Tesla Q2 FY26 Earnings Call | $TSLA | 🔴 WATCH LIVE

Good afternoon everyone and welcome to Tesla's second quarter 2026 Q&A webcast. My name is Travis Axarrod, head of investor relations, and I'm joined today by Elon Musk, Vib Tanza, and a number of other executives. Our Q2 results were announced at about 3 p.m. Central time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question and answer portion of today's call, please limit yourself to 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. So, yeah, it's been a great quarter. We achieved record Q2 deliveries. Model Y, I believe, is now the bestselling car of any kind in the world and is setting records across the board. So its popularity is increasing tremendously. We're seeing in locations that have FSD approved a very high take rate of FSD. And in fact, I think for a lot of people, they're actually buying Tesla full self-driving 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. Yeah, it's looking very good on that front.

The energy business is also growing incredibly fast and I think will be crucial to 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 year. But I'm confident that all the things we're investing in will yield incredible returns, the best capex returns that we've ever seen. And the Tesla team has performed incredibly well. The Semi has started production and we also have started production and ramping up. We will soon start production with Optimus. We have started production with the Tesla semi-truck. We will soon start production with Megapack 3. We've started production with the lithium refinery, the cathode refinery. 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 deployment of solar because there's going to be tremendous need for electricity in the future due to electrification of transport and AI. So we're working on what we believe is the most ambitious buildout of advanced infrastructure manufacturing capacity ever in history. It's a big deal.

So with robo taxi, our goals are very ambitious for robo taxi but we do need to be cautious about causing any accidents or causing any harm to anyone. Although there are 30 to 40,000 automotive deaths per year in the United States alone, most of those do not generate any press. But if we injure even one person it'll be worldwide headline news and regulators will immediately clamp down on our activities. And we don't want to injure anyone. So we're going as fast as humanly possible in scaling robo taxi but while 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 robo taxi without harm to anyone. And we're providing live updates for robo taxi launch as we open up in the city. We immediately post that on X. So if you just follow the Tesla account on X, we'll keep you informed as we scale to new cities. We've opened up in a number of cities in Florida and in Texas and obviously in the Bay Area. So we'll continue to scale very rapidly. 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 if you simply ask it to do something or show it a video, it can do the task without any programming. No one's ever achieved this. There are many challenges in the electromechanical design of the robot to achieve sufficient dexterity and reliability and have long wear and tear. It needs to be out in the field and not break down. Otherwise you have a 70 kg robot that just flopped over and you got to carry it out like a body. And we don't want Optimus to go haywire. So it's a lot of work to scale to get the design right and to scale production. I really want to emphasize that the production scaling challenge is 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. At least with electric cars, the non-electric powertrain portions had an existing supply chain. You could go to existing suppliers for wheels, side mirrors, windshield glass, body panels. But with Optimus, 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've in-housed a tremendous amount. The Optimus production line that we're building out in Fremont in place of what used to be the Model S and X production looks incredible. It's quite stunning to see. So I just want to calibrate people correctly. Optimus will follow the normal S-curve of a manufacturing ramp, but the initial portion of the S-curve will be quite flat and long because of the newness of the parts in the robot.

You've probably seen lots of impressive demonstrations of robots on the internet, but those demonstrations you're seeing are pre-programmed or remote controlled. 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. Optimus is designed to have full human dexterity. A hand that has the same level of dexterity, if not higher, than a human hand. The human hand is an incredible thing. The more you study the human hand, the more amazing you realize how amazing hands are. It's more than just opposable thumbs. The nuances of how human hands work are amazing. The closer you look, the more amazed you are. Optimus will have that capability, human and then superhuman dexterity. So it's really going to be quite something.

Um let's see. Terapab, we expect to announce the location soon and provide more details about our plans in that regard, but we'll leave that to the product 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 day in the spotlight and not be squeezed into an earnings call. But I do think Terapab is going to be an amazing initiative and a necessary one, 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 in order to scale.

But anyway, like I said, we'll leave that to its own announcement. We've placed equipment orders for our development fab in Austin. That development fab, I think, is pretty cool because it's intended 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. They focus primarily on Optimus, like how do we make Optimus as useful as possible. Then we have digital optimist, which is basically driving a computer screen. I guess you could call it computer use or something like that, but driving a computer screen in the same way that you drive a car. For the car, it's pixels in and controls out. The same thing is true for Optimus and digital optimist. 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 self-driving computer essentially. The self-driving computer, where the very low cost Tesla AI4 computer can handle all of the short-term tasks. They're doing real-time video control of the screen of the computer. It's not screenshots, real-time video at high frame rate. This digital optimist will be important obviously for physical optimist because physical optimist needs to be able to operate computers. It can't come up to a touchscreen and not know what to do. It's got to have a generalized touchscreen and computer use capability. So that's looking promising. And it is in partnership with SpaceX, SpaceX's Grok, the big model that is kind of the manager of digital optimist and tells digital optimist what to do. It provides it with a series of tasks and then digital optimist goes and does those tasks. We're also building out a megapod design that has Tesla AI4 computers with x86. This is a pairing of x86 computer with the Tesla AI4 computer in a box, kind of digital optimist in a box. And in a megapod, we put a large number of AI4 plus x86 combos in a giant box essentially. These boxes can be placed anywhere in the country or outside the country. This allows us to scale AI compute using aggregated electricity production. There are lots of places around the world including at our superchargers. We have something like 7 gigawatts of power at our superchargers and growing. We can place megapods at many of these superchargers 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 roadmap. There's so much awesome stuff coming. It's hard to squeeze into an earnings call, but we'll have a lot of product announcements. This is going to be a great year for Tesla. I think one of our best years ever, and then next year will be even better. I want to thank the Tesla team for their excellent execution and all of our supporters for joining us in this journey. Thank you.

Great. Thanks so much, Elon. Uh, and now, Vehov has some opening remarks.

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 AMIA 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 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, 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% as 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 true-ups 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 demonstrates 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 cost. Note that interest rate subvention 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 gigawatt hours 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 some vendor cell issues for our legacy deployments. Also, the tariff benefits we recognized in Q1 of more than 200 million did not repeat. And lastly, we had previously guided that ASPs for industrial storage are 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 backlog for 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 centers, and insurance. While marginal today, also included in this business are deliberate investments we are making in infrastructure that will help scale robot taxi in the future. We continue to grow the Tesla robot taxi 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, Cybercab, and other AI initiatives as well as depreciation for 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 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 investments in a very capital efficient manner. The path to amazing awareness is ever challenging and requires making bold bets. Our progress will be nonlinear. 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.

Thanks so much. Um, as everyone on the call may have noticed, we've covered several of the say.com questions already in opening remarks, including Optimus production, Terapab, and Digital Optimus. Ashoke is joining us today, our VP of AI, and he's going to cover questions related to robotaxi. Ashoke,

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 six cities in two different states. We have had zero 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. Zero notable incidents over 380,000 miles. Historically, the so-called experts have always claimed that you need lidars, 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 in 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.

Such growth was only possible because we have a world-class engineering team at the frontier of 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 seven major improvement tracks and they're all happening in parallel. The early V15 builds that are running on robot 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 car is going to be ridiculously safe and capable. We're already seeing internal signs that all of these bets we have made for technology improvements are all starting to work. 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 Cybercab, 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 the Model Y and other platforms will also work on Cybercabs. 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 Cybercab is going to be awesome.

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

Yep. 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 us data from all of the workers at our factory. Optimus 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 a 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 in both 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 task 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 at perhaps a superhuman level. Our AI strategy for Optimus is aligned, 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 can get in the car, type in an address, hit start, and it handles all of driving from park to park. The same thing is going to be true for Optimus as well. You're going to just ask it to do anything, and then it will perform the entire task on its own without you having to do anything along the way. And it's the same team that produced FSD, the V12, 13, 14, and now V15 software that now works on Optimus as well. Hence, I'm very confident that Optimus will be an extremely capable robot.

Great, thank you so much, Ashoke. So that covers the say.com questions. 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.

Hey, can you hear me?

Yes, we can.

Awesome. Thanks so much for taking the question. So maybe just to start out on Optimus, Elon, you mentioned that there's really no supply chain today for Optimus, so you've had to mostly insource a lot of that yourself. I'm just curious as you've gone through this exercise, are you seeing any suppliers willing to 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 want to control your own destiny to some extent and ramp as quickly as possible, but from an investment cycle standpoint, potentially more capital efficient to have some partners 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, you may be on mute right now. We can't hear you.

Sorry. Yeah. Our suppliers have been great and they have made tremendous investments in support of Optimus and robotaxi and whatnot. You know, Samsung and TSMC in particular are building fabs, TSMC in Arizona and Samsung in Texas, and putting in tens of billions of

Dollars for to build AI compute for Optimus and Roboaxi. Panasonic has also invested many billions in increasing battery cell production. Oh, I'm a little under the weather here. I'm a bit ill, so I sound a little off. I'm kind of struggling, I'm a little bit ill today. So, yeah, but our partners have been great. And I'd like to thank them for their support and their investment and their hard work.

Great. Thanks. Thanks for that. And maybe just as a — So, sorry, Andrew. We're going to have Kin hop in here for additional color briefly.

Yeah, just to add to Elon's 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 into memory and also new specific like metal injection molded parts, flexible printed circuits and all sorts of nonlinear technologies that are 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.

Yeah, I'd actually also like to thank Micron for giving us memory allocation. They've got to make some very tough decisions on memory allocation and we really appreciate Micron making room for Tesla in the years to come and giving us actually very significant allocation on reasonable terms given the pretty insane pricing of memory these days.

Great. Really appreciate that color and maybe just my followup on robo taxis. You guys gave a lot of great information in your prepared remarks, but there 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 rollout, what do you want to see or what do you need to see from regulators to make sure that, obviously some regulation might be good, but you don't want it to be overregulated. So, what are you expecting to see? What do you want to see to make sure that this is done in a proper way? And we've got Lars on the line. Lars, if you wouldn't mind covering this one if you can.

Great. Thanks for the questions. Thanks so much. We're going 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.

Hey, thanks for the questions here. Just a few follow-ups on robo taxi 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 mile driven per incident or something else? And then would you ever consider third-party distribution partnerships such as with ride share providers to increase utilization or is the plan for now to keep robo taxi fully vertically integrated? Thanks.

Yeah, we expect to be vertically integrated with robo taxi as we are in the rest of our business. So I don't think we're going to have any demand challenges with robo taxi. This is the economics will be so compelling that I think we will really have a lot more desire to use the service than demand will strip our ability to service the demand. And so obviously you just go vertical in that situation. So it's really just about going through what we call the march of nines of reliability where you need like how many nines of reliability do you need to scale. Ideally you want 99.99999 percent reliable. And so that's the margins of reliability is the only thing really constraining our growth in robo taxi.

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

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

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

Yeah. No 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 and a framework agreement and this will allow us to continue to work with them on projects that Elon mentioned like Terafab and Digital Optics.

Yeah. And there's many other things too. Obviously you've got Grok in the car. And Grok helping drive digital optics. You've also got Starlink being integrated into the Cybercab and Starlink will be integrated into a lot of our vehicles at least for markets that Starlink is active. Because for a robo taxi situation you need to have coverage everywhere and there are many many places even in Silicon Valley where the cellular coverage is terrible or sometimes non-existent which is surprising for Silicon Valley but I don't want to drive to work those 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 Bermuda triangles of lack of cellular connectivity. So Starlink with its ability to do connectivity anywhere is actually quite important. So we don't have robo taxis missing an action. And then obviously if people are sitting in the car they're going to want to do high productivity stuff or entertainment. And with Starlink, you can watch full 4K live sports in the car with very low cost per gigabyte of data as that's really not feasible via the cellular system. There's many other situations.

Yeah, I mean I would say think of it like Ashok was mentioning about Cybercab, right? That the experience is great in a world when you don't have to focus on driving. You have 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 Cybercab design it has a big screen and we've started doing Cybercab rides in our factory in Austin and when you go through that experience, soon customers would be able to do it in not too distant future and then you'll understand why that connectivity becomes so important.

Great. And then Colin, do you have a follow-up?

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

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 a very general one. It is a general one. We just want to 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 as Elon mentioned earlier, the growth rate has been literally exponential, it's just in the early part of the exponential that's why it's hard for others to comprehend in terms of miles versus the vehicles since these vehicles operating the robo taxi fleet drive basically continuously as opposed to human drivers who use vehicles for maybe a couple hours a day. These vehicles are in mostly continuous 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 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.

Yeah. And just to add further to this, 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.

Great. Our next question is — Oh, yeah. Go ahead. If —

Thanks, Lars. The next question is come from Walt from Lightshed. Walt, please unmute yourself.

Thanks. Just a quick followup for that Lars comment. I mean, the NHTSA administrator, Jonathan Morrison, was just on CNBC. He already, he's trying to get rid of the pedal and said, I forget his exact term, but 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 unlock your ability to ramp Cybercab?

Got it. And then just Elon, kind of a roadmap question, I guess. Starlink obviously is integrated in Cybercab and you guys just talked about the connectivity for watching movies, but what about the flip side of that? Can these Cybercabs become remote hotspots for Starlink mobile? And then similarly roadmap question on the semi, when do 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 it given what's going on in our country right now.

Yeah, absolutely. As you allude to, there is a really serious shortage of truckers. So there just aren't enough people who want to drive trucks which are crucial for transport throughout America. So an autonomous semi is actually going to be very important to address the shortage of truck drivers. And also will be great for improving safety and making it easier on truck drivers. A self-driving semi is going to dramatically improve safety and comfort for truck drivers that use the Tesla semi. Since the total number of units of the Tesla semi is still low 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 self-driving efforts on our high volume vehicles. So Model 3 and Y and solving self-driving for really getting to the point where it's a generalized unsupervised self-driving for those vehicles and Cybercab. So we expect to get self-driving working on the Tesla semi probably around the end of this year or early next year. But we just don't want it to be a distraction on the march of nines of self-driving safety for Model 3 and Cybercab. So it's taking a bit of a backseat for the next 6 months or so for autonomous semi, but it will definitely be working next year and in time for the scale up to high production of Tesla semi. For communications, I think there's an interesting angle there where you could use the Starlink terminals that are in the Tesla cars as like sort of cell towers or connectivity towers basically for providing relays on the ground to cell phones and to anyone who would like Wi-Fi basically. But yeah, I mean this is a different subject but obviously we could do that with the stationary Starlink terminals too.

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

Great. Thanks so much for taking my question. Elon, you teased us a little bit about the supply chain relative to Optimus, 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 occurs to me that you have many that are commercially available. You have an option to design some but have them made at third party fabs. You also have the option potentially to design and make them yourself. What should we think about your propensity to source these components in these different manners?

You're talking about like making microcontrollers and like the various computers that are in the car that operate the steering system and the braking system.

Okay.

I'm talking about for Optimus not for — Optimus has a lot of really specialized power electronics and boards. It's all Tesla design stuff. But it is fabricated by suppliers. For Optimus 4 which will be built in Austin, that will be a much more vertically integrated supply system for Optimus 4. And we aim to have an order of magnitude more production of Optimus 4 than Optimus 3. So aspirationally 10 million units a year versus a million units a year of Optimus 3. But with all the caveats there which is insanely difficult to scale production. So Optimus 4 will be much more vertically integrated. So probably doing a lot of the PCB work in-house for that.

As a follow-up, well first maybe you could talk about the timing as to when Optimus 4 should start production. But the actual follow-up I wanted to ask was the plan to upgrade Hardware 3 to Hardware 4 in order to be able to process version 15 and future versions of FSD. Is that still the plan to do hardware upgrades on the cars?

I think it's going to make sense to upgrade all cars that have less than Hardware 4, almost any cars that have cameras basically, because otherwise it would be too many modifications. But anything that's set up for cameras, it'll be financially sensible at some point to upgrade them. And I think we'd want to upgrade them to the next generation of AI board. So it would be either we have an upgraded AI4 chip that's a moderate improvement over AI4. Probably reaches production around the middle of next year. And then there's also AI5 which hopefully is in volume production around the buildup next year. AI5 will initially go into Optimus. And actually making very good progress. Tesla's design team is really doing great work and making incredibly fast progress on AI5 and I'm very excited about the design of the Tesla AI5 chip. I think it's going to be the best edge computing chip in the world. And if somebody's got a better one, I'd like to meet that person and shake their hand because AI5 chip is just so good. So I think it's going real well on the chip front. And again, I'd like to thank TSMC and Samsung and Micron for the support.

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

Great. Thank you. Appreciate it. I'd like to ask about the pace and path of capex. Elon, in the past you've said that you'll spend as much as you can, but 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?

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

Yeah. And I will just add a little bit on that. Basically, if you look at it, all our spend on capex is trying to do productive assets. We're basically scaling factories, whether it's Optimus, whether it's Cybercab, 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 we are trying to get a lot of solar manufacturing in the US.

Yeah, yeah, this is underrated, by the way. Please go ahead.

Yeah, basically 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 because what you have to do is in order to build a factory you have to start from ground zero. So just so you know, 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 Elon was saying, we're going at a very rapid scale and yes, this means that we are doing a lot of things all at the same time and that's why we just have to go as fast as we can humanly make things work in the real world.

Yeah, our capex efficiency I think is off scale.

Great. All righty. And then Dan, yeah. Did you have a follow-up that we can wrap up with?

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

Well, it's still mostly it's not just peak shaving but it's also grid balancing. So it's not just like the facts are on briefly but for balancing power from wind generation and solar generation, batteries 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 already of course how all of the Starlink satellites are powered is with solar panels and batteries. So you can just think of Earth like a giant satellite. There's far more power available from the sun than anything else by far. And we think power constraints are going to be a major issue for AI, just turning on the AI computers. The AI compute demand is so high that even the hyperscalers are having trouble turning on their AI compute and finding the power and then smoothing the power with, especially for the training runs where the power cycles dramatically in a very short period of time. You can have during a training run the power consumption can drop by 70% for 100 milliseconds. And you really need fast acting advanced power electronics to be able to smooth out these massive changes in power especially during training runs. So that's why SpaceX has bought so many Megapacks for the data centers. It's mostly for smoothing out the power for the training runs. But it will also be useful for being able to have more power from the grid by telling utilities that they will not need to supply power during the worst hours or the worst days of the year because the batteries can handle it. Then that makes it much easier for them to give you power. In fact, the probably the best way to scale total energy production in the United States is simply using batteries because there's 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 two and a half times as much power generation as the average usage. That means you could potentially double the energy output for the United States just with batteries. So right, we see demand for Megapack being very very high in the future.

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.

Thanks everyone.