Tesla, Inc. (TSLA) Earnings

Management highlights

### Core Vehicle and Full Self-Driving (FSD) Progress - Achieved record Q2 global deliveries; Model Y is confirmed as the best-selling vehicle of any category globally, with growing popularity across all markets. - FSD has very high take rates in markets where it is approved, and is a major demand driver for vehicle purchases: many US customers prioritize FSD access over specific vehicle model selection. FSD unsupervised Robotaxi miles are growing at a compound rate of more than 10% per week, with service already live in multiple US cities across Florida, Texas, and California. - The Robotaxi program has an impeccable safety record, with zero notable incidents over more than 380,000 miles of unsupervised operation across six US cities, validating Tesla's camera-only autonomy approach. - Early versions of FSD v15, with 40% of planned major improvements already merged, are running on the active Robotaxi fleet, with full rollout expected to deliver dramatic improvements in safety and capability. ### New Product and Production Updates - Production has started for the Tesla Semi, and is expected to start soon for Optimus (humanoid robot) and Mega Pack 3. The lithium and cathode refineries are ramping up production, battery cell production is being scaled, and plans are in place for a massive new end-to-end solar manufacturing operation, from silicon refinement to final panel deployment. - Optimus (humanoid robot) development is progressing, with Gen 3 designed to match human dexterity and functionality, leveraging the same end-to-end AI strategy used for FSD. All components are new, with no pre-existing supply chain, requiring Tesla to build most of the supply base in-house. The initial production ramp will be slow and gradual, following a long flat early S-curve, with Optimus 4 planned to target 10 million units annually of production capacity in Austin, with much higher vertical integration than Optimus 3. - CyberCab (purpose-built Robotaxi vehicle) has completed initial prototype testing, with manufacturing aligned to the projected Robotaxi fleet growth. The new chassis requires additional driving data for calibration before large-scale deployment. - TeraFab (Tesla's AI chip development and production initiative) will have its full location and plans announced separately at a dedicated event, with equipment already ordered for the Austin development fab, which will integrate lithography mask production, logic/memory manufacturing, packaging, and testing all on-site to enable rapid chip design iteration. - Digital Optimus, a general-purpose computer automation product being developed in partnership with SpaceX, leverages Tesla's existing FSD AI architecture, and is integrated into the distributed MegaPod AI compute offering that pairs Tesla AI-4 chips with X86 processors, deployable at existing Tesla Supercharger sites to utilize spare grid capacity for AI compute. ### Financial and Manufacturing Infrastructure Buildout - Tesla is in a massive capital investment cycle, with 2026 CapEx expected to exceed $25 billion, and CapEx projected to grow for the next 2-3 years to support capacity expansion for Robotaxi, Optimus, semiconductors, solar manufacturing, and AI compute infrastructure. - Operating expenses, driven primarily by R&D for new product pre-production and AI initiatives, will continue to grow through 2026 and beyond. The company has secured up to $30 billion in opportunistic debt financing to accelerate this investment cycle, while maintaining a focus on overall capital efficiency. - Net income in Q2 included a $1 billion mark-to-market gain on Tesla's SpaceX holdings, offset by $300 million in FX losses and $100 million in Bitcoin losses. Free cash flow was negative for the quarter, driven by the sequential doubling of CapEx.

Guidance

- CapEx for full-year 2026 is expected to exceed $25 billion, and CapEx will continue growing for the next 2-3 years to support capacity expansion across new product lines, semiconductors, and AI infrastructure. The company is balancing speed and capital efficiency, prioritizing faster completion of projects over maximum short-term capital efficiency, which management expects to deliver a better long-term return. - Long-term energy storage gross margins are expected to normalize to the mid-to-low 20% range. Automotive margins excluding one-time items are stable, with effective pricing and cost control offsetting higher commodity and interest rate costs. - Robotaxi fleet expansion is expected to accelerate through the second half of 2026, continuing its current double-digit weekly compound growth in unsupervised miles driven, with expansion into additional US markets. The CyberCab production ramp will accelerate only after sufficient chassis-specific driving data is collected for calibration. - Autonomy for the Tesla Semi is expected to launch around the end of 2026 or early 2027, after FSD development for high-volume passenger vehicles and CyberCab is further advanced. - An upgraded AI4 chip for FSD will enter production around mid-2027, with the AI5 chip initially entering production for Optimus also in 2027. - Demand for Megapack energy storage is expected to remain extremely strong, driven by grid balancing for renewable energy and power smoothing for large AI data center training clusters.

Segment performance

1. **Automotive**: Achieved record Q2 global deliveries, with sequential delivery growth of 60% in the Americas, 27% in APAC, and 12% in EMEA. Exited the quarter with the largest order backlog since 2023. Automotive gross margins excluding regulatory credits were 16.3%: this represented a 290 bps sequential decline, which was entirely explained by the absence of $230 million in one-time Q1 benefits from warranty true-ups and tariff relief; margins were flat when adjusting for these items. FSD reached nearly 1.5 million global paid customers, with 55% upfront purchases and 45% subscriptions, and a 55% take-rate at delivery in North America. 55% of Q2 North American deliveries included an FSD subscription activated at purchase. 2. **Energy**: Deployed 13.5 gigawatt-hours of energy storage, a 53% sequential increase, marking the second-largest quarter for the segment on record. Gross margins declined to 20.4% from 39.5% in Q1, driven by a $240 million one-time warranty charge for legacy deployments, the absence of over $200 million in Q1 tariff benefits, and expected declining ASPs for industrial storage amid rising competition. Long-term gross margins are expected to normalize to the mid-to-low 20% range. Order backlog is robust, with expected future demand growth from data centers and broader economic electrification. 3. **Service and Other**: Margins improved sequentially to 14.1% (an all-time high), up from 9.2% in Q1. Growth was driven by higher volume and improved cost management across used vehicle sales, Supercharging, service centers, and insurance. The segment also includes deliberate early investments in infrastructure to support future Robotaxi scaling.

Risks & headwinds

- Robotaxi deployment carries extreme regulatory and reputational risk: even a single serious injury or fatality would result in widespread negative press and immediate regulatory clampdowns, forcing slower scaling. Tesla is prioritizing extreme safety over rapid scaling to avoid harm to any person or animal. - Supply chain constraints (including batteries, electronic components, and specialized parts for new products like Optimus) currently limit production growth, despite active work to secure new supply agreements and unblock bottlenecks. - Optimus scaling faces fundamental supply chain challenges: all components are new, with no existing industry supply base, requiring Tesla to build an entirely new supply chain mostly in-house, which will slow the initial production ramp significantly. The production ramp for Optimus is expected to have an extended flat initial phase, meaning volume growth will be slow early on. - Rising interest rates have increased the cost of interest rate subvention for vehicle purchases, which negatively impacts automotive margins as these costs are recognized upfront as an offset to revenue. - State-level regulatory proposals for autonomous vehicles that mandate specific sensor requirements (rather than performance-based standards) could slow or limit Robotaxi expansion in some US markets.

Analyst Q&A

• Q: Andrew from RBC asks: With no existing supply chain for Optimus, are external suppliers willing to invest alongside Tesla in domestic US manufacturing to speed up scaling, and how is Tesla balancing insourcing vs external partnerships? /

  A: Tesla has received strong support from key suppliers. Samsung (Texas) and TSMC (Arizona) have each invested tens of billions of dollars to build AI chip fabrication capacity supporting Tesla's Optimus and Robotaxi programs. Panasonic has also invested billions to expand battery cell production, and Micron has provided significant memory allocations on reasonable terms amid tight memory markets. Where capable suppliers do not exist for specialized robot components, Tesla does not hesitate to insource production, leveraging its internal manufacturing engineering expertise. This partnership strategy allows Tesla to scale while balancing speed and capital efficiency.

• Q: Andrew from RBC also asks: What is Tesla's expectation for US state and federal regulation of Robotaxi, and what regulatory approach does Tesla need to enable scalable deployment? /

  A: Tesla has made significant progress at the federal level, with NHTSA moving toward accepting purpose-built autonomous vehicles without manual controls, and Tesla appreciates the collaborative relationship with federal regulators. At the state level, recent proposed rules in New Jersey that mandate specific sensors are disappointing. Tesla prefers performance-based regulation that sets safety goals and allows innovators to develop the best technology solutions, rather than rules that mandate specific technical solutions before problems are defined. Tesla will continue to rely on its proven safety performance to drive regulatory and public acceptance.

• Q: Alex from Bank of America asks: What milestones will trigger accelerated Robotaxi scaling, and will Tesla use third-party rideshare partnerships or stay vertically integrated? /

  A: Tesla plans to remain fully vertically integrated for Robotaxi, as the service economics will be so compelling that demand will outstrip supply even without third-party distribution. The only constraint on scaling is achieving incremental improvements in reliability, described as the "March of Nines" (moving toward 99.999999% reliability). Higher reliability is the key milestone that will enable accelerated fleet and market expansion.

• Q: Colin from Wells Fargo asks: Given growing collaboration between Tesla and SpaceX, does Elon Musk see a path to combining the two companies eventually, and what are the key synergies today? /

  A: Tesla cannot comment on potential combination of the companies, as any such transaction would follow formal regulatory and corporate processes. Currently, Tesla benefits from a deep partnership with SpaceX: SpaceX's Grok large language model powers Digital Optimus task management, Starlink satellite internet is being integrated into all Tesla vehicles (especially CyberCab) to provide universal connectivity that enables uninterrupted Robotaxi operation and high-quality in-vehicle entertainment that is not possible with terrestrial cellular service. Tesla also holds a minority investment in SpaceX that delivered a $1 billion mark-to-market gain in Q2 2026.