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 am joined today by Elon Musk, Vaibhav Taneja, and several other executives. Our Q2 results were announced at about 3:00 p.m. Central Time, and the update deck can be found 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 various risks and uncertainties, including those mentioned in our most recent filings with the SEC. Before we jump into Q&A, Elon has some opening remarks. Elon?

Thanks, Travis. We've had a very exciting quarter. We successfully launched robotaxi services, allowing our first rides with no driver in the seat for paying customers in Austin. As some may have noticed, we've already expanded our service area in Austin, making it larger and longer, and it's set to grow even more. We anticipate a significant increase in the Austin service area, surpassing what competitors are doing, which we expect to happen in about a week or two. We're also seeking regulatory permission to launch in the Bay Area, Nevada, Arizona, Florida, and several other locations. Once we receive approvals and demonstrate safety, we plan to roll out autonomous ride-hailing across much of the country. By the end of the year, our goal is to have autonomous ride-hailing available to around half the U.S. population, pending regulatory approvals. We believe we can achieve this, but we're being cautious to ensure safety. As we gain confidence in safety across different regions, we will relax the requirements for driver attention, addressing common complaints about driver focus. This is particularly important since the current setup sometimes leads to disengaging the autopilot for other distractions. Our focus in Austin with robotaxis delayed some autopilot releases, but with the launch, we're now shifting our focus back to enhancing the experience for users outside Austin. Autonomy is central to our narrative. It amplifies the value of our physical product. We also introduced the Tesla Diner, which has garnered significant attention and should be worth checking out if you are in the L.A. area. On the full self-driving front, we're making substantial improvements in our software, aiming to increase the parameter count significantly, potentially up to ten times. While this poses technical challenges, we are optimistic about the improvements we’ll see with our existing hardware. Our battery solutions are growing well despite challenges from tariffs and supply chain issues. The Megapack is quickly expanding in capacity, and we've achieved record Powerwall deployments. The demand for batteries is massive and often underestimated. By utilizing batteries, we can optimize energy usage and dramatically increase output for the U.S. grid. We are also advancing the design of Optimus, currently in a more refined version. I believe Optimus 3 will be our most significant product yet, addressing complex engineering challenges throughout its design process. We plan to use techniques successful in our automotive AI development for Optimus as well. Tesla is a leader in real-world AI, significantly outpacing others in efficiency. In conclusion, 2025 has been a remarkable year with significant achievements. We have demonstrated progress in autonomy that challenges skepticism. While we may not always be right on schedule, we deliver on our commitments. If we maintain our execution in vehicle and humanoid robot autonomy, I believe Tesla has the potential to become the most valuable company in the world. I'm very optimistic about our future as we continue to drive forward with the Tesla team. Thank you to all our supporters. We have an incredibly exciting future ahead.

Great. Thank you very much, Elon. And Vaibhav has opening remarks as well.

Thanks, Travis. As Elon mentioned, Q2 was notable for several reasons. We began increasing production of the new Model Y at all our factories, launched our robotaxi service in Austin, and delivered a car fully autonomously straight from the factory to a customer's home. This is a significant achievement that required a lot of effort, and I want to express my gratitude to everyone at Tesla for making this happen. It was challenging, but we succeeded. It took time, but we've now entered a new phase for the company. The One Big Bill includes several changes that will impact our business in the near future, starting with the repeal of the IRA EV credit of $7,500 by the end of this quarter. Due to this sudden change, we have limited vehicle supply in the U.S. this quarter, as we've already faced lead time issues in ordering parts for car production. We have implemented all our planned incentives, and we'll begin to reduce them as we start selling. If you're in the U.S. and looking to purchase a car, we advise you to place your order now, as we may not be able to guarantee delivery for orders made in late August and beyond. The bill also amended certain emission standards by lowering penalties to zero, which will affect the sale of regulatory credits to other OEMs, ultimately leading to lower revenue. While we've adjusted our business plans accordingly, it will still have an impact on our total revenues going forward. Our entire automotive product lineup has been updated. Globally, we’re witnessing an increase in test drives. We started producing the lower-cost model as planned for the first half of 2025. However, focusing on delivering as many vehicles as possible in the U.S. before the EV credit expiration, along with the added complexity of ramping a new product, means that production will proceed more slowly next quarter than originally anticipated. A key point that is often overlooked, which Elon highlighted, is that all our vehicles are capable of autonomy. This capability is our most significant differentiator from competitors. Our vehicles meet top safety standards, and with Full Self-Driving, they will continue to set a new benchmark for safety in transportation. We issued our vehicle safety report today, showing that a car on FSD is ten times safer than one without. There has been an increase in FSD adoption in North America recently, which is encouraging. Since the launch of version 12 of FSD, adoption rates have seen substantial increases. Despite a decline in regulatory credit revenue, total automotive revenue grew by 19% sequentially, even with only a 14% increase in total deliveries. This growth was largely due to improved average selling prices because of the new Model Y, contributing to better margins sequentially, along with an improved vehicle mix and higher fixed cost absorption, despite rising tariff costs. We’ve started to see the effects of tariffs in our financial results, with an increase of around $300 million due to tariffs, mostly in automotive. The full impact will be reflected in upcoming quarters, leading to increased costs in the short term. While we are working hard to manage these challenges, the tariff situation is quite unpredictable. Energy generation and storage margins improved sequentially, although deployments decreased mainly due to the focus on higher-margin power deployments, reaching our highest gross profit in this sector to date. Overall deployments will continue to vary each quarter. As Elon explained, industrial storage will play a crucial role in supporting AI and data center growth. Energy needs are rising quickly because AI applications consume a lot of energy. The fastest way to scale up energy is to deploy storage, and customers are starting to understand this. Despite the significant impact of tariffs on this business, we see customers accepting some of those tariff costs. The Big Bill also poses challenges for the energy sector, particularly residential storage, due to the early expiration of consumer credits by the end of this year. These challenges from the bill and tariffs will affect demand and profitability in the storage business. Margins for our service and other segments improved sequentially, primarily driven by higher revenues from supercharging and better profitability in insurance and service centers. Operating expenses increased sequentially as we continued to invest in AI projects, including higher employee-related costs and increased depreciation for AI compute. Our operating expenses, particularly for R&D, will keep rising. We believe it’s the right strategy to continue investing in these areas despite the current environment, as it positions us well for the future. Other income increased sequentially mainly due to a $284 million gain from mark-to-market adjustments on Bitcoin holdings in Q2, compared to a $125 million loss in Q1. It's important to note that this could lead to volatility based on Bitcoin's price fluctuations. Operating cash flows increased sequentially, but so did capital expenditures, resulting in $146 million of free cash flow. We are making investments in various manufacturing areas like the Cybercab and Semi line, and expanding our AI initiatives, with our anticipated CapEx for the year exceeding $9 billion. To conclude, we face short-term challenges due to the negative impacts of the bill and tariffs. However, our investments in AI, robotics, and energy leadership position us for a promising future. I would like to thank the entire Tesla team, our customers, investors, and supporters for their ongoing trust in us.

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

Yes. The robotaxi has been doing great so far in Austin. Customers really love the experience. It's super smooth, very safe and just a great experience overall. And we already did the first wave of expansion in Austin, and we'll continue to expand in Austin to probably more than 10x our current operating region. We are also testing in a lot of other cities, as Elon 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 without the person in the driver seat just to expedite while we wait for regulatory approval. We are also testing a lot of other cities in the U.S., including Florida, Nevada, et cetera.

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?

We're certainly getting there. I think it will be available for incentivized 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.

Yes, we're being very cautious. However, I am confident that by the end of this year, it will be available to end users in several cities across the U.S.

Yes. And for orders with the same AI hardware in the Austin robotaxi vehicles has still some customer vehicles and we did deliver a car autonomously from the factory to a customer this quarter. And every Tesla manufactured in the U.S. and in Europe autonomously drives itself from the end of the line to the loading docks. And so it's just a software update.

Yes. I think we'll end up delivering cars in the Greater Austin area and the Bay Area by default from the factory by the end of this year. A car will deliver itself to where you are, unless you say you don't want them.

It will be super cool.

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 in the next 2 to 3 years?

Yes. The design of Optimus 3, as I mentioned earlier, is on track, and while there will be further optimizations, I don't believe any fundamental changes are necessary. It has the flexibility that we desire. We expect to have prototypes ready in about three months, with production starting early next year. Predicting the production ramp can be challenging, especially with new products, as the pace is influenced by the least fortunate and least confident elements in the supply chain and internal processes. The introduction of new components can slow the ramp due to potential supply chain delays or internal errors. It's generally easier to forecast the latter stages of the production curve than the initial phase. The beginning of this stage usually doesn't significantly impact revenue, as we tend to operate at a negative gross margin while resolving various issues. That's why I feel reasonably confident in projecting our position five years out, but it's much harder to predict for one or two years. In five years, I would be surprised if we are not producing around 100,000 Optimus robots per month.

All right. Thank you very much. Next question is, can you provide an update on the development and production timeline for Tesla's more affordable models? How will these models balance cost reduction and 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 builds and things around the quarter. And given that we started in North America and our goal is to maximize production with a higher rate. So starting Q3, we're going to keep pushing hard on our current models to avoid complexity. Unfortunately, that rolls away, we'll be ready with new, more affordable models available for everyone in Q4. And the goal of 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 to discuss this topic. I mean if there is something which we need to discuss, we'll discuss it separately.

I think, obviously, we're a publicly traded company. Shareholders are welcome to put forward any shareholder proposals that they'd like. I resolutely encourage 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 and the product lineup.

Yes. There are many exciting developments occurring in the design studio. It's dynamic, and what will unfold over the next few years is a significant transformation of the company as we move from a pre-autonomy era to a post-autonomy one. I am currently drafting a new master plan to communicate this vision to the Tesla team. There will be some initial challenges during this transition, but I believe the future vision for Tesla is incredibly exciting and will greatly benefit the world. While this may come across as hype, if we successfully implement this plan, Tesla could become the most valuable company in the world by a significant margin.

Great. Thank you. The next question is actually a duplicate on unsupervised FSD for customer vehicles. 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 4 first. Once it's done, then we will go back and look at what we need to do with the Hardware 3 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. Next question is, can you give an update on Dojo? And could xAI be a customer for Dojo?

We expect to have Dojo 2 operating at scale sometime next year, targeting around 100,000 H100 equivalents. The AI5 chip is also impressive and we anticipate it will enter volume production by the end of next year, which holds significant potential. As we consider Dojo 3 and the AI6 inference chip, it appears logical to seek convergence, aiming for a chip design that can be utilized in various configurations, such as using two in a car or an Optimus and possibly larger quantities on a board, around five to twelve, to enable high-bandwidth communication for inference tasks. This approach seems to make intuitive sense.

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

Yes. Our sales pipeline is quite diversified across customers and market segments. So we aren't heavily weighted in Megapack 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 are 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 Megafactory near Houston in 2026.

Great. Thank you, Mike. We will now be moving to analyst questions. The first question comes from Emmanuel Rosner at Wolfe Research.

Great. Can you hear me?

Yes.

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 how the rollout generally is going and any sort of like targets that you could share more broadly?

Ashok, do you want to...

Yes. We have over 7,000 miles operating in the Austin area. Since the service is new, we currently have a limited number of vehicles, but we are looking to expand both the service area and the number of vehicles, in Austin and other locations. So far, there have been no notable safety-critical incidents. We have some internal restrictions, for example, we limit our speed to 40 miles per hour. If the vehicle needs to operate on faster roads, we can stop it, but those are more for convenience rather than safety reasons. Overall, the service has been very well received, and we are continuing to expand it.

Yes, longer term, from an economics point of view, longer term, you've previously talked about working to drive down the cost per mile on robotaxis, maybe towards $0.30 or $0.40 per mile over time. Now that your service is live, how should we think about the main milestones to getting there?

The Cybercab is designed specifically for autonomy and has the potential to operate at a cost of less than $0.30 per mile, possibly around $0.25. Unlike our other vehicles, which emphasize performance and driving enjoyment, the Cybercab prioritizes efficiency and a smooth ride. We have focused on optimizing its design for gentle operation rather than high-speed cornering, which allows for the use of more efficient tires and reduces the need for rapid acceleration. While we expect the Cybercab to use minimal high-speed driving, it will provide a comfortable experience. Additionally, Optimus technology will assist with vehicle maintenance and charging, which will further reduce operating costs. Consequently, the cost per mile for the Cybercab is anticipated to be very low, while our existing fleet will remain competitive at slightly over $0.50 per mile, although that is an estimate. Overall, I'm confident that we will see a significant increase in our robotaxi operations within a fairly short timeframe, likely impacting our financials by the end of next year.

Great. Thank you very much. The next question comes from Adam at Morgan Stanley.

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?

Yes, that is a major concern, as I've mentioned in the past, and I hope that it's addressed at the upcoming shareholders' meeting. But yes, it is a big deal. I don't want to find that I've got like so little control that I can easily be ousted by activist shareholders after having these army of humanoid robots. I think as I've 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, now 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. But when do you think others will be able to get a firsthand view of Optimus 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 is doing it and this talent war is getting freaking crazy. And I know you 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 is too early for that.

Yes, it's a bit challenging because during our AI Day, we've noticed that some competitors thoroughly analyze our slides and statements and then replicate them. This does benefit our recruitment efforts, but it also means competitors are closely observing and imitating us. That said, we could possibly delve deeper into topics like Optimus and our chip technologies at the Annual Shareholder Meeting. Tesla is also quite underestimated in AI chip design and software. There is still no AI chip available that we would prefer to use in our cars over our own, despite it being out for several years. We are confident that the AI5 chip will be a significant breakthrough. In fact, it is so advanced that we may have to limit its capabilities for markets outside of the U.S. due to export restrictions. Unless those restrictions change, we will need to adjust our AI5 chip, which seems unusual. We hope to continue to push the limits on export restrictions; otherwise, things could become uninteresting. At the shareholder meeting, we will showcase several Optimus robots. The Optimus lab is fascinating; it resembles the set of a sci-fi show. We have robots at different stages of development, some undergoing repairs. It's a mix of a junkyard and a sci-fi environment. It's quite impressive, and Optimus is actively walking around our Palo Alto office. So, nearly all the time, it's moving about, and we're optimistic about Tesla Diner selling popcorn. We're transitioning from a world where robots are rare to one where they're so common that people hardly notice them.

The next question comes from Edison at Deutsche Bank.

Elon, you've talked about the opportunity to put non-Tesla-owned vehicles into the robotaxi network. Can you just talk about the gating factors to enabling that and what time line we should expect on personally owned vehicles in the robotaxi network?

We haven't put a lot of thought into that yet, but we need to ensure it operates effectively when the vehicles are completely under our control. We're taking things one step at a time and don’t want to rush into anything. As I mentioned, we're cautious about safety. However, I can confidently say that next year, though I'm not certain about the exact timing, people will have the ability to add or remove their car from 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 a Lyft fleet, they go through a whole checklist process of making sure things are working.

Just like an Airbnb.

Yes. So we will do something like that.

Kind of bidding process.

Great. Do you have a follow-up?

Yes. 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 meantime, we will rely on our balance sheet. However, once we reach a certain level of recurring revenue, as Elon mentioned, we could easily engage in transactions to secure funding.

Great. We will now move on to Mark from Goldman Sachs.

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?

Since launching version 12 of FSD in North America, we've noticed a significant increase in FSD adoption. Last year, we also reduced pricing and made subscriptions more affordable, resulting in a 25% increase since then, which is promising. However, we are just beginning to communicate the benefits of FSD. As previously stated, our vehicle safety report highlights that a car using FSD is ten times safer, which should serve as a strong motivation. Additionally, at $99 a month, it's comparable to having a personal chauffeur for about $3.33 a day. This aspect is a major breakthrough, and we've been emphasizing it because we truly believe in its potential.

Most people still don't know about it. The vast majority of people are unaware that it exists, and about half of Tesla owners who could utilize it haven't tried it even once. This is something we need to educate them about. When they come in for service, we will reach out to them and send them videos on how to use it. It's surprising; they don't realize that a car is capable of this. We need to show them how to turn it on and off and make them comfortable with it. It's such a simple concept. It's like having a cat that can sing and dance, but it just looks like an ordinary cat. Until you actually see it perform, you might just assume it’s just a regular cat. That’s what Tesla FSD is; our car is intelligent.

We will be encouraging more people to try FSD by prompting them during specific drives. It's about demonstrating the capabilities of the technology, much like how a seemingly ordinary cat can actually sing and dance. This is similar to FSD; people often don't realize what it can do until they see it in action.

Great. 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. Mark, did you have a follow-up question?

Yes. 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?

Well, we're in this weird transition period where we will lose a lot of incentives in the U.S. We have incentives actually in many other parts of the world, but we'll lose some in the U.S. Look, we're still a bit at the relatively early stages of autonomy. On the other hand, autonomy is most advanced and most available from a regulatory standpoint in the U.S. So I mean, does that mean like we could have a few rough quarters? Yes, we probably could have a few rough quarters. And 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 would be surprised if Tesla's economics are not very compelling.

Great. The next question is going to come from Will from Truist.

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 2/3 or 3/4 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...

Let's just get the model out, yes, a dancing cat that can sing and dance. But we can talk and say it now, and that's the cool part. Fundamentally, the biggest obstacle remains that while the desire to buy the car is very high, some people just don't have enough money in their bank account to make the purchase. It's not a lack of desire; it's a lack of ability. Therefore, the more affordable we can make the car, the better. I believe it will be a major development when people can release their car to the fleet and have it earn money for them, which I feel confident will happen next year in the U.S. at least. In the U.S., we're legally allowed, appropriate disclaimers apply. This will significantly enhance affordability. It's similar to having an Airbnb where you rent out your home when you're not there or rent out a guestroom; this increases the affordability of your home.

Okay. Trying another topic then. We see all these wonderful developments at xAI like Grok, and obviously, Tesla is 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 2 that seem like there's a very high potential that they could, in fact, compete?

Well, xAI is focused on large-scale models, while Tesla is working with much smaller models. xAI is exploring real-world AI and artificial superintelligence, and the idea behind xAI originated from individuals who preferred to work on ASI rather than join Tesla AI engineers. I thought they might instead create a new company. The challenges Tesla faces are significant, though opinions on their importance vary. Instead of joining competitors like OpenAI or Google, they formed xAI, allowing them to decide whether to focus on superintelligence or real-world AI. Both areas are interesting, but preferences vary among individuals.

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.