Um, I think that as I mentioned before, I think my control over Tesla should be enough to ensure that it goes in a good direction, but not so much control that I can't be thrown out if I go crazy.

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

Yes, it's a bit of a tough thing, because when we do an AI day, we find that some of our competitors have literally done a frame-by-frame examination of our slides and everything we say, and they're copyists. So I'd say, what's the trade-off? It does help with recruiting, but then competitors look very closely and copy us. I mean, that said, we should probably, I mean, I guess we could consider the shareholder meeting to be sort of an, we can do, we can maybe go into depth, some amount of depth at the annual shareholder meeting with respect to Optimus and AI and sort of our chip stuff, perhaps. Yeah, it has also really underrated in terms of AI chip design as well as AI software. So. Like there's still not a chip that we would that that exists that we would prefer to put in our car. That is an AI chip that that we would prefer to put in the car over our own. And even though it's been now out for several years. And we're confident that the AI5 chip will be. a profound game changer. In fact, it's so powerful that we'll have to nerf it to some degree for markets outside of the US because it flows way past the export restrictions. So unless the export restrictions change, we actually will have to nerf our AI5 show, which is kind of weird. Hopefully, we keep raising the bar on export restrictions. Otherwise, it gets a bit silly. We'll have a bunch of Optimus robots on stage at the shareholder meeting. The Optimus lab is cool to see. It basically looks like the set of Westworld. Robots in various stages. Some of them are in various stages of repair. Some combination of the tattooing junkyard and Westworld. It's very cool. And Optimus is walking around the office here in Palo Alto. So 24-7, it's just walking around like a small... And we saw Optimus at the Tesla diner, so we popped on. Yeah, so we'll go from a world where robots are rare to where they're so common that you don't even look up.

Great, thank you so much. The next question comes from Edison at Deutsche Bank. Edison, please unmute yourself. Edison, please go ahead and unmute yourself. Right, while Edison figures that out, we will go to the next question, which is going to come from Dan Levi at Barclays. Dan, please go ahead and unmute yourself.

Great, thank you. Ilan, you've talked about the opportunity to put non-Tesla owned vehicles into the Robotaxi network. Just talk about the gating factors to enabling that and what timeline we should expect on personally owned vehicles in the Robotaxi network.

We haven't really thought hard about that. We need to make sure it works when the vehicles are fully under our control. And yeah, it's kind of one step at a time here. We don't want to jump the gun. As I said, we're being paranoid about safety, so. So it's like. But I I guess. But I guess it would do like next year is. I said confidently next year. I'm not sure when next year, but confidently next year. People who would be able to add or subtract their car to the Tesla fleet.

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

It's like an Airbnb room. Yes.

Yeah, so we will do something like that.

Yes.

Because we want, like Elon said, we want to be better learned about security. I mean, assets, small things like tread on the tires, can have an impact on safety. So that's why we would want to do some proper validation before we let other cars come in.

Can you follow up?

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

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

And in the interim?

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

Great. Thanks so much. We will now move on to Mark from Goldman Sachs. Mark, please feel free to unmute yourself.

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

So we've definitely, like I mentioned in my opening remarks, since we've launched version 12 of FSD in North America, we've definitely seen a marked improvement in the FSD adaption. And the other thing which we had also done last year is we did bring down the pricing and we've made subscription much more affordable. So we have seen, you know, 45% increase since that time, which is an encouraging trend. But honestly, we've just started the story around explaining the benefits of FSD. Like I said before, we released our vehicle safety report. Even if you don't believe in anything else, a car on FSD being 10X safer should be a motivator. Plus, the other thing is, People don't realize even at $99 a month, it's like you're getting a personal show for almost $3.33 a day. And this is by far the biggest game changer, which I know we've been talking about it because part of it is we live and breathe it, but I feel like- Most people still don't know.

The vast majority of people don't know it exists. It's still like half of Tesla owners who could use it haven't tried it even once. They don't actually rely on it. Obviously, this is something we want to educate them on. So we've got to, when they come in for service, we'll reach out to them, send them videos of how to make it work. And most of all, it's such a shocking thing. They don't think a car is capable of this. So you have to show them and get them comfortable with turning it on and off. It's so trivial, but it's like saying you've got a cat that can sing and dance, but it just looks like a normal cat. And you're like, until you see the cat sing and dance and talk, you assume it's just a cat. That's Tesla FSD. Our car is intelligent.

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

Yeah. And the 25% comment was 25% increase in the penetration rate since we've seen the release of V12 and V13 in North America. Great. Thank you. Mark, did you have a follow-up question?

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

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

Great. The next question is going to come from Will from Truist. Will, please feel free to unmute yourself when you're ready.

Great. Thanks so much for taking my questions. First, I'd like to ask for a little bit more detail about the lower cost model that you talked about having, I think, started production in the first half, but you said will ramp later. At the last analyst day, as I recall, you talked about some aspects of this like two-thirds or three-quarters reduction in silicon carbide and not using rare earths in the motor and perhaps other cost downs. You also had this unboxed architecture that I think you said would not be part of this sort of interim approach. Can you update us on what we should expect this thing to actually look like? Well, we won't get into the looks, because then you're going to watch the show.

Let's just go model Y. Let the cat out of the bag there. Dancing cat that can sing and dance. But it can talk and sing and dance, though. That's the cool part. Yeah, I mean, fundamentally, the biggest obstacle remains that people just don't have enough. Some people don't. The desire to buy the car is very high. Just people don't have enough money in the bank account to buy it. Literally, that is the issue. not a lack of desire, but a lack of ability. So the more affordable we can make the car, the better. I think it's going to be it will be a very big deal when people can release their car to the fleet and have it earn money for them, which, like I said, I think I feel confident in saying that will happen next year in the U.S., at least in the U.S. where we're legally allowed, you know, appropriate disclaimers. And that'll make the affordability dramatically greater. Just like if you have an Airbnb and you rent out your home when you're not there or rent out a guest room or guest house or something like that, the affordability of your home is much greater.

Okay. Trying another topic then. We see all these wonderful developments at XAI like Grok. And, you know, obviously Tesla's trying to do quite a bit in AI. Elon, how do you manage the division of efforts and recruiting and talent and capital between these two that seem like there's a very high potential that they can, in fact, compete?

Well, they are doing different things here. So, you know, the... XAI is doing like, you know, terabyte scale models and multi-terabyte scale models. Tesla's 100 times smaller models. So one's real-world AI and one's kind of, I guess, artificial superintelligence type of thing. I mean, really kind of the genesis for XAI was that there were certain people who, Some people would not join Tesla AI engineers because they wanted to work on ASI and they would join Tesla. And I was like, well, maybe they'll join a new company. And I think the Tesla problem is extremely important, but not everyone agrees with me on that. And so rather than have them join, you know, OpenAI or Google or whatever, some other company, it's like, might as well have them. create a company in that regard, which is XAI. People can make a decision. Do they want to work on superintelligence data center or real-world AI? They're both compelling problems, but some people want to work on one and some want to work on the other.

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