Earnings Call Transcript
Tesla, Inc. (TSLA)
Earnings Call Transcript - TSLA Q1 2025
Operator, Operator
Good afternoon, everyone, and welcome to Tesla's First Quarter 2025 Q&A Webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk, Vaibhav Taneja, and a number of other executives. Our Q1 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 will be providing an update. Elon?
Elon Musk, CEO
Hello, everyone. Well, there’s never a dull moment these days. Thanks for sure. Every day is going to be exciting. As some people know, there's been some blowback for the time that I've been spending in government with the Department of Government Efficiency or DOGE. I think the work that we're doing there is actually very important for trying to rein in the insane deficit that is leading our country, the United States, to destruction. And the DOGE team has made a lot of progress in addressing waste and fraud. The natural blowback from that is those who were receiving the wasteful dollars and the fortunate dollars will try to attack me and the DOGE team and anything associated with me. So, I'm really left with two choices: should we just let the waste and fraud continue? It was continuing at an unsustainable pace that was bankrupting the country or to fight the waste and fraud and try to get the country back on the right track. I believe the right thing to do is to fight the waste and fraud and work together with President Trump and his administration. Because if the ship of America goes down, we all go down with it, including Tesla and everyone else. So, I think this is critical work. Now, the protests that you'll see out there, they're very organized, they're paid for. They're obviously not going to admit that the reason that they're protesting is because they're receiving fraudulent money or that they are the recipients of wasteful largesse, but they're going to come up with some other reason. But that is the real reason for the protests—those receiving the waste and fraud wish to continue receiving it. That is clearly what is going on. Now, that said, I do think there's a large slug of work necessary to get the DOGE team in place and working in the government to get the financial house in order is mostly done. Beginning probably next month, May, my time allocation to DOGE will drop significantly. I'll have to continue doing it for, I think, probably the remainder of the President's term, just to ensure that the waste and fraud we've stopped does not come roaring back, which it will if it gets the chance. So, I think I'll continue to spend a day or two per week on government matters for as long as the President would like me to do so and as long as it is useful. But starting next month, I'll be allocating probably more of my time to Tesla now that the major work of establishing the Department of Government Efficiency is done. At Tesla, we've gone through many crises over the years and actually been through many near-death experiences. We were probably on the ragged edge of death at least a dozen times. There are certainly many times. This is not one of those times. We're not on the ragged edge of death, not even close. But, there are some challenges, and I expect that this year will have some unexpected bumps. However, I remain extremely optimistic about the future of the company. The future of the company is fundamentally based on large-scale autonomous cars and large-scale, high-volume, vast numbers of autonomous humanoid robots. The value of a company that makes truly useful autonomous humanoid robots and autonomous useful vehicles at scale at low cost, which is what Tesla is going to do, is staggering. I continue to believe that Tesla will be the most valuable company in the world by far, with excellent execution. However, that's an important 'if'—we must execute well. If we do execute well, I think Tesla will be the most valuable company in the world by far—it may be as valuable as the next five companies combined. But there will be a few bumps along the road before that happens. I said on the last earnings call that we'll start to see the prosperity of autonomy take effect materially around the middle of next year. We expect to have these fully autonomous rides for sale in June in Austin, as we've been stating for several months. The real question from a financial standpoint is when does it really become material and significantly affect the bottom line of the company? That’s probably around the middle of next year, second half of next year. Once it does start to move the financial needle significantly, it will really go exponential from there. So, I'd encourage people to look beyond the bumps and obstacles in front of us. But lift your gaze to the bright shining future down the hill—like I said, in the next year or two. With respect to supply chain risk, something that Tesla has been working on for several years is localizing supply chains. This makes sense from a cost standpoint and from a logistics risk standpoint—to have supply chains located on the continent where the car is built. So we are the least affected car company with respect to tariffs, at least in most respects. It remains to be seen. Tariffs are still tough on a company when margins are low. However, we do have localized supply chains in North America, Europe, and China, which puts us in a stronger position than our competitors. Undoubtedly, I'll get a lot of questions about tariffs, and I want to emphasize that the tariff decision is entirely up to the President of the United States. I will weigh in with my advice, which I believe the President will listen to, but it's ultimately up to him to make his decision. I've been on record many times saying that I believe lower tariffs are generally a good idea for prosperity, but this decision rests fundamentally with the elected representative of the people, the President of the United States. I will continue to advocate for lower tariffs rather than higher tariffs, but that's all I can do. Now let me walk you through why I'm so excited about the future of Tesla. First, autonomy. Our team and I are laser-focused on bringing robotaxi to Austin in June. Unsupervised autonomy will first be solved for the Model Y in Austin. We should distinguish between terms like robotic taxi or robotaxi and specifically our product called the Cybercab. The vast majority of the Tesla fleet is capable of being a robotaxi. Once we can manage the entire system to successfully have paid rides fully autonomously in one city, that's a very scalable aspect for us to expand into any jurisdiction that allows us to operate. What we’re developing is a general solution to autonomy, not a city-specific solution. Once we make it work in a few cities, we can effectively implement it everywhere in that legal jurisdiction. The advantage lies in having a generalized solution using artificial intelligence and the AI chip that Tesla designed specifically for this purpose, as opposed to relying on very expensive sensors and high-precision maps of a specific neighborhood that may change frequently and could cause the car to stop working. We have a generalized solution. With regards to Optimus, we're making good progress. We expect to have thousands of Optimus robots operational in Tesla factories by the end of this year—10 years forward. We aim to scale Optimus faster than any product, likely reaching millions of units per year swiftly, possibly by 2030 or even as soon as 2029. On the energy front, our energy business is performing very well. The Megapack enables utility companies to output far more total energy than would otherwise be possible. When you think of the energy capability of a grid, it's much more than just total energy output per year. If power plants could operate at peak efficiency for all 24 hours rather than only half or a quarter power at night, we could double the energy output of existing power plants. However, in order to achieve this, you need to buffer energy—charging a battery pack at night and then discharging it into the grid during the day. This unlocks massive potential for increased total energy output from any given grid over the course of a year, and utility companies are beginning to realize this, which is why they're purchasing our Megapacks at scale. Currently, a gigawatt-class battery is quite common, and we have numerous orders for gigawatt or greater batteries, with expectations for our energy storage business scaling to terawatts per year. Generally, first quarters of the year are tricky since this is often when people are less inclined to buy cars due to winter conditions. We chose Q1 to undertake a significant transition with the new version of the Model Y. This changeover was executed across our global factories at the same time, which was a significant transition for the world’s best-selling car, with a 1.1 million unit annual output. We commend the Tesla team for their outstanding work in managing this challenging transition. In conclusion, while we face near-term challenges, the future for Tesla is brighter than ever. Our aim is to deliver sustainable abundance with our affordable AI-powered robots. I like to think of this as creating a future of sustainable abundance for all—an ideal state where we achieve abundance in a sustainable way, beneficial for the environment. Essentially, this represents the happiest future possible. I extend my gratitude to the Tesla team for their hard work during these challenging times. I look forward to leading the team towards great success in the future.
Operator, Operator
Great. Thank you very much, Elon. Before we move on, Vaibhav has some opening remarks as well.
Vaibhav Taneja, CFO
Thanks, Elon. As Elon mentioned, in Q1, we achieved something unprecedented in the automotive industry—updating all our factories for the best-selling car in the world, all at the same time. This was not a small feat, and we're not aware of anyone else being able to execute such a significant update within a single quarter. Kudos to the team for making this happen. Additionally, we also recorded a gross profit record for our energy storage business in this quarter. Getting back into the business, there's been a lot of speculation about the reasons for the decline in our vehicle deliveries this quarter. We had previously guided that we would be updating all factories, which led to several weeks of lost production, and that indeed occurred as expected. The ripple effect of the changes led to a shortage of new Model Ys available in most markets for customers to see and experience until the last few weeks of the quarter. Additionally, vandalism and unwanted hostility towards our brand and our people adversely impacted certain markets. Despite this, we managed to sell out of the legacy Model Y in the US, China, and some other markets worldwide. We were still producing the legacy Model Y until mid to late February, and we switched over and were able to sell out during that period. Another significant accomplishment by the Tesla team. Our competitive vehicle lineup remains strong, with many vehicles recently updated. If you add in FSD, you have a personal chauffeur capable of taking you almost anywhere under supervision. There are numerous stories shared by customers about how it has improved their daily commutes, provided mobility to customers with disabilities, and enhanced the independence of older customers. Not only is FSD Supervised safer than a human driver, but it also improves the lives of those who experience it. We are actively working to share these stories on social media, so people can see how others have benefitted from this. Over to some financial details: auto margins declined sequentially mainly due to a reduction in the total number of deliveries, lower fixed cost absorption from factory changes, and lower regulatory credit revenues offset by a slight increase in pricing from the launch of the new Model Y despite incentives required to sell the legacy Model Y. Our energy storage business, as I mentioned earlier, achieved a new milestone with the highest gross profit this quarter, even despite a sequential decline in deployments. This business is crucial, especially in the current environment. For our grid to function correctly with the demands of AI and more, we need additional stability. Our approach is the simplest and best solution we are aware of to achieve this. Additionally, we've seen positive reception for the new Powerwall 3, resulting in a supply constraint. Service and other margins were slightly down sequentially, primarily due to pressures on our used car and insurance businesses. We’ll continue our journey to improve profitability in our services and collision business through enhanced labor productivity. As previously discussed, our operating expenses have risen sequentially, mainly due to our AI-related initiatives—including Optimus—as well as development costs for our vehicle programs, including Cybercabs, SEMA, and more affordable models. These expenses affect R&D. Even amid the current environment, we believe it's prudent to invest in these areas to position ourselves for the long term. These increases were mitigated by reductions in SG&A changes. Other income decreased significantly sequentially, primarily due to the Bitcoin mark-to-market loss this quarter compared to a gain last quarter, resulting in a drop of $472 million. Additionally, FX reimbursements contributed to this change. With the adoption of the new mark-to-market standard for Bitcoin, we expect increased volatility in other income, as well as FX volatility. Tariffs remain a hot topic with various impacts on our business. As Elon mentioned, we’ve been on a journey of regionalization for years. Specifically in the US, the Model Y has been rated the most American-made car on Cars.com’s Made in America index for three years now. This remarkable output reflects all the hard work done over the years, and today, about 85% of our vehicle lineup in the US is USMCA compliant. As Elon highlighted, this gives us a significant advantage over other OEMs in managing tariffs, but we are not entirely immune, especially since the Section 232 auto tariffs will become effective in May, which includes Canada and Mexico. While we’ve included Canada and Mexico in our regionalization efforts, they will have a profitability impact. Research modeling indicates this impact forecasted approximately a couple of thousand units, which aligns well with our forecasts. The tariffs impact energy significantly since we source LFP battery cells from China. We're actively commissioning equipment for local manufacturing of LFP battery cells in the US. However, the equipment we have can currently only service a fraction of our required capacity. We've also been working to secure additional supply chains from non-China-based suppliers, but it will take time. Despite the challenges from tariffs affecting the energy business, we also have a Megafactory in China that started operations in Q1, which should manage our business outside the US. Additionally, tariffs impact our capital investments. It may sound counterintuitive, but to launch manufacturing or expand lines, we must import equipment from outside the US due to limited domestic capacity. Current trade conditions mean that such equipment imports are subject to tariffs.
Elon Musk, CEO
The expense is associated with importing from China right now.
Vaibhav Taneja, CFO
Exactly. The reality is that China has the greatest capacity to supply us. Our CapEx guidance, even with the optimizations we have attempted, is forecasted to exceed $10 billion this year. We're still evaluating how to proceed further. To summarize, we do face near-term challenges due to tariffs and brand image. Nonetheless, we strongly believe that providing the best product at a competitive price will be a winning strategy, which is why we are focused on bringing more affordable models to the market soon. Production is still slated to begin in June. Furthermore, advancements in FSD-related features, including the pilot robotaxi launch in Austin later this year, should contribute to a new era of demand. I want to extend my gratitude to everyone at Tesla and our customers.
Operator, Operator
Fantastic. Thank you very much, Vaibhav. Now, we will move on to investor questions. We will start with questions from say.com. First question is, what are the highest risk items on the critical path to robotaxi launch and scaling?
Ashok Elluswamy, Director of Autonomy
It is Ashok.
Elon Musk, CEO
Sure. Let’s talk about Cybercab as distinct from robotaxi once again. The Teslas expected to be fully autonomous in June in Austin are likely Model Ys, which are currently on track to offer paid rides fully autonomously in Austin. While it's challenging to predict the exact ramp week by week and month by month, it will ramp up rapidly, likely following an S-curve trajectory where the end point is clear: the vast majority of the Tesla fleet being autonomous. I believe we will see large-scale autonomy by mid-next year, but certainly in the second half of next year, envisioning millions of Teslas operating fully autonomously then. It's becoming increasingly apparent that to handle specific localized parameters, particularly in regions with challenging weather, we will need tailored solutions. However, I’d categorize this as a 'nice-to-have' rather than a requirement. Ultimately, the car behaves much like a human, with the same strengths and weaknesses. Ashok, would you like to elaborate?
Ashok Elluswamy, Director of Autonomy
Regarding location-specific models, we maintain a generalized approach, as evidenced by FSD Supervised deployment in China with minimal locality-specific data. The models generalize remarkably well across different driving styles, affirming that our AI-based solution is superior. Had we opted for previous rule-based or more hard-coded HD map solutions, it would’ve taken much longer to adapt to different regions. Our model consistently adapts for diverse tasks by employing a mixture of expert techniques. In terms of addressing the critical components that must be correct, validation is vital. Self-driving presents a long-tail problem with many rare edge cases. Currently, we are driving around Austin with our QA fleet, but interventions that are critical for robotaxi operation seldom occur. Thus, we can go days without a single intervention, making it difficult to measure our progress. We require sophisticated simulations, including neural network-based video generation, to ensure product safety and assess our performance even when driving near our test block.
Elon Musk, CEO
In basic terms, let’s say we observe an accident every 10,000 miles, implying you would need to drive 10,000 miles before encountering an accident or intervention. The sheer volume of Teslas currently operating in Austin should yield an impressive dataset.
Ashok Elluswamy, Director of Autonomy
Yes, many people are capturing our vehicles on their phones.
Elon Musk, CEO
Indeed, it's quite a sight to see. Recently, one customer autonomously navigated a Tesla down a precarious, narrow mountain road without barriers. It’s courageous, and the Tesla successfully managed it.
Operator, Operator
Great. Thank you. The question pertained to Cybercab specifically; we're currently in B sample validation.
Elon Musk, CEO
Yes, indeed, we anticipate our initial significant builds later this quarter in Q2, with large-scale equipment installations taking place in Giga Texas, remaining on schedule for production next year.
Operator, Operator
Also, to clarify, there are no new buildings being constructed; the Cybercab will be produced in the same factory.
Lars Moravy, VP of Vehicle Engineering
Production is ongoing without interruption while we also continue building Model Ys and Cybertrucks daily.
Elon Musk, CEO
It’s worth noting that the Tesla Gigafactory in Austin is three times the size of the Pentagon.
Lars Moravy, VP of Vehicle Engineering
Yes, including the gardens.
Elon Musk, CEO
I visited the Pentagon recently and thought it looked large until I visited our factory.
Operator, Operator
Great. Thank you very much. The next question is, when will FSD Unsupervised be available for personal use on personally-owned cars?
Elon Musk, CEO
Before the end of this year. We want to be cautious. At Tesla, we prioritize safety and go to great lengths to ensure our vehicles have the lowest accident rates. We want our autonomy to be categorically safer than manual driving, and we’re ensuring that any concerns are addressed meticulously. I anticipate that we will be able to operate safely across many cities by year's end.
Operator, Operator
Great. Thank you very much. The next question is: is Tesla still on track for releasing more affordable models this year? Or will you be focusing on simplifying versions to enhance affordability similar to the rear-wheel drive Cybertruck?
Lars Moravy, VP of Vehicle Engineering
Yes, we're still planning to release models this year. As with all launches, we are working through last-minute issues that have appeared. I would say that the ramp may be a bit slower than initially hoped, given the current tumult in the industry. Nonetheless, there’s nothing deterring us from starting production within the timeline I outlined in the opening remarks. It's crucial to emphasize that full utilization of our factories is the key priority for these new products. Our flexibility in design is limited by existing lines rather than establishing new ones. The goal remains low cost of ownership; monthly payments are a significant differentiator, which is why we’re committed to presenting these new models at the lowest possible price.
Operator, Operator
Great. Thank you very much. The next question is: Does Tesla see robotaxi as a winner-takes-most market? As you approach the Austin launch, how do you expect to compare against Waymo's offering, particularly regarding pricing, geofencing, and regulatory flexibility?
Elon Musk, CEO
The issue with Waymo's vehicles is that they are significantly more expensive, produced at lower volumes. Teslas likely cost about 20-25% compared to a Waymo vehicle and are made at scale. Ironically, we have staked our claim on the idea that a pure AI solution with cameras is the correct approach. Waymo's decision to use an expensive sensor suite is notable, even considering Google's strong capabilities in AI. Currently, I don't see any competitor being able to challenge Tesla effectively. Naturally, this could change, but at the moment, we expect to achieve a dominant market share—imagine 99% or more. Assuming we deploy millions of cars next year, unless competitors manage to deploy similar numbers, our scale will be difficult to match.
Ashok Elluswamy, Director of Autonomy
Additionally, we’re not merely developing a software solution; we are manufacturers. Waymo relies on retrofitting other manufacturers' vehicles, while we have the advantage of both extensive experience and an established fleet that can be autonomously transformed with software updates.
Elon Musk, CEO
To clarify, the Model Y we are discussing as being autonomous in Austin in June is the same Model Y currently produced. Our cars operate autonomously from the factory to the end of the line and with further software updates, will drive themselves to customer homes from our factories in Austin and Fremont without intervention.
Vaibhav Taneja, CFO
In fact, they can already drive autonomously from factory to endpoint once ready for delivery.
Lars Moravy, VP of Vehicle Engineering
The logistics yard is located on an open site, ensuring visibility and ease of access for vehicles.
Elon Musk, CEO
Indeed, we've had numerous people capture footage of Teslas autonomously navigating.
Operator, Operator
Great. Thank you very much. The next question is: can you provide an update on the unboxed manufacturing method and its progress?
Lars Moravy, VP of Vehicle Engineering
Absolutely. As previously mentioned, this relates directly to our Cybercab manufacturing process and innovations contributing to lower production costs and significantly increased levels of automation—yields rarely, if ever, seen in vehicle manufacturing today. In recent months, we've concentrated on increasing the accuracy of component assembly and reducing the risk of corrosion on uncoated aluminum structures. We've conducted preliminary crash tests and can assure that the results align with our safety protocols. Our upcoming builds for the Cybercab product will present the next significant opportunity to test full-scale integration using this unboxed process.
Elon Musk, CEO
It is important to note that although production rates will not be instantaneous, this represents a revolutionary approach. The term 'unboxing' could imply unwrapping technology when the reality is that we’re profoundly reinventing how we manufacture vehicles altogether. Thus far, no car has been produced globally in this manner. The manufacturing process is as much a part of the product as the vehicle itself.
Ashok Elluswamy, Director of Autonomy
We also intend to incorporate some of these innovations into existing production lines, especially the Cybertruck.
Elon Musk, CEO
This is a concept I've been considering for a long time. While some may perceive producing a vehicle every five seconds as rapid, it would occur at walking speed.
Lars Moravy, VP of Vehicle Engineering
That’s accurate. In fact, Shanghai's Phase 2 line operates at 33 seconds per vehicle.
Elon Musk, CEO
Yes, we're confident that our newly optimized design will eventually allow for cycle times reaching five seconds or less.
Operator, Operator
Great. Thank you very much. The next question is: How is Tesla positioning itself to flexibly adapt to global economic risks, including tariffs and political biases?
Vaibhav Taneja, CFO
As Elon mentioned, our team has been working on this for a while and continues to mitigate global economic risks like tariffs and political biases by regionalizing our supply factories in North America, Berlin, and Shanghai. For example, in North America, our high-volume vehicle programs boast over 85% local content, while those in Shanghai have over 95%. In Berlin, we achieve similar levels of regionalization when excluding the battery; we are also working to regionalize the battery. This pre-pandemic strategy has been accelerated post-pandemic through continuous diversification of our supply chain and the establishment of local partnerships to ensure resilience in the supply chain and production stability. That said, we are not entirely insulated, as tariff rates remain higher on our low-volume platforms than on our high-volume ones.
Elon Musk, CEO
There is no more vertically integrated car company than Tesla. We are arguably the most vertically integrated car company since Henry Ford, when they were doing everything from mining iron to rubber production. We're not at that level yet, but we do have a lithium refinery in South Texas. I believe it is the largest lithium refinery outside of China, and we are looking at expanding and building more. Additionally, we have a cathode refinery located next to our Gigafactory in Austin. We still need to address anode production, which has been a subject of ongoing discussion. Ultimately, the ideal would be to eliminate the anode altogether. In the production of lithium batteries, we require the anode, cathode, lithium, and electrolytes, which makes producing the cells complex. However, no other car manufacturer has both lithium and cathode refineries. Our vertical integration positions us well to handle supply chain disruptions.
Unidentified Company Representative, Company Representative
For our in-house cells, we have multi-sourced every component, ensuring that every path draws from at least two different countries. Our supply chain team and engineering division have collaborated on this for several years, setting us up to take advantage of the situation effectively. These supply chain enhancements buffer our operations against disruptions.
Elon Musk, CEO
We also manufacture our own cells, and if all elements—including anode, cathode, lithium electrolytes—can be produced harmoniously, we will achieve a competitive edge that no single organization solely focused on cell production can match.
Unidentified Company Representative, Company Representative
We are making substantial progress, balancing our in-house production with overseas partnerships to further enhance our overall production capabilities.
Lars Moravy, VP of Vehicle Engineering
To Elon’s point, regionalization has significant advantages. Maximizing working capital and minimizing the risks associated with design changes during transit are critical. During COVID, we observed that port disruptions lead to costly production delays, reinforcing the necessity of regionalization. If one region falters, we can utilize our other operational nodes. Although setting up diversified operations is important initially, it is essential when crises arise. However, it is unrealistic to achieve 100% regionalization for specialized components such as semiconductors. Our teams collaboratively work with partners to ensure strategic buffers are in place, ensuring production isn’t interrupted.
Unidentified Company Representative, Company Representative
For components such as magnets that are vital for certain vehicles, we have been investing years into securing alternative sources to minimize dependency. We remain committed to efficiently transitioning to domestic sources as we advance.
Operator, Operator
Great. In relation to the battery supply side, is Tesla still battery supply constrained as noted on the Q4 call, and will that change under current tariffs?
Karn Budhiraj, Battery Supply Chain Manager
We have been aggressively working to increase our battery cell production in the US, both with vendors and through our own 4680 program. Our strategy has been focused on transitioning the upstream supply chain for battery cells to the United States over the past several years, and that strategy is now beginning to yield results. As of now, we are no longer constrained by battery cell supply for vehicles. However, recent tariffs do pose challenges for Tesla Energy, but we anticipated these challenges and have a pathway to resolve them quickly. We also have additional sources coming online to fill in any shortfalls.
Operator, Operator
Great. Thank you very much. The next question is: Did Tesla experience any meaningful changes in order inflow rate in Q1 related to brand damage rumors?
Unidentified Company Representative, Company Representative
As previously mentioned, we successfully managed to ramp up production of the best-selling car within eight weeks across our global factories, and despite external pressures, Tesla remained the best-selling car—not just EV—in California through Q1. Notably, we also recorded a record number of global test drives in that quarter. Interest remains high, and our vehicle demand continues to demonstrate resilience despite external factors.
Elon Musk, CEO
Tesla is somewhat insulated from broader automotive demand fluctuations. During uncertain economic periods, many consumers tend to halt large capital purchases like cars. Yet, aside from macroeconomic challenges, we haven’t observed any significant decline in demand.
Unidentified Company Representative, Company Representative
Correct, and our focus on affordability will continue to define our engagement in this competitive environment.
Operator, Operator
Fantastic. Thank you. The next question refers to the Tesla Optimus pilot line—could you confirm if it is currently operable, and what is the current weekly production rate of Optimus bots? How might recent tariffs impact scalability of this production line going forward?
Elon Musk, CEO
I want to underscore that Optimus is still primarily a development program and not yet geared towards large-scale production. This year, we expect to produce thousands of Optimus robots; however, that production will peak later in the year. Nearly every aspect of Optimus production is novel, from the motors and gearboxes to the electronics and actuators—everything is unique. Therefore, production speeds are reliant on resolving each supply chain challenge as they arise. The actuation mechanism of Optimus arms depends on permanent magnets, and recent supply issues stemming from China may affect ramp rates. We hope to navigate these complexities soon; by year’s end, we expect to have thousands of Optimus robots ready.
Operator, Operator
Great. Thank you very much. The last question pertains to robotaxi—it’s already been answered earlier regarding timelines. We’ll now transition to analyst questions. The first question comes from Pierre at New Street. Pierre, please unmute yourself.
Pierre Ferragu, Analyst
Hey, guys. Can you hear me?
Elon Musk, CEO
Yes.
Pierre Ferragu, Analyst
That's great. I'm super excited to hear about robotaxi and Optimus becoming a very tangible future for Tesla. But I have a question regarding the existing auto business. Reflecting on the ramp of Model 3 years ago, it truly felt like the 'iPhone of cars'—a product that reinvigorated the market with an unmatched user experience, significantly expanding the high-end market share for smartphones. Looking at the Model 3 and Model Y today, they still appear superior to other cars, yet they’ve only captured about 15% of their total addressable market—why do you think that is? Furthermore, what do car buyers currently opting for brands like BMW or Mercedes desire that the Model 3 or Y are missing? What strategies are you exploring to overcome these barriers?
Elon Musk, CEO
The reality is that, in the future, most people will not own cars. One could liken it to the early days of smartphones, where many flip phone manufacturers strived to churn out various versions. The key mistake made by these manufacturers was failing to recognize the imminent death of the design variants—they should have invested in creating a singular, groundbreaking device, like the iPhone. Looking ahead, purchasing a gasoline car that is not autonomous will soon resemble riding horses while using flip phones—there will always be some individuals who continue to do so, but their numbers will be increasingly rare.
Operator, Operator
Great. Thank you. The next question comes from Emmanuel Rosner at Wolfe. Emmanuel, please unmute yourself.
Emmanuel Rosner, Analyst
So, Elon, the public version of the FSD software still requires a fair amount of human intervention. What’s still needed on your end to reach a point where supervision won’t be required? I’m asking considering the June rollout is just a couple of months away. What still needs to happen?
Unidentified Company Representative, Company Representative
We’re currently addressing a range of specific challenges.
Elon Musk, CEO
Indeed. We are diligently working to minimize those interventions that we see occur periodically. An initial rollout city permits greater focus on the unique issues at hand; for example, in Austin, we amass a broad list of challenges to tackle. We aim to enhance our system’s reliability, particularly regarding redundancies—especially if any of our computer systems fail during operation.
Unidentified Company Representative, Company Representative
We aim to eliminate reliance on remote operators whenever possible, but they are a backup solution.
Operator, Operator
Great. Thank you very much. The next question comes from Edison at Deutsche Bank. Edison, please unmute yourself.
Edison Yu, Analyst
Hi. Thank you for the question. I wanted to ask about the Optimus supply chain moving forward. You mentioned a rapid ramp-up—what does that look like? Will it require even more suppliers to come to the US because of tariffs? How do you envision that supply chain developing?
Elon Musk, CEO
That’s a great question, though I don’t have all the answers just yet. We are undertaking significant efforts to establish a local supply chain, and we are currently the most localized of any manufacturer. We have many initiatives in place to enhance localization further to reduce geopolitical supply chain risks. Do you have a follow-up question?
Edison Yu, Analyst
Yes, I want to circle back to the robotaxi—how many vehicles do you anticipate for the initial rollout and how quickly do you expect to ramp up? Is it reasonable to assume that by late June or July I could request a robotaxi in Austin?
Elon Musk, CEO
We are still fine-tuning the initial number to start. Perhaps on day one, we'll have around 10 to 20 vehicles available, with expectations for rapid growth thereafter. We want to ensure that we are paying very close attention as we commence. You should be able to request a Tesla for autonomous driving in Austin from the end of June or early July.
Operator, Operator
Great. The next question comes from George at Canaccord.
George Gianarikas, Analyst
Thank you for taking my question. Regarding FSD pricing, do you envision a multi-tiered pricing structure for unsupervised versus supervised versions similar to your previous approach with autopilot and FSD?
Vaibhav Taneja, CFO
It’s definitely a consideration we’re exploring. Our FSD users generally feel the software is extremely competitively priced given its capabilities. For many, it feels like they have their private chauffeur for just $99.
Elon Musk, CEO
Indeed, users need to understand the extent of the vehicle's potential. Right now, the focus of the FSD system is keeping them linked to the road. However, in due course, we intend to modify the constraints so people can comfortably engage in activities like re-reading texts. The moment our cars offer such freedoms, the current $99 will seem like a bargain of a lifetime.
George Gianarikas, Analyst
I’d like to follow up on geographic expansions, particularly regarding any recent developments on entering markets like India. Can you discuss upcoming plans there?
Vaibhav Taneja, CFO
We’ve been actively exploring entry into India, which poses unique challenges. Current tariffs mean that every vehicle imported into India faces a hefty 70% tariff as well as a 30% luxury tax. Consequently, a car that costs $100,000 here may price out consumers significantly higher, raising concerns about affordability. We’re cautiously navigating this landscape to confirm the right timing for market entry without overwhelming anxiety for consumers. India represents a significant opportunity for us due to its sizable middle class, and we are eager to tap into that market, but current obstacles necessitate careful strategy.
Operator, Operator
Great, thank you so much. The next question comes from Adam Jonas at Morgan Stanley. Go ahead, Adam.
Adam Jonas, Analyst
Hi, thank you very much for the question. In the February interview with Joe Rogan, Elon, you spoke about the need for gradual tariff increases, claiming it would enable adjustment time; otherwise, the system would “break” and negative repercussions would follow. Are we seeing those repercussions unfold yet? If these announced tariffs persist, when should we expect issues to manifest?
Elon Musk, CEO
At the risk of being direct, I’m one of many advisors to the President and not the final decision-maker. I have communicated my stances and analysis effectively, and while I hope my predictions hold true, the President speaks with many individuals and ultimately makes the final call. I remain a proponent of predictable tariff structures and free trade, but there's a need for strategic countermeasures if any country engages in predatory practices. Thus, I see each situation as unique and dependent on current events.
Adam Jonas, Analyst
Thank you for your insight, Elon. Just as a follow-up, I wanted to know your perspective: between China and the United States, who is advancing further in the realm of physical AI—specifically in humanoids and drones? How do they compare?
Elon Musk, CEO
I think it's pretty clear regarding drones. A friend of mine, Naval, made an insightful point: Any country unable to manufacture its own drones risks being subjugated by those that can. The US presently cannot manufacture its drones and thus holds dependency on China, which produces around 70% of all drones, employing a near-total supply chain dependency. Concerning humanoid robots, I have confidence that no company rivals Tesla or SpaceX. However, I fear that several Chinese companies may rank among the next ten leaders.
Operator, Operator
Great. Well, that unfortunately wraps up our time for today. We appreciate all your questions and look forward to talking to you next quarter. Thank you very much, and goodbye.