Tesla - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 revenue was $25,707M, up 2% year over year; GAAP diluted EPS was $0.66 and non-GAAP diluted EPS was $0.73, with GAAP gross margin at 16.3% and operating margin at 6.2%.
• Energy storage deployments hit a record 11.0 GWh in Q4, driving record Energy gross profit; cash, cash equivalents and investments ended at $36,563M (+$2.9B sequentially) on positive free cash flow.
• Automotive margins compressed quarter over quarter on lower ASPs and the absence of Q3 FSD revenue recognition; average COGS per vehicle fell to an all-time low under ~$35,000, partially offsetting pricing pressure.
• Management flagged near-term margin and output headwinds from a global Model Y changeover (lost production weeks) but guided to vehicle business growth returning in 2025, “more affordable” models beginning production in H1 2025, at least 50% YoY growth in energy storage deployments in 2025, and an initial launch of unsupervised FSD ride-hailing in Austin in June 2025, viewed as key stock catalysts.

What Went Well and What Went Wrong

What Went Well

• Record quarter for both vehicle deliveries (495,570) and energy storage deployments (11.0 GWh); Energy achieved record gross profit and Shanghai Megafactory construction completed to begin ramp in Q1 2025.
• Cost execution: average COGS per vehicle fell to an all-time low under ~$35,000, driven largely by raw material cost improvements, while cash and investments increased by $7.5B in 2024 to $36.6B.
• AI and technology progress: deployed “Cortex,” a ~50k H100 training cluster in Texas enabling FSD V13; management: “We’re going to be launching unsupervised full self-driving as a paid service in Austin in June”.

What Went Wrong

• Automotive margin pressure: Q4 GAAP gross margin fell to 16.3% (from 19.8% in Q3) and operating margin to 6.2%, primarily on reduced ASPs; CFO noted Q4 margin decline vs Q3 given the Q3 FSD feature revenue recognition.
• Production YoY decline: total vehicle production was 459,445 (-7% YoY), with impact to fixed cost absorption; global vehicle inventory days of supply improved but highlights throughput constraints.
• OpEx rising on AI/R&D: Operating expenses increased YoY; CFO expects OpEx to increase further in 2025 to support AI initiatives; Q4 net income included ~$0.6B mark-to-market benefit from bitcoin under new digital assets accounting.

Transcript

Travis Axelrod (Head of Investor Relations)

Good afternoon everyone and welcome to Tesla's fourth quarter 2024 Q&A webcast. My name is Travis Axelrod, the head of investor relations here at Tesla, and I am joined today by Elon Musk, Vaibhav Taneja and a number of other executives. Our Q4 results were announced at about 3:00 P.M. Central Time and the update deck we published at the same time 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 and A, Elon has some opening remarks.

Elon Musk (CEO)

Elon, thank you. So in summary, in Q4 we set a record and delivered vehicles at an annualized rate of nearly two million a year. So congratulations to the Tesla team on excellent work achieving record production and deliveries. Model Y was the best selling vehicle of any kind for 2024. That's worth noting. Not just the best electric vehicle, the best vehicle of any kind on Earth. Number one with Model Y, we are staying focused on maximizing volumes and obviously doubling down or I don't know what really. I was going to say doubling down on autonomy, but really it's like autonomy is like 10xing. Frankly, doubling is not even enough. We made many critical investments in 2024 in manufacturing, AI and robotics that will bear immense fruit in the future. Immense. Like it's in fact to such a scale that it is difficult to comprehend.

I've said this before and I'll stand by it. I see a path. I'm not saying it's an easy path, but I see a path to Tesla being the most valuable company in the world by far. Not even close, like maybe several times more than. I mean there is a path where Tesla is worth more than the next top five companies combined. There's a path to that. I mean, I think it's like an incredibly, just like a difficult path, but it is an achievable path. That is overwhelmingly due to autonomous vehicles and autonomous humanoid robots. Our focus is actually building towards that. That's what we're laying the groundwork. We lay the groundwork for that in 2024. We'll continue to lay the groundwork for that in 2025 in fact, more than lay the groundwork actually.

So, we're building the structure. We're building the manufacturing lines, and we're setting up for what I think will be an epic 2026 and a ridiculous 2027 and 2028. Ridiculously good. That is my prediction. As yet, very few people understand the value of Full Self-Driving and our ability to monetize the fleet. Some of these things I've said for quite a long time, and I know people have said, well, Elon's the boy who cried wolf, like several times, but I'm telling you, there's a damn wolf this time, and you can drive it. In fact, it can drive you. It's a self-driving wolf.

For a lot of people, their experience of Tesla Autonomy is if it's even a year old, if it's even two years old, it's like meeting someone when they're like a toddler and thinking that they're going to be a toddler forever. But obviously they're not going to be a toddler forever. They grow up. But if their last experience was like, oh, FSD was a toddler. It's like, well, it's grown up now. Have you seen it? It's like walks and talks and that's really what we've got. And it's difficult to, for people to understand this because human intuition is linear as opposed to what we're seeing is exponential progress. So that's why my number one recommendation for anyone who doubts is simply try it. Have you tried it? When's the last time you tried it?

The only people who are skeptical are those who have not tried it. So you know, a car goes. A passenger car typically has only about 10 hours of utility per week out of 168, a very small percentage once that car is autonomous. My rough estimate is that it is in use for at least a third of the hours of the week. So call it 50, maybe 35 hours of the week. And it can be used for both cargo delivery and people delivery. So even let's say people are asleep.

But you can deliver packages in the middle of the night, or resupply restaurants or whatever the case may be, whatever people need at all hours of the day or night. That same asset, the thing that these things that already exist with no incremental cost change, just a software update now have five times or more the utility than they currently have. I think this will be the largest asset value increase in human history. Maybe there's something bigger, but I just don't know what it is. And so people who look in the rearview mirror are looking for past precedent, except I don't think there is one. So. But you know, the reality of autonomy is upon us. And I repeat my advice, try driving the car or let it drive you.

So now it works very well in the U.S. but of course it will over time work just as well everywhere else. Yeah. We're working hard to grow our annual volumes. Our constraint this year, our current constraint is battery packs this year. But we're working on addressing that constraint and I think we will make progress on addressing that constraint and then things are really going to go ballistic next year and really ballistic in 2027 and 2028. So yeah. A bit more on Full Self-Driving. Our Q4 vehicle safety report shows continued year-over-year improvements in safety for vehicles. So that the safety numbers if somebody has Supervised Full Self-Driving, turn on or not. The safety differences are gigantic.

People have seen the immense improvement with version 13 and with incremental versions in version 13, and then version 14 is going to be yet another step beyond that. That is very significant. We launched the Cortex training cluster at Gigafactory Austin, which was a significant contributor to FSD advancement. We continue to invest in training infrastructure out of Texas headquarters. The training needs for Optimus, for Optimus humanoid robot, are probably at least ultimately 10x what's needed for the car, at least to get to the full range of useful roles. You can say like how many different roles are there for a humanoid robot versus a car? Humanoid robot is, has probably a thousand times more uses and more complex things than in a car.

That doesn't mean the training scales by a thousand, but it's probably, you know, 10x now you can do this progressively. So it doesn't mean like our Tesla is going to spend like $500 billion in training compute. Because we obviously train Optimus to do enough tasks to match the output of Optimus robots. And obviously the cost of training is dropping dramatically with time. But it is like it is one of those things where I think long term Optimus will be. Optimus has the potential to be north of $10 trillion in revenue. Like it's really bananas. So that you can obviously afford a lot of training compute in that situation. In fact, even $500 billion training compute in that situation would be quite a good deal. Yeah, the future is going to be incredibly different from the past, that's for sure.

We live at this unbelievable inflection point in human history. So yeah, so the proof is in the pudding. So we're going to be launching Unsupervised Full Self-Driving as a paid service in Austin in June. So you have talked with the team. We feel confident in being able to do an initial launch of Unsupervised no one in the car, Full Self-Driving in Austin in June. We already have Teslas operating autonomously unsupervised Full Self-Driving at our factory in Fremont and will soon be doing that at our factory in Texas. So thousands of cars every day are driving with no one in them. At our Fremont factory in California, they will soon be doing that in Austin and then elsewhere in the world at the rest of our factories, which is pretty cool.

The cars aren't just driving to exactly the same spot because obviously they'd all collide at the same spot. The cars are actually programmed with what lane they need to park into to be picked up for delivery. So they drive from the factory end of line to their destination parking spot to be picked up for delivery to customers. And they're doing this reliably every day, thousands of times a day. It's pretty cool. Like I said, these Teslas will be in the wild with no one in them in June in Austin. So what I'm saying is this is not some far off, mythical situation. It's literally, you know, five, six months away, five months away type of thing. And while we're stepping into putting our toe in the water gently at first, just to make sure everything's cool, our solution, our sort of.

Our solution is a generalized AI solution. It does not require high precision maps of a locality. So we just want to be cautious. It's not that it doesn't work beyond Austin. In fact, it does. We just want to put a toe in the water, make sure everything is okay, then, you know, put a few more toes in the water, then put a foot in the water with safety of the general public as well as those in the car as our top priority. With regard to Optimus, obviously I'm making these revenue predictions, predictions that sound absolutely insane, I realize that, but they are. I think they will prove to be accurate. Now with Optimus, there's a lot of uncertainty on the exact timing because it's not like a train arriving at the station.

For Optimus, we are designing the train and the station and in real time while also building the tracks. And so they're like, why did people say, why didn't the train arrive exactly at 12:05? And like, we're literally designing the train and the tracks in the station in real time. While how can we predict this thing with absolute precision? It's impossible. You know, the normal internal plan calls for roughly 10,000 Optimus robots to be built this year. Will we succeed in building 10,000 exactly by the end of December this year? Probably not. But will we succeed in making several thousand? Yes, I think we will. Will those several thousand Optimus robots be doing useful things by the end of the year? Yes, I'm confident they will do useful things.

That the Optimus in use at the Tesla factories for production design one will inform what we change for production design two, which we expect to launch next year. And our goal is to ramp up Optimus production faster than maybe anything's ever been ramped, meaning like aspirationally, an order of magnitude ramp per year. Now if we aspire to an order of magnitude ramp per year, perhaps we only end up with a half order of magnitude per year. But that's the kind of growth that we're talking about. It doesn't take very many years before you know we're making 100 million of these things a year. If you go up by, let's say a factor, you know, by 5x per year. Insane. Not 50%, 500%. So, you know, these are big growth numbers. Yeah.

But this is an entirely new supply chain, an entirely new technology. There's nothing off the shelf to use. We tried desperately with Optimus to use any existing motors, you know, any actuators, sensors, nothing worked for a humanoid robot at any price. We had to design everything from physics first principles to work for a humanoid robot. And with the most sophisticated hand that has ever been made before by far, Optimus will be able to play the piano and be able to thread a needle. This is the level of precision no one has been able to achieve. And so it's really something special. So yeah, so and my prediction long term is that Optimus will be overwhelmingly the value of the company regarding energy, back to Earth. Elon, can you come back here for a minute? Okay, back to Earth.

Energy storage is a big deal and will become. It's already super important, will become incredibly important in the future. And it is something that enables far greater energy output to the grid than is currently possible. Because the grid, the vast majority of the grid, has no energy storage capability. So they have to design the power plants to, you know, for very high peaks. And assuming that there's no energy storage, once you have grid energy storage and home based energy storage, the actual total energy output per year of the grid is dramatically greater than people think. Maybe it's, it's at least double. This will drive the demand of stationary battery packs and especially the grid scale ones to insane. Basically as much demand as we could possibly make.

So we have our second factory, which is in Shanghai that's starting operation and we're building a third factory. So we're trying to ramp output of the stationary battery storage as quickly as possible. Now there is a challenge here where we have to be careful too that we're not robbing from one pocket to take to another pocket. Because for a given gigawatt hours per year of cell output we have still. Does it go into stationary applications or mobile applications? It can't go both into both. So we have to make that trade off. Yeah, but overall, the demand for total gigawatt hours of batteries, whether mobile or stationary, that will grow in a very, very big way over time. So in conclusion, 2025 really is a pivotal year for Tesla.

When people look back on 2025 and the launch of unsupervised Full Self-Driving, true real world AI that actually works, I think they may regard it as the biggest year in Tesla history. Maybe even bigger than our first car, the Roadster or the Model S or the Model 3 or Model Y. In fact, I think it probably will be viewed as maybe the most important year in Tesla's history. There is no company in the world that is as good at real world AI as Tesla. I don't even know who's in second place. You say who's in second place for real world AI. I would need a very big telescope to see them. That's how far behind they are.

Travis Axelrod (Head of Investor Relations)

All right, great.

Thank you very much, Elon, and Vaibhav has some opening remarks as well.

Vaibhav Taneja (CFO)

Yeah, I'll talk about things on Earth. As Elon mentioned, in Q4, we set records in vehicle deliveries and energy storage deployments. In an uncertain macro environment, we were able to grow auto and energy storage volumes both sequentially and on a year on year basis. For this, I would like to thank the efforts of everyone at Tesla to make this a reality and our customers who helped us achieve this speed. Coming into the fourth quarter, our focus was to reduce inventory levels in the automotive business. We accomplished that by ending the quarter with the lowest finished good inventory in the last two years. This was a result of offering not only attractive financing options, but also other discounts and programs which impacted ASPs.

While we saw volume growth in almost all regions that we operate in, we hit a new record for deliveries in the Greater China market. This is an encouraging trend since we grew volume in a highly competitive BEV market. On the automotive margin front, we saw a quarter over quarter decline, primarily due to lower ASPs and due to the recognition of FSD-related revenue in Q3 from feature releases. Our journey on cost reduction continues and we were able to get our overall cost per car down below $35,000 driven primarily by material costs. This was despite increased depreciation and other costs. As we prepare for the transition to the new Model Y for which we recently started taking orders in all markets, all our factories will start producing the new Model Y next month.

While we feel confident in our team's abilities to ramp production quickly, know that it is an unprecedented change and we are not aware of anybody else taking the best selling car on the planet and updating all factories at the same time. This changeover will result in several weeks of lost production in the quarter. As a result, margins will be impacted due to idle capacity and other ramp related costs as is common in any launch, but will be overcome as production is ramped. We will be introducing several new products throughout 2025. We are still on track to launch a more affordable model in the first half of 2025 and we'll continue to expand our lineup from there. On a dollar for dollar basis, we believe we have the most compelling lineup today compared to the industry and it will continue to get better from here.

As always, all our products come with the best software in the industry, autonomy features and capable of full autonomy in the future. Despite the premium experience, the total cost of ownership is close to mass market less premium competitors. Energy storage deployments reached an all-time high in Q4 and resulted in but declined sequentially. This was a result of higher growth came from Megapack and Powerwall. Both businesses continue to be supply constrained and like Elon mentioned, we're trying to ramp up production with Megafactory Shanghai coming online this quarter onwards. While quarterly deployments will likely continue to fluctuate sequentially, we expect at least 50% growth in deployments year-over- year in 2025. Gross profit and margins in the service and other business was up year-over- year but declined sequentially.

This was a result of higher service center costs and lower profit from used car business. The businesses within service and other primarily support our new car business, especially through their impact on total cost of ownership. Therefore, while we manage them to be positive on a GAAP basis, we do not expect similar margins as the rest of the business. There's a lot of uncertainty around tariffs over the years. We've tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses. Therefore, the imposition of tariffs, which is very likely, and any reciprocity will have an impact on our business and profitability. Our operating expenses grew both year- over-year and sequentially. The biggest driver of the increase was R&D. As we continue to invest in AI-related initiatives.

The remaining increase came from growth in our sales capabilities and marketing efforts from Referral program. For 2025 we expect operating expenses to increase to support our growth initiatives. It is important to point out that the net income in Q4 was impacted by a $600 million mark-to-market benefit from Bitcoin due to the adoption of a new accounting standard for digital assets whereby we will take mark-to-market adjustments through other income every reporting period going forward. Our free cash flow for the quarter was $2 billion and despite CapEx increase of over $2.4 billion in 2024, we were able to generate free cash flow of $3.6 billion for the year. CapEx efficiency is something we are extremely focused on. While we have invested in AI related initiatives, we've done so in a very targeted manner to utilize the spend to get immediate benefits.

The build-out of Cortex was accelerated because of the goal to actually accelerate the rollout of FSD V13. Accumulated AI-related CapEx including infrastructure so far has been approximately $5 billion. For 2025 we expect our CapEx to be flat on a year-over-year basis. In conclusion, you know, like Elon said, 2025 is going to be a pivotal year for Tesla. There are a lot of investments which we've made and will continue to make in this coming year which will set the pace for the next phase of growth. You know, it is something which now I'm getting out of earth. It is going to be out of this world and we just are putting the right foundation and that's all I have.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much Vaibhav. Now we will move over to investor questions. Maybe we'll start with Say.com? The first question is, is unsupervised FSD still planned to be released in Texas and California this year? What hurdles still exist to make that happen? You addressed the Texas piece, I think. Already.

Elon Musk (CEO)

So yeah, I'm confident that we will release Unsupervised FSD in California this year as well, you know. Yeah. In fact I think we will most likely release Unsupervised FSD in many regions of the country of the U.S. by the end of this year, like I said, we're just putting a toe in the water, then few toes, then the foot, then leg, then, you know, make sure everything's cool. And we're looking for a safety level that is significantly above the average human driver. So it's not anywhere like much safer. Not like a little bit safer than human. Way safer than human. So the standard has to be very high because the moment there's any kind of accident with an autonomous car, this immediately gets worldwide headlines.

Even though about 40,000 people die every year in car accidents in the U.S. and most of them don't even get mentioned anywhere, but if somebody scrapes a shin with an autonomous car, it's headline news.

Vaibhav Taneja (CFO)

We want to avoid that.

Elon Musk (CEO)

It's really an excess of caution. The only thing holding us back is an excess of caution. But people can certainly get a feel for how well the car would perform as unsupervised FSD by simply having the car drive you around your city and see how many times did you have to intervene? Not where you wanted to intervene or were a little concerned, but how many times did you have to intervene for definite safety reasons? You will find that is currently very rare and over time almost never.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much. The next question is, are there any discussions with other auto companies about licensing FSD?

Elon Musk (CEO)

Yes. What we're seeing is at this point significant interest from a number of major car companies about licensing Tesla Full Self-Driving technology. What we've generally said is the best way to know what to do is take one of our cars apart and then you can see where the placement of the cameras are, what the thermal needs are of the Tesla AI inference computer. That's better than us sending some CAD drawings. And we will not burden our engineering team with laborious discussions with other engineering teams until we obviously have unsupervised Full Self-Driving working throughout the United States.

I think the interest level from other manufacturers to license FSD will be extremely high once it is obvious that unless you have FSD, you're dead.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much.

The next question is, is Optimus now mostly design locked for 2025 production?

Elon Musk (CEO)

Optimus is not design locked. So when I say like we're designing the train as it's going down the tracks while redesigning the tracks and the train stations. Yeah, it's rapidly evolving. It's rapidly evolving in a good direction. It's pretty damn amazing actually. Team's doing a fantastic job. We really have I think by far the best team of humanoid robotics engineers in the world. And we also have all the other ingredients necessary because you need a, you know, great battery pack, you need great power electronics, you need great charging capability, you need, you know, great communications, good to have Wi-Fi and cellular connectivity and of course you need real world AI and then the ability to scale that production to significant to huge levels.

So, you have to design for manufacturing the things that really, what other companies are missing is they're missing the real-world AI and they're missing the ability to scale manufacturing to millions of units a year.

Vaibhav Taneja (CFO)

I think that is an underappreciated thing. That industrialization and design is a whole different thing than making a design.

Elon Musk (CEO)

Yeah, prototypes are trivial basically. Prototypes are easy. Production is hard. I've said that for many years. The problem is that there's like those who've never been involved in production or manufacturing somehow think that once you come up with some Eureka design that you magically can make a million units a year. And this is totally false. There needs to be some Hollywood story or where they show actually the problem is manufacturing. I never even heard of one. You know, it just doesn't fit the narrative. The Hollywood thing is like, it's like some lone inventor in a garage goes Eureka and suddenly it files a patent and suddenly there's millions of units. Like I'm listening to guys, we're missing really 99% of the story. 1% is another old saying. A product is 1% inspiration, 99% perspiration. Hollywood is 1% inspiration and minus.

But forgets about the 99% perspiration of actually figuring out how to make that initial prototype manufacturable and then manufactured at high volume such that the product is reliable, low cost, consistent, doesn't break down all the time. And that is 100 times harder at least than the prototype.

Vaibhav Taneja (CFO)

Then you have to get it there, deliver it back. Yeah,

Elon Musk (CEO)

yeah, you're going to read all these regulations and resilient regulators around the world. It's pretty difficult.

Travis Axelrod (Head of Investor Relations)

Great, thank you. The next question is also Optimus related. When will Tesla start selling Optimus and? What will the price be?

Elon Musk (CEO)

Well, it may for this year we expect to just close the loop with Optimus being used internally at Tesla. Because we obviously can easily use several thousand humanoid robots at Tesla for you know, like the most boring, annoying tasks in the factory. Like the task nobody wants to do where we have to like beg people to do this task and then it's like, the robot's totally happy to do the boring, dangerous, repetitive task that no humans want to do. And that's also actually some of the easiest use cases for us to you know, have Optimus do things like you know, like load the hopper like for you know, like say in body line.

If you're like transporting, you know, pieces of sheet metal to the robot welding line for the body and you just have to nonstop take things out of one fixture to another fixture and it's a very boring job. That's the kind of thing that Optimus could do.

The guy who runs around and dumps all the weld tips in the bins.

Yeah. There's a ton of boring jobs, tedious jobs, dangerous, you know, slightly dangerous jobs that are perfect for Optimus. So we expect to use Optimus for those tasks at our factories and that'll help us close the loop for improvement. This year it's really with production version two, which I think launches sometime next year. I'd like it to be the beginning of next year, but maybe it's more like the middle of next year and we have to just with a production line that is designed for on the order of 10,000 units a month versus a thousand units a month. So when you design a production line for a thousand units a month, it takes you a while to actually reach anywhere close to a thousand units a month.

When you design for any given production output, it takes you a while to actually reach its potential. But the current line that we're designing is for roughly a thousand units a month of Optimus robots. The next line would be for 10,000 units a month. The line after that would be for 100,000 units a month. And I think probably with product with version two is a very rough guess because there's so much uncertainty here. Very rough guess that we start delivering Optimus robots to companies that are outside of Tesla in the maybe the second half of next year, something like that. But like this is such an exponential ramp that it'll go from no one's receiving humanoid robots to these things are coming out like crazy.

We can't build enough.

We're always going to be in the we can't build enough situation. Demand will not be a problem even at a high price. Then as I said, like once we start, once we're at a steady state of above 1 million units a year, I think the production. I'm confident at 1 million units a year that the production cost of Optimus will be less than $20,000. You compare the complexity of Optimus to the complexity of a car. So just the total mass and complexity of Optimus is much less than a car. So I would expect that at similar volumes to say the Model Y, which is over 1 million units here, that you'd see Optimus be, I don't know, half the cost or something like that. What the price of Optimus is is a different matter.

The price of Optimus will be set by the market demand.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much. The next question is what is the status on mass production of the Tesla Semi and how will it impact revenue at scale?

I can say that one. So we just closed up the Semi factory roof and walls last week in Reno, on schedule, which is great with the weather, you never know what's going to happen. But we're prepping for mechanical installation of all the equipment in the coming months. The first builds of the high volume Semi design will come late this year in 2025 and begin ramping early in 2026. But as we've said before, you know, the Semi is a TCO no-brainer. Like it's really similar to Optimus, you know, set by how much people pay and then you know it as a total cost of ownership. It's much, much cheaper than any other transportation you can have. So at that point when we're at scale, it will meaningfully contribute to, you know, Tesla's revenue. I think it's difficult to say how much.

Anything you want to add, Elon?

Elon Musk (CEO)

No, I mean, I do think that Tesla Semi, again with autonomy, is going to be incredibly valuable. You know that we actually have a shortage of truck drivers in America. That's one of the limiting factors on transport.

And. You know, and people are human, so they get tired and sometimes, and you know, there's, it's, you know, I have a lot of respect for truck drivers because it's a tough job, but because it's a tough job, there's not that many people that want to do it. And this actually fewer, I believe if my saying is correct, there are fewer people entering truck driving as a profession than are leaving it. Yes. So when you think. Yeah, exactly, so, so when you consider, okay, there's more people leaving truck driving as a profession than entering it. Well, we're going to have a real logistics problem as time goes by. So autonomy will be very important to meet that, that need. So like, yeah, it'll, I don't know, it's a several billion a year opportunity, which I don't know in this context is that these days.

Does $several billion a year matter? I think it does not. Nothing. It's probably, you know, it's probably like a $10 billion year thing. Yeah, it's a $1 billion a month at some point, probably, but, but it's, it's, you know, all this is going to pale in comparison to Optimus. So yeah, a $1 billion a month is, it's a lot, but it's, it's not, it's going to be like 1% of Optimus or something, you know.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much. We already covered the next question, I think. Opening remarks. So moving on. Is it expected that Tesla will need to upgrade Hardware 3 vehicles and if so, what is the timeline and the expected impact to Tesla's CapEx? I think they're referring to cost there.

Elon Musk (CEO)

They're really asking the tough questions, aren't they?

Ashok Elluswamy (Director of Autopilot Software)

I guess we, you know, we haven't stopped working on Hardware 3 yet. We are still making software releases. We released the 12.6 release recently which was like, it's like a baby V13, but it's a significant improvement compared to what they had previously.

You know, people are still finding.

Ways to distill larger models into smaller models, so we're not giving up on Hardware 3. We're still working on it. Just the releases will trail the Hardware 4 releases.

Travis Axelrod (Head of Investor Relations)

Thanks Ashok.

Elon Musk (CEO)

Yeah, I mean, I think the honest answer is that we're going to have to upgrade people's Hardware 3 computer for those that are bought Full Self-Driving. And that is the honest answer and that's going to be painful and difficult, but we'll get it done. Now I'm kind of glad that not that many people bought the FSD package.

Travis Axelrod (Head of Investor Relations)

Thanks Elon. The next question. Has Tesla given up on ramping their Solar Roof product?

Elon Musk (CEO)

No. Sorry, Mike. Oh, Mike, go ahead.

Yeah. Oh yeah, I can take it. Yeah.

Solar Roof remains a core part of the residential product portfolio, and it still remains where it draws a lot of customer interest despite it being premium products. We've worked on multiple iterations of engineering to make the product easier to install and distribute by reducing the SKU count. And you know, more recently rather than direct installation, we are focused on growth through our nationwide network of certified installers. And many of those, they've been installing Solar Roof with us for many years.

Yeah, that's actually turned out to be a much better way for the, like, is just let the roof supply product to the roofing industry, and especially when somebody's going to is getting a new roof anyway or building a house from scratch. Obviously this is by far the most efficient time to put in a Solar Roof as opposed to putting a Solar Roof on a house that, where the roof still has, you know, 20 years of life, that, that's not economically sensible. But if it's a new house or the roof needs to be replaced anyway, then Solar Roof can make a lot of sense, and it is a premium product. It's like the Model S, Model X or something. It's a premium product. I think it looks really cool.

Your house generates electricity and if you combine it with the Tesla Powerwall battery, then you can be self sufficient. Even if the grid turns off, even if the grid turns off for several days, your house still works and your roof looks awesome. It's like I recommend anyone who can afford it get the Tesla Solar Roof and the Powerwall. Your family's life might depend on it. Just in terms of convenience, you know, your kids are not going to yell at you because their computers don't work because the power went out and you can't charge your phone. True story actually happens. Yeah, you literally can't even call anyone because your phone's out of juice.

Travis Axelrod (Head of Investor Relations)

Thank you very much. The next question was covered in opening remarks, so we will skip that. And the last question from Say.com, what technical breakthroughs will define V14 of FSD given that V13 already covered photons to control?

Elon Musk (CEO)

We've been a hell of a lot further than photons to controls. We've been in sort of the nothing but neural nets situation from photons to controls for a while now. We're just improving the neural nets. I guess we could get into some of the technical details to some degree. I have to say I continue to be amazed by just how effective autoregressive transformers are at solving a wide range of problems. Ashok, is there anything you'd like to add there without giving away the sort of family secrets except for things we.

Ashok Elluswamy (Director of Autopilot Software)

Posted on X already. So continuing to scale the model size a lot. We scale a bunch in V13, but then there's still room to grow. So we're going to continue to scale the model size, we're going to increase the context length even more. The memory is limited right now. We want to increase the amount of memory, even minutes of context for driving. We're going to add audio emergency vehicles. Better add data of the tricky corner cases that we get from the entire fleet. Any interventions or any user intervention, we just add that to the data, the data set. So scaling in basically every axis, training compute, data set size, model size, model context, and also all the reinforcement learning objectives.

Travis Axelrod (Head of Investor Relations)

Great. All right, with that, we will move over to analyst questions. So just as a reminder, you will need to unmute yourself to ask your question. The first question will be coming from Daniel Roeska from Bernstein. Daniel, please go ahead and unmute yourself.

Daniel Roeska (Senior Research Analyst)

Hey, good evening, everybody. It's Daniel from Bernstein. Elon. Tesla's share price clearly already includes quite a few of the anticipated benefits you talked about today. Yet realizing what you call kind of difficult but achievable will take some time. What are you pushing the Tesla executive team to do differently now to accelerate the innovation in order to realize the value you described for the company?

Elon Musk (CEO)

I mean, we're working on perfecting real-world AI and making rapid progress week over week, if not month over month. You know, certainly month over month, but often week over week. I spent a lot of time with the Tesla AI team and the Tesla Optimus team. I mean, I go where the problem is, essentially. Like, not, you know, if something's, this is, you know. Unfortunately, sometimes, like, don't talk to a Tesla executive, like, hey, we don't see you very often. I'm like, that's because your stuff is working awesome. Your stuff is working really great. Unfortunately, I don't see them very often because I go where the problem is. So you know where the problem is. Like, what's the greatest challenge that lies ahead? So obviously there are many challenges with Optimus. It's a hard problem to solve.

Many challenges with vehicle autonomy, but we're making rapid progress in both. Yeah.

Daniel Roeska (Senior Research Analyst)

Okay. I mean, sounds like you've got a conviction that the pieces you need are in place. If we kind of go 12 months down the line and we look back and you had some of those, but maybe what are the kind of two or three KPIs that would tell you that you're on track and it's going the right way and the pieces you've put in place are the right pieces. Right. That's kind of what I'm looking for. Or other way around, where would it be off most likely in your mind that you say, hey, I need to go back there and I need to change something to enable the team better.

Elon Musk (CEO)

I mean, I think the predictions that I'm making here are going to be pretty accurate, and it's worth noting sometimes people say, oh, Elon's always late. Actually no, the problem is that the media reports on when I'm late, but never reports when I'm early. So sure, I'm optimistic, but I'm not that optimistic. There are many cases in the past where actually we've been early, you know, such as completion of the Shanghai factory or in factory completion is generally been ahead of schedule, not behind. Yeah, but like I said, I'm very confident we'll have released unsupervised Full Self-Driving, fully autonomous Teslas in Austin and several other cities in America by the end of this year. That's probably everywhere in America next year and everywhere in North America at least I think in terms of next year.

Our constraints, I think it's likely to be just regulatory. Europe really has, for example, Europe is a layer cake of regulations and bureaucracy that really needs to be addressed. You know, there's this, you know, joke like America innovates, Europe regulates. It's like guys, there's too many refs on the field. I mean for example, for us just to release supervised Full Self-Driving in Europe, even though it works really well, we have to go through a mountain of paperwork with the Netherlands, which is our primary regulatory authority. Then the Netherlands presents this to the EU and I think, maybe, and there's like this big EU country committee. We expect it to be approved at that time, but there's nothing we can do to make that happen sooner.

In fact, nobody seems to. I guess all the countries would have to somehow vote in some way to have it happen sooner than maybe otherwise it wouldn't happen sooner than me. So then when is Unsupervised FSD allowed in Europe? I'm like May next year maybe, I don't know. To find out when the EU is meeting again. Sometimes it's a 12-month cadence, sometimes a six-month cadence. Then in China, which is a gigantic market, we do have some challenges because they won't currently allow us to transfer training video outside of China and then the U.S. government won't let us do training in China. So we're in a bit of a bind there. Quandary. So the way we're solving that is by literally looking at videos of streets in China that are available on the Internet to understand.

And then feeding that into our video training so that publicly available video of street signs and traffic rules in China can be used for training and then also putting it in a very accurate simulator. And so it will train using sim for, you know, bus lanes in China. Like bus lanes in China, by the way. What about the biggest challenges in making FSD work in China is the bus lanes are very complicated and there's like literally hours of the day that you're allowed to be there and not be there. And then if you accidentally go in that bus lane at the wrong time, you get an automatic ticket instantly. So it's kind of a big deal. Bus lanes in China. So we have put that into our simulator. Train on that.

The car has to know what time of day it is, read the sign. Anyway, we'll get it solved. But you know, I think we'll have unsupervised FSD in almost every market this year, limited simply by regulatory issues, not technical capability. And then unsupervised FSD in the U.S. this year, in many cities, but nationwide next year. And hopefully we have unsupervised FSD in most countries by the end of next year. That's my prediction with the best data that I have right now.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much. The next question will come from Adam Jonas at Morgan Stanley. Adam, please feel free to unmute yourself.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

Thanks, everybody. So, Elon, you've said in the past about LIDAR for AVs, at least that LIDAR is a crutch, a fool's errand. I think you even told me once, even if it was free, you'd say you wouldn't use it. You still feel that way?

Elon Musk (CEO)

Yes.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

Care to elaborate, or just? I have another question.

Elon Musk (CEO)

Look, we even have a radar in the car and we turned it off.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

I got it. All right, so you're still. Yeah, people think you're crazy, you know.

Elon Musk (CEO)

But obviously, humans drive without shooting lasers out of their eyes. I mean, unless you're Superman, you know. But like, humans drive just with passive visual. Humans drive with eyes and a neural net and a brain neural net. So sort of biological which. So the digital equivalent of eyes and a brain are cameras and digital neural nets or AI. So that's. The entire road system was designed for passive optical neural nets. That's how the whole world system was designed and what everyone's expecting other. That's how we expect other cars to behave. So therefore that is very obviously the solution for Full Self-Driving as a generalized. For the generalized solution for Full Self-Driving, as opposed to the very specific neighborhood by neighborhood solution, which is very difficult to maintain, which is what our competitors are doing.

Yeah, yeah.

I mean, LIDAR doesn't work in the fall, guys.

LIDAR has a lot of issues I don't have. So, like, the SpaceX Dragon docks with the space station using LIDAR. That's a program that I personally spearheaded. I don't have some fundamental bizarre dislike of LIDAR. It's simply the wrong solution for driving cars on roads. Right.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

You understand how LIDAR works. I get it.

Elon Musk (CEO)

Literally designed and built our own LIDAR. I oversaw the project, the engineering of the thing. It was my decision to use LIDAR and Dragon and I oversaw that engineering project directly. So I'm like, we literally designed and made a LIDAR to dock with the space station. If I thought it was the right solution for cars, I would do that. But it isn't.

Adam Jonas (Head of Global Auto and Shared Mobility Research)

Got you. All right, just as a follow-up at CES, you said, I'm paraphrasing, that any AI will be able to do any cognitive task not involving atoms within the next three or four years. That would imply, Elon, that before the end of President Trump's term in office, that AI would be moving pretty damn quickly into the physical world, into the world of photons and atoms. I'm thinking, given your work with the administration, how confident are you that the U.S. has, will have the manufacturing and the supply base to make good on your excitement about physical AI by the end of, by latter this decade? We seem pretty vulnerable right now.

I've seen you tweeting about or, sorry, X, saying, excuse me, Elon, about China. Freudian slip about China making more drones in a day than the U.S. makes in a year, and all the entanglement of the supply. So what has to happen in the U.S. to make that possible? What's your message and what can you do about it and what's relevant for Tesla shareholders? Thanks, Elon.

Elon Musk (CEO)

At Tesla, obviously we think manufacturing is cool. SpaceX, we think manufacturing is cool. But in general, for talented Americans, they need to, beyond my companies, beyond me and the people and my teams here. In general, we need to make manufacturing cool again in America. You know, like, I honestly think people should move from like law and finance into manufacturing. That's my honest opinion. We have too much. This is both a compliment and a criticism. We have too much talent in law and engineering, law and finance in America, and there should be more of that talent in manufacturing. So.

Yeah.

I mean, at Tesla, we're making sure that we can continue to manufacture our stuff even in the event of geopolitical tensions rising to very high levels.

Travis Axelrod (Head of Investor Relations)

Great, thank you very much. The next question will come from Pierre Ferragu at New Street. Pierre, please feel free to unmute yourself.

Pierre Ferragu (Managing Partner and Head of Global Technology Infrastructure Research)

Hey, thanks guys, for taking the question. So I have a question, Elon, on deploying like robotaxis in June in Austin. So that's great news. And I was wondering if it means I can, you know, drive down to Austin in June and try unsupervised by myself with my car. Oh, it's going to be more like your fleet testing it.

Elon Musk (CEO)

It'll be our fleet testing it. That's our sort of toe in the water. You know, we'll be scrutinizing it very carefully, make sure it's not something we missed, but it will be, you know, right. Autonomous ride hailing for money in Austin in June and then as swiftly as possible, other cities in America. I expect us to be operating during unsupervised activity with our internal fleet in several cities by the end of the year. Then it's probably next year when people are able to add or subtract their car from the fleet. So, you know, kind of like Airbnb, where you can sort of add or subtract your house or your guest room. You know, you can say, like, add it to the Airbnb inventory or don't add it to the Airbnb inventory.

You know, if you're traveling for a month, you can, or whatever the case may be, you can let other people use your house. Then anyway, so like, that's probably next year because we want to just make sure we've ironed out any kinks. A lot of it is, it's not like you're not splitting the atom here. It's just a bunch of work that needs to be done to make sure the whole thing works efficiently, that people can order the car, it comes, you know, to the right spot, does exactly the right thing. All the payment systems work, the billing works. Yeah,

Pierre Ferragu (Managing Partner and Head of Global Technology Infrastructure Research)

okay, but then, like, so my follow-up question would be, you know, I have a Tesla, I have FSD, and I have to keep my eyes on the road all the time. It's super boring because I don't really need to intervene anymore. And.

The really annoying thing is that I can't just check my emails. And so are you working also on introducing, you know, like a kind of like free, unsupervised, where I could be eyes off and I would be able to check my email. And we just need to, with a five second notice, have to go back and keep an eye on what's happening. Or is that something you're working on as well? Because it feels so close with this certainty that I wonder if it's something we could expect for this year. It's very selfish question. I asked for myself, to be honest.

Elon Musk (CEO)

Yes. We just need, we need to be very confident that the probability of injury is low before we allow people to check their email and text messages. In fact, right now we're in this perverse situation which you may have encountered yourself where people will actually go to manual driving to check their text messages so the computer doesn't yell at them and then put it back on autonomous mode once they've checked the text messages, which is obviously less safe.

Significantly less safe.

Significantly less safe. Significantly less safe than just letting people check their text once in a while without the computer yelling at them. But we just want to be cautious about the advent of that. We're in this sort of neither here nor there, but just for. I mean, I think it's not for many months longer, but yeah, we're in this perverse situation where people will turn the car off Autopilot so the computer doesn't yell at them. Check their text messages while steering the car with their knee and not looking out the window.

Vaibhav Taneja (CFO)

Like Elon said. Right. If you have any problems with the system and when people are not looking, that is a dangerous thing and that's what we're trying to avoid. The capability is getting there, but it's not fully there. That's why he was using the term of dipping our toe in the water, then getting comfortable. Thank you.

Elon Musk (CEO)

Anyway, it's not far off. But we. Wouldn't want to prove to ourselves. Prove.

To ourselves and obviously prove to regulators that the car is unequivocally safer in autonomous mode than not. And that's. We're not far off. So this is like low single digit.

Vaibhav Taneja (CFO)

Moving to the safety aspect.

We did publish our vehicle safety report today, and in Q4 was one crash for every 5.9 million miles driven compared to a crash every 700,000 miles without Autopilot.

Elon Musk (CEO)

Right. So we're getting to the point where it's an order of magnitude.

Vaibhav Taneja (CFO)

Yeah, it's like 8.5 times. So it's just about there, you know, it's amazing.

Travis Axelrod (Head of Investor Relations)

Great. All righty. And our last question will be coming from Dan Levy at Barclays. Dan, feel free to unmute yourself.

Dan Levy (Senior Equity Research Analyst)

Great. Good evening.

Thank you for taking the questions. Elon, you've talked about the need for proliferation of sustainable transport in the past as part of sort of broader push to sustainable energy. I know we've heard a lot about President Trump's plans to reverse the EV mandate and I think there's a view that given regulation is a driver of EV uptake, this could slow EV uptake in the U.S. So what would be your view on the right policy in the U.S. given your comments in the past of the need to push for sustainable transport?

Elon Musk (CEO)

You know, at this point I think that sustainable transport is inevitable. I'm highly confident that all transport will be autonomous, electric, including aircraft, and that it's simply, it's, it can't be stopped any more than one could have stopped the advent of the external combustion engine, steam engine, or one could have stopped the advent of the internal combustion engine. Even if you've been the biggest horse advocate on earth, like horses all the way, not these newfangled car automobiles. You can't stop the advent of the automobile. It's going to happen and you can't, you can't stop the advent of electric cars. It's going to happen. The only thing holding back electric cars was range and that is a solved problem.

Dan Levy (Senior Equity Research Analyst)

Great. And then as a follow-up, you know, in the past, Elon, you had made a comment that, you know, you'd be willing to sell cars, effectively no margin to get the cars out there. And there's a comment in the release today of the rate of acceleration of autonomy efforts does impact volume growth. So perhaps you could just talk about, you know, with your efforts on FSD, how we should think about your desire to put more vehicles out in the market to take advantage of your, of your tech advances.

Elon Musk (CEO)

So I'm not sure I understand the question. We have a lot of cars, we've got millions of cars out there.

Vaibhav Taneja (CFO)

So, is your question then that how do we, how do we marry our future growth aspects with FSD?

Travis Axelrod (Head of Investor Relations)

And go. ahead and introduce yourself, Dan?

Dan Levy (Senior Equity Research Analyst)

Yeah, more so just how much more aggressively you would be willing to, you know, sell your cars versus, you know, in light of your improvements on FSD?

Elon Musk (CEO)

Right now the constraint we're trying to solve is battery production as opposed to demand. So you're now Q1. We've got this massive factory retooling for the new Model Y for example, that obviously has a short-term impact on output. But the problem we're wrestling with. In fact, the executive team and I were talking about just before this call was how we've got to figure out how to increase total gigawatt hours of battery production this year, one way or another. That's the constraint on our output.

Dan Levy (Senior Equity Research Analyst)

Great.

Travis Axelrod (Head of Investor Relations)

Alrighty. And with that, I think we are all done for today. So thanks everyone so much for all of your questions. We look forward to talking to you next quarter. Thank you very much and goodbye.