Travis Axelrod
Great, thank you very much, Elon. Before we move on, Vaibhav has some opening remarks as well.
Vaibhav Taneja
Thank you, Trav. As Elon mentioned, in Q1, we achieved something which has never been undertaken in the automotive industry of updating all our factories for the best-selling car in the world all at the same time. And this is -- people don't understand this was not a small feat. We're not aware of anybody else being able to do the best-selling car all at once within a quarter, and that to hitting all the timelines which we had established at the beginning. So big kudos to the team for making this happen. Additionally, we also hit a record gross profit for energy storage business in the quarter.
Now, getting back into the business. There's been a lot of speculation as to the reasons for decline of our vehicle deliveries in the first quarter. We have previously guided that we will be updating all factories, and this will lead to several weeks of lost production, which did happen as that.
The ripple effect of the change is not having enough new Model Y available in most markets for people to see and experience till the last few weeks of the quarter.
Additionally, the negative impact of vandalism and unwarranted hostility towards our brand and our people had an impact in certain markets. Despite this, we were able to sell out legacy model Y in the US, China, and a few other markets within the world. And again, just so people understand, we were producing the legacy Model Y till middle to end of February. And we switched over and we were able to still sell out within that period. So again, big achievement by all the people that just start to make it happen.
We've been extremely -- we have a very extremely competitive vehicle lineup, which with most vehicles going through a recent update. And after that, advances in FSD, you have a personal chauffeur, which can take you almost anywhere under supervision.
There are numerous stories shared by customers ranging from how it has improved their daily commute, to providing mobility customers with disabilities, to giving older customers the ability to travel comfortably and independently. Not only is FSD supervised safer than a human driver, but it is also improving the lives of individuals who experience it. And again, this is something you have to experience, and anybody who has experienced just knows it. And we've been doing a lot lately, try and get those stories out, at least on X, so that people can see how other people have benefited from this.
Now, coming into some of the financial stuff. Auto margins declined sequentially, primarily due to the reduction in the total number of deliveries, lower fixed cost absorption due to factory changeovers and lower regulatory credit revenues, offsets by a slight increase in pricing due to the launch of new whole line despite incentives which we had to sell legacy Model Y.
The energy storage business, like I said before, has achieved yet another milestone of the great highest gross profit in the quarter. This was despite sequential decline in deployments. The importance of this business, as Elon mentioned, is pretty profound, especially in this environment because if -- in order for grids to work properly with the demands for AI and all this, you need some more stability, and this is by far the simplest and best solution which we are aware of, which can help do this. And we've also developed certain unique solutions to help our customers to achieve this.
Additionally, on the Powerwall side, we've been selling the new Powerwall 3, and it's been received with very good reception from customers and to the extent that we are currently supply constrained.
On services and other margins, they were slightly down sequentially, primarily because of the pressure on a used car business and insurance business. Note that we continued our journey to improve profitability in our services and collision business through better labor productivity.
As previously discussed, our operating expenses continue to increase sequentially, primarily due to our AI related initiatives, including Optimus, and also cost of development for vehicle programs including Cybercabs, Semi, and cheaper models. These expenses flow to RD.
We believe even in the current environment, it is the right strategy making investments in these areas position us for the long term. These increases were offset by decreases in SG&A from changes in our vehicle airflow program.
Other income reduced significantly on a sequential basis. The primary reason was bit Bitcoin mark-to-market loss in Q1 versus gain in Q4, resulting in a $472 million drop. The remainder of the change is because of FX measurement. With the adoption of the new mark-to-market standard for Bitcoin, we expect increased volatility in other income in addition to the effects of utility.
I know tariffs is the hottest topic which people talk about, and it has various impacts to our business. And as Elon mentioned, on the vehicle business, we've been on this journey of regionalization for years. Specifically in the US, Model Y has been rated the most American model made car on carstock.com made in America index three years ago. This part is of all the work which team has been doing over the years. And to the extent that today, if you look at our vehicle lineup in US, we part approximately on a weighted average basis, 85% USMCA compliant.
So, like Elon said, this definitely gives us a bigger edge as compared to our other OEMs in terms of managing the tariffs, but we're not immune because when the Section 232 auto tariffs become effective in May, which includes Canada and Mexico, and Canada and Mexico has been part of our regionalization study, they will have an impact on profitability. And I know research modeling on this in fact has been about a couple of thousands, which is pretty much in line with what we've been forecasting.
The impact of tariffs on the energy business will be outsized since we source LFP battery cells from China. We're in the process of commissioning equipment for the local manufacturing of LFP battery cells in the US. However, the equipment, which we have, can only service a fraction of our total install capacity at (inaudible)
We've also been working on securing additional supply chain from non-China based suppliers, but it will take time.
Also note that Megapack, irrespective of all the impact on US from our energy from tariffs on the energy business, we do have mega factory China, which just started operations in Q1, and that should take care of our business outside of US.
There's also an important impact of tariffs on our capital investments. I know this is going to sound counterintuitive since in order to onshore manufacturing or expand lines, we have to bring equipment from outside the US because there is not that much capacity in the US. And the current trade environment such equipment being brought in this objective --
Elon Musk
The expense of bringing it in from China right now.
Vaibhav Taneja
Exactly. And the reality is that China has the basic one, which has the most capacity to provide these things.
Our CapEx guidance, inclusive of modern tariffs, even with the optimization we've tried to do. It is forecasted to be still in excess of $10 billion this year. We're still evaluating what more to do on this one.
To summarize, we have near-term challenges in our business due to tariffs and brand image. I think our strategy of providing the best product at a competitive price is going to be a winner, and this is the reason we're still focused on bringing cheaper models to market soon. The startup production still planned for June.
Additionally, the advancement in FSD related features, including pilot Robotaxi launch in Austin later this year, should help create a new air of demand. I would like to thank everyone at Tesla and our customers.
Travis Axelrod
Fantastic. Thank you very much, Vaibhav.
Travis Axelrod
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
This is Ashok.
Travis Axelrod
Yeah. We've got Ashok on the line.
Elon Musk
Sure. Well, just backed by the disambiguate the Cybercab from Robotaxi once again. So the -- when will Teslas -- because the Teslas that will be fully autonomous in June in Austin are fully Model Ys. So that is -- it's currently on track to be able to do paid rides fully autonomously in Austin in June, and then to be in many other cities in the US by the end of this year.
It's difficult to predict the exact ramp sort of week by week and month by month, except that it will ramp up very quickly. So it's going to be like some based an S-curve where it predict the intermediate slope of the S-curve, but you kind of know where the S-curve is going to end up, which is the vast majority of the Tesla fleet being autonomous. So that is why I feel confident in predicting large-scale autonomy around the middle of next year, certainly the second half next year, meaning I bet that there will be millions of Teslas operating autonomously, fully autonomously in the second half of next year.
But it does seem increasingly likely that there will be a localized parameter set that especially for places that have a very snowy weather, like I say, if you're in the Northeast or something like this -- you can think of -- it's kind of like a human. Like you can be a very good driver in California but are you going to be also a good driver in a blizzard in Manhattan? You're not going to be as good. So there is actually some value in you still drive but your probability of an accident is higher. So it's increasingly obvious that there's some value to having a localized set of parameters for different regions and localities.
But this is -- that put that in a nice-to-have category. It's not the required category. Really, the car is just very much like a human. It's digital neural nets and cameras, and humans operate with biological neural nets and eyes. And so the same strengths and weaknesses will be present for the age of digital neural net and cameras versus a neural net and eyes.
Ashok, would you like to elaborate on that?
Ashok Elluswamy
Yeah. And speaking to the location-specific models, we still have a generalized approach. And you can see that from our deployment of FSD supervised in with this very minimal data that's China-specific, the model is generalized quite well to completely different driving sites. That just like shows that the AI-based solution that we have is the right one because if you had gone down the previous rule-based solutions, sort of like more hard-coded SDMA-based solutions, it would have taken like many, many years to get China to work. You can see those in the videos that people post online themselves.
So the generalized solution that we are pursuing is the right one that's going to scale well. And you can think of this like location-specific parameters that you don't like a mixture of experts. And if you are sort of familiar with the AI models, Grok, and others, they all use the mixture of experts to sort of specialize the parameters to specific tasks while still being general. This makes the come -- the model to use amount of compute to solve for the task that it has to solve.
In terms of addressing the question that asked for what are the critical things being to get right, one thing I'd like to note is validation. Self-driving is a long-tail problem where there can be a lot of edge cases that only happen very, very rarely.
Currently, we are driving around in Austin using our QA fleet. But then, it's super rare to get interventions that are critical for Robotaxi operation. And so going to go many days without getting a single intervention. So you can't easily know whether you are improving or regressing in your capacity.
And we need to build out sophisticated simulations, including neural network-based video generation. That's all happening in the background to make sure that we deliver a safe product, and we are able to measure our safety even though we can't just driving around the block or something like that.
Elon Musk
I mean, very basic terms, if that -- if we're seeing an accident every 10,000 miles, well, then you have to drive 10,000 miles on average before you get in an accident or an intervention. So it's like okay. I mean, we must be really -- you don't have to be very worked up by the sheer number of Teslas doing in Austin right now. We like it's good look pretty bizarre.
Ashok Elluswamy
Some people are checking at --
Elon Musk
There's just always a convoy of Teslas going -- just going all over to Austin in circles. But yeah, I just can't emphasize this enough. In order to get a figure on the long-tail things, it's 1 in 10,000, that says 1 in 20,000 miles. We're 1 in 30,000. The average person drives 10,000 miles in a year. So not trying to compress that test cycle into a matter of a few months. It means you need a lot of cars doing a lot of driving in order to compress that to do in a matter of a month where we normally take someone a year.
I would just also add that if you haven't looked at those videos coming out of China, people are --
Elon Musk
Yes, those videos are amazing.
Yes, they're putting it to real test. I mean, the --
Elon Musk
I think the Chinese consumer might be the American and let me -- actually, customers in China are awesome. They have a lot of fun with the cars. I saw one guy take a Tesla on autonomous -- on a narrow road across like a mountain. And I'm like, still a very bright person. And I said this driving along the road with no barriers where he makes a mistake, he's going to plunge to his doom. But it worked.
Travis Axelrod
Thank you. And if the question was on Cybercab itself, we're a sample validation now.
Elon Musk
Yes, we should ask that question, too.
Lars Moravy
Yes, we have our first -- just like big builds coming at the end of this quarter in Q2. And then in the coming months, we'll start to large scale installation of all equipment in Giga Texas with still on schedule for production next year.
Ashok Elluswamy
Yes. And I just want to also to clarify because I think people don't understand the thing that there's no new building being built and where is Cybercab going to factory.
It's happening, and people don't know it's happening upstairs and along lines while we're still building the Model Ys and Cybertrucks every day.
Elon Musk
Yeah. So it's worth noting that the Tesla Gigafactory at Austin is three times the size of the Pentagon.
Including the garden.
Elon Musk
Yeah, including the ground zero garden. So heading on this building used to look big, but then you won't --
Travis Axelrod
Great. Thank you very much. The next question is, when will FSD unsupervised be available for personal use on personally owned cars?
Elon Musk
Before the end of this year. Not necessarily -- I say within the US, like we do want to test -- at Tesla, we're absolutely hardcore about safety. We go to great lengths to make the safest car in the world and have the lowest accidents per mile in. So -- and look, (inaudible) last. So we want to be very careful.
So we're trying to meet to be definitively safer than manual driving. So it's not enough that it just be as safe. It needs to be meaningfully safer than if it's cars mainly driven. And we want to confirm that there's not something -- we just want to be cautious with the rollout. We don't want to jump in at the deep end with.
So with that said, I think we should -- people should -- we should be able to have it work in several cities later this year for personal use. So the acid test being you should -- can you go to sleep in your car and wait until your destination? And I'm confident that will be available in many cities in the US by the end of this year.
Travis Axelrod
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
Yeah, we're still planning to release models this year. As with all launches, we're working through like the last-minute issues that pop up. We're not getting down one by one. At this point, I would say that ramp maybe might be a little slower than we had hoped initially, but there's nothing, just kind of given the turmoil that exists in the industry right now. But there's nothing blocking us from starting production within the next -- within the time line laid out in the opening remarks.
And I will say, it's important to emphasize that as we've said all along, the full utilization of our factories is the primary goal for these new products. And so flexibility of what we can do within the form factor and the design of it is really limited to what we can do in our existing lines rather than build new ones. But we've been targeting the low cost of ownership. Monthly payment is the biggest differentiator for our vehicles. And that's why we're focused on bringing these new models with the big price. So the market can within the constraints that you highlighted.
Travis Axelrod
Great. Thank you very much. The next question is, does Tesla see Robotaxi as a winner-take-most market? And as you approach the Austin launch, how do you expect to compare against Waymo's offering especially regarding pricing, geofencing and regulatory flexibility?
Elon Musk
Well, okay. The issue with Waymo's cars is it costs way more money, but that is the issue. The car is very expensive, low volume. Teslas are probably cost a quarter, 20% of what a Waymo costs and made in very high volume. Ironically, like we want to make the per solution with cameras and what the correct will listen for sirens and that kind of thing.
It's the way it moves. And Waymo decided that an expensive sensor suite is the way to go, even though Google is very good at AI. So I'm wondering. And it is worth noting that Tesla has both an incredible AI software team and AI hardware chip design team, prospect for nothing. We didn't acquire anyone. So yes, it's really -- I mean, I don't see anyone being able to compete with Tesla at present.
I'm sure that'll change eventually, but at least as far as I'm aware, because we will have, I don't know, 99% market share or something ridiculous. That 90% something, at least, I don't know, some of them might change, but if we have millions of cars deployed next year and the list, others have millions of cars deployed, like we'll have -- unless we're blocked by regulatory situations. It won't be long. I mean, in a few years, we'll have 10 million autonomous cars on the roads than and counting.
Ashok Elluswamy
The other thing which people forget is that we're not just developing the software solution, we are also manufacturing the cars. And like you know what like Waymo has, they're taking cars and then trying to -- we don't do that, so that definitely gives us a big leg-up. And like Elon said, we only have a big existing fleet which hopefully, the software update could become autonomous.
Elon Musk
With the software update. It will become autonomous. To be clear, the Model Y in that we're in being autonomous in Austin in June. Other Model Ys we make currently, there's no change to it.
Ashok Elluswamy
I think people don't appreciate that the car they can buy today --
Elon Musk
The car that they have --
Ashok Elluswamy
The car they have is capable of these kind of things.
Lars Moravy
In fact, it does drive autonomously from the factory to the end of line, every car nowadays.
That runs through the tunnel, the Model Y is everything.
Elon Musk
Right. Yes, exactly. We have -- it has been pointed to use -- it's doing useful work fully autonomously at the factories as a the cars driven from end of line to the wetness was being picked up by a to be taken to a customer. And I'm confident also that later this year, the first Model Y will drive itself all the way to the customer.
So from our -- probably from a factory in Austin and one in here in Fremont, California, I'm confident that from both factories, we'll be able to drive directly to a customer on the factory. Yeah, literally goes from the end of line and drive to the house.
Lars Moravy
It's important to note in the factories, we don't have dedicated lengths or anything. People are coming out every day, trucks delivering supplies, parts, construction.
Elon Musk
And people can -- by the way, see this from the road like And this many people take videos online. And anyone who wants to see it and just drive fast or remote factory and see the autonomous cars driving themselves. And they drive themselves and they put themselves in the exact right spot to pick up.
Lars Moravy
Yes, the logistics, the right there. They don't move it again to an --
Elon Musk
Yes. So that's just a routine like everyday thing that.
Travis Axelrod
Great. Thank you very much. The next question is, can you please provide an update on the unboxed method and how that has progressed?
Lars Moravy
Sure. It's progressing, absolutely. As I mentioned just a minute ago, like it is the basis for our Cybercab manufacturing process. It's really what we changed in order to allow the low cost of production and also get the super high levels of automation that are sort of unheard of in the vehicle manufacturing scale. This is like not something that when you see it be produced, you'll think of in terms of, like, wow, it's car has been for 100 years.
It's really something changed. In the past year, we've been like focusing on a lot of key development areas like, large subassemblies together in a precise way, in an accurate way. We've also de-risked things like corrosion of uncoated aluminum structures, the ceiling across the seams of the vehicle and when you marry several components.
And we've even done any crash testing and improvement that like it's going to be just as safe as the other car build. So like we're -- as with all that combined, we kind of go into the builds that we have in this quarter for the Cybercab product, and that's the next real big test of full-scale integration with the unboxed process. And that's kind of where we are. So you'll see them on the test roads in a couple of months.
Elon Musk
Yeah. Although the line won't be at this rate initially --
Lars Moravy
Initially.
Elon Musk
This is a revolutionary production system. about the right word is unboxing sounds like something let when you get your phone. You have like a pleasant experience when you take your phone out of the box, which of course is nice, but this is more revolutionary than that. This is a profound reimagining of how to make cars in the first place. No car is made like this anywhere in the world.
The factory is the product as much as the car is the product. So this really just first principles approach to manufacturing that will ultimately allow us, I think, I'm confident ultimately allow us to achieve a cycle time, meaning a unit every five seconds or less, off a single line.
Lars Moravy
And not incorporate some of these -- for testing into our existing production lines as well.
Elon Musk
Something I've been thinking about for a long time and sort of thinking about this a long time, and it's kind of -- it's not a crazy thing. Like a car every five seconds may sound like it's coming out like bullets, but actually it's coming out at walking speed.
Lars Moravy
It's a meter a second.
Elon Musk
A meter a second. So this is like we're still far away from caring about the aerodynamic drag of the manufacturing line, because you're still at 3 miles an hour to (inaudible) but it's 3 miles an hour that we're talking about. So yes, you can run away for it basically. But that's still, by far, and fastest slide on Earth, and it's like half hour -- half -- what's the line not it's like about --
Shanghai Phase 2. (inaudible) 33 seconds.
Elon Musk
We're the fastest, right? We think we're the fastest at 33 seconds in our Shanghai factory, but this would be six times faster or seven times faster, thereabouts. I mean, it'll be slower than that but the point is that like when you fully optimize the design and operation of the next-generation factory that we're building right now, the five-second cycle time or less is, the design is capable of it.
So if you -- when you go through like new architecture, you go from like being like in any -- I mean, probably China in particular is an A+ on a moderately an advanced but still traditional car production system. So they're really in about as good as possible to do within in a conventional scenario. So trying to get much below, sort of below like 30 seconds, extremely difficult.
But you start getting into sort of impossible where you just -- you have to be faster than a human could possibly move. So then the autonomous line, it really just needs to be robust moving really fast, and that's where you get to sub-five seconds. But we'll start off with getting a C and a new architecture, but then the potential is there over time to move them up to an A+, within an A+ architecture.
Travis Axelrod
Great. Thank you very much. The next question is, how is Tesla positioning itself to flexibly adapt to global economic risks and form of tariffs, political biases, et cetera?
Vaibhav Taneja
As Elon said, we've been supplying team for a while. We continue to mitigate global economic risks like tariffs and political biases by regionalizing part supply factories in North America, Berlin, and Shanghai. For example, in North America, our high-volume vehicle programs have over 85% North America content and Shanghai vehicles have over 95% content. But in a similar level of regionalization as North America, when you exclude the battery, and we are working on regionalizing the battery as well. This is a prepandemic strategy that we accelerated post pandemic to supply diversification, dual-sourcing, vertical integration, advanced analytics, and local partnerships to ensure supply chain resilience and stability.
Having said that, we are not 100% insulated and these tariffs will higher on our low volume platforms than the high-volume ones.
Elon Musk
Yeah. There's no more vertically integrated car company than Tesla. I mean, we're taking -- we're most vertically integrated car companies since Henry Ford back in the day when they're doing mining iron and stuff and growing. Like we're not going around and mining iron yet. But we are -- we have both a lithium refinery in South Texas. And it's -- I mean, the biggest lithium refinery outside of China, I think. Is that right?
Yeah. I think so.
Elon Musk
But it has -- its upward potential would be the biggest refinery and in -- and we've got to expand and be build more, right? And then we've got the catheter refinery in Austin next at. We've got to figure out what to do about the node. This is an ongoing subject of discussion. The best of all possible as would be figuring how to best ones part being not part.
That's the dream of the batteries to be not having a node. But either way, we better have the anode, the cathode and the lithium and the separator to make a cell. But there's no other car company that has both lithium refineries and cathode refineries. We're ridiculously vertically integrated, and thus are best positioned to protect against supply chain disruptions. you want to talk that progress in the --
Yeah. Certainly, for our in-house cells, we've multi-sourced every component. We have every path coming from at least two different countries of origin, which is we started this -- the supply chain team and the engineering team worked together on this for the last couple of years to put that together. It's not something we did in a couple of months. This is years of work.
So we're in a good position to take advantage of that and the in-sourcing of lithium and cathode, the two most critical parts that actually does run that backyard and we're totally insulated from --
Elon Musk
It needs to be in operation.
We also make our own cells, by the way.
Elon Musk
Cell production, if you took this -- you make the anode, the cathode, the lithium, the electrolyte separator, can and then you got to put all that together in the cell factory. And there are entire companies that only do is produce cells but they don't do the other stuff, refine or the cathode or. So our cell production is going quite well. And I think we're -- are we sort of the lowest cost per kilowatt hour in the --
All cells we purchase in North America.
Elon Musk
Yeah. So we have the lowest cost per kilowatt hour, all things considered. So the Tesla cell is the most competitive cell. Yes, for a kilowatt hour bringing to a car, it's a Tesla cell, it's lower cost than a supplier cell.
Yeah. And the plan this year is to really build off that base. Getting to cost is -- it's the hardest challenge for so many entry. It's relatively easy to build a flashy product that does one thing well to build something at high volume, low cost is to be difficult, and we're kind of using that space to then drill off and performance in different areas for new products coming out.
Lars Moravy
Yeah. I mean, to Elon's point, there's a lot of advantages for regionalization. The most important thing is we're not of working capital for six to eight weeks on the ocean. If there's a design change, then everything that's in transit basically has to be scrapped.
Secondly, port disruptions, as we're talking, COVID can be very expensive because slide disconnects can shut down production. So then your rolling option that's costly expedite. It also gives us resilience in supply chain. If one region is down, we can bridge with others. It's more who to set up in the beginning, but it's critical to have when the need arises. Having said that, it's unrealistic there's 100% regionalization across the board for specialized areas such as semiconductors.
In such cases, our teams works very closely with our partners to ensure we have strategic banks in place and disruption doesn't impact production while we stand up the regional manufacturing for that particular commodity.
And I'll say like unless the vehicle like you own was talking about with, we very testing, you recycle those in melters the same thing with plastics, but it doesn't mean we're not exposed. We do have some areas where we use magnets and we've been working for years to find alternative sources and bring those up as well as we have machines. And as we've mentioned in the past, we're working on for some time.
So as [Karn] said, with our heavy regionalization percentages, we definitely like the lowest exposed to this, but we're not completely new to remarked.
Travis Axelrod
Great. Similarly related on the battery to guide, does Tesla the battery supply constrained as noted on the Q4 call and does that change with tariffs?
Karn Budhiraj
This is Karn. We've been working very hard to expand battery cell production in the US, both with vendors and what Bonne mentioned earlier with the 4680 program. And we're also working on moving the upstream supply chain for battery cells to the United States for several years. And that strategy is really starting to pay off now.
As it stands right now, we're not constrained on battery cell supply for vehicles. The recent tariffs do pose some challenges to Tesla Energy, well, like our CFO mentioned earlier, but it's something we've been anticipating and we should be able to resolve in a timely fashion.
We actually have a kind of place right going towards it. We also have some other sources coming online to supplement the shortfall. And then of course, we have the production that's happening in-house.
We have a slight disconnect of aligning the right cells with the right path. So that's the little bit of puzzle that we have to solve internally. But as far as cells go, there's no shortage.
Travis Axelrod
Great. Thank you very much. The next question is, did Tesla experience any meaningful changes in order inflow rate in Q1 they to all the rumors of brand damage?
In Q1, as I mentioned earlier, we took the best-selling car over the last two years and ramped up all four of our global factories. And in less than eight weeks, we've already gone to the rate of our previous Model Ys in the factories. So just kudos again to the team for the great job there.
And despite the economic strain and negative articles, in California in Q1, Tesla remained the best-selling car, not just EV. And additionally, we had a record number of test drives globally in Q1 as well. So interest remains high. And so right now, we continue to see good interest still on the vehicle.
Elon Musk
Yeah. I mean, Tesla into sort of the macro demand for cars. So when there is economic uncertainty, people generally want to pause on buying, doing a major capital purchase like a car. But as far as absent macro issues, we don't see any reduction in demand.
Correct. And that's what we're continuing to focus on affordability. And it's fun to focus there.
Travis Axelrod
Fantastic. The next question is regarding the Tesla Optimus pilot line, could you confirm if it is currently operational? If so, what is the current production rate of Optimus per week? Additionally, how might the recent tariffs impact the scalability of this production line moving forward?
Elon Musk
I want to say Optimus is still very much a development program. It's not a large volume production. This year, we'll make a few -- we do expect to make thousands of Optimus robots, but most of that production is going to be at the end of the year. So the -- almost everything in Optimus is new. There's not like an existing supply chain for the motors, gearboxes, electronics, actuators, really anything in the Optimus apart from the AI Tesla AI computer, which is the same as the one in the car.
So when you have a new complex manufactured product, it will move as fast as the slowest and least lucky component in the entire thing. And as opposed to proximation, there's like 10,000 unique things. So that's why anyone you tells you they can predict with precision, the production ramp of the truly new product is -- doesn't know what they're talking about. It is totally impossible.
So you go through this like a series of constraints where I would think this part is back now that passing factor and multiply that by 1,000 basically. And then the rate of the production is decided by how quickly you can solve each of those problems.
Now, Optimus was affected by the magnet issue from China because the Optimus actuators in the arm to use permanent magnets. But when something is volume constrained like an arm of the robot, then you want to try to make the motor as small as possible. So we did design permanent magnets for those motors, and that's more affected by the supply chain by basically China requiring an export license to send out anywhere with magnets.
So we're working through that with China. Hopefully, we'll get a license to use the rare-Earth magnets. China wants some assurances that these are not used for military purposes, which obviously they're not. They're just going into a humanoid robot. So -- and it's a non-weapon system. But that is an example of a challenge there.
I'm confident we'll overcome these issues. And we'll, by the end of this year, have thousands of Optimus robots.
Travis Axelrod
Great. Thank you very much. And the last question, we already covered earlier, whether Robotaxi was still on track for this year. So with that, we can move on to analyst questions. The first question is going to come from Pierre at New Street. Pierre, please unmute yourself.
Pierre Ferragu
Hey guys, can you hear me?
Elon Musk
Yeah.
Pierre Ferragu
That's great. I'm super excited to hear Robotaxi and Optimus becoming the very tangible future for Tesla. But I have actually a question on the legacy, not legacy, in the current like Auto business. And when I look back to the ramp of Model 3 a few years ago, I really saw it as being the iPhone of cars, a new product, completely reinvented, very different user experience, vastly superior, impossible to match for traditional competitors. And for the iPhone, which resulted in the high end of the smartphone market quadrupling in size and actually Apple taking 60% market share.
And so when you look at the Model 3 and the Model Y today, I think they are still actually vastly superior to any other cars. And I wonder why they've taken about 15% of their addressable market and not more actually? So another way to put it is, why are there so many people still buying BMW and Mercedes, knowing that Model 3 and the Model Ys are out there and available?
And I wonder if you're trying to solve that internally. If you understand why -- what are the auto buyers buying a Model 3 or Model Y missing. And if you have ideas of things you could do to address that. Maybe there is enormous value left on the table there. Yes, that's what I'm wondering these days.
Elon Musk
Yeah. The reality is that in the future, most people are not going to buy cars. So it's kind of a -- one could sort of say, look, if you want to continue with your phone metaphor, I mean, you can remember the days of the flip-phones when there was 100 different flip-phone designs. And I would the mistake that lump manufacturers made was to try to make many different variants of which was a mistake. They should have made the iPhone.
So because, obviously, everyone is going to want a smartphone. But in the beginning of when the iPhone came out, I was like, wow, I can't believe these guys as not reacting as though this is death. But they kept making and flip-phones.
You think at one point, it was the most valuable company in the world or close to it? But they kept making flip-phones, trying to find another if somebody wants forward of a different style. I mean, this different color or whatever it is. No. They just want a super intelligent phone that can do everything, just one.
I said this many years ago in the future, in the not-too-distant future, buying a gasoline car that is not autonomous, will be like writing on using a flip-phone. Some people still do it, but it's rare.
Travis Axelrod
Great. The next question comes from Emmanuel Rosner at Wolfe. Emmanuel, please unmute yourself.
Emmanuel Rosner
Great. Thanks for taking my question. So Elon, the public version of the FSD software still has a decent amount of, I guess, intermittent human interventions that are required. So what's still required for the software on your end to get to a level where it doesn't need to be supervised? And I'm asking that in the context of obviously, the June launch being in the next couple of months. What still needs to happen?
We are working a number of items to. Yes. I mean, we are aware of the interventions that are happening in the public bills, and that's why we are hardcore burning it down. And really speaking, some initial city helped us focus on like solving all the issues that we face here for example, like is focusing on Austin.
We are not like solving all the issues that customers in Boston or somewhere else might face. And then here, we just have of all the issues, burn it down and that's what the team is working on, along with other sort of issues.
For example, if one of the computer goes down, right on the customer fleet, it would like throw the hands ask you to take over, but we don't want the kind of situation. So you're solving both like the reliability issues of the software and also the regulatory issues of the system software together for Austin.
Elon Musk
Yeah. Really just work through a long tail of unusual interventions. And these are really very like this is a singular intervention every 10,000 miles. I mean, that's a lot of driving you've got to do to even find one case within (inaudible)
Yes. And some interventions systematic missing functionality, for example, for handling emergency vehicles currently, you don't need to consume audio as an input but then the customer-facing versions don't have audio input. But the version that's in -- that's going to be in Austin will have audio input and so on.
Emmanuel Rosner
Okay. But would you have like remote operators, for example?
If a car gets stuck or some things, someone will like unlock it. But it's just bigger, we are a bit conservative and tend towards more safety than even if we get stuck every now and then we do have remote support. But it's not going to be required for safe operation. If anything, it's just required for more availability.
Elon Musk
Anyway, it's only a couple of months away so you're going to see it yourself in a couple of months in Austin.
Travis Axelrod
Great. Our next question comes from Edison at Deutsche Bank. Edison, unmute yourself.
Edison Yu
Hi. Thank you very much for the question. So I want to ask about the Optimus supply chain going forward. You mentioned a very fast ramp-up. What do you envision that supply chain looking like? Is it going to require many more suppliers to be in the US now because of the tariffs? How does one kind of think about what needs to happen there?
Elon Musk
We'll have to see how things settle out. I mean, for doing as already talked about, which is that we've already taken tremendous steps to localize our supply chain, more localized than any other manufacturer. And we have a lot of things kind of underway that to increase the localization to reduce supply chain risk associated with geopolitical uncertainty.
Did you have a follow-up?
Edison Yu
Yeah. Wanted to come back actually to the Robotaxi then. Do you have a sense on how many cars or how big the scale will be initially and how that might ramp up? I know you're targeting millions of vehicles in the second half kind of next year. But initially at launch, how many vehicles would be reasonable? And is it going to be as simple as if one goes to Austin, let's say in late June and July, you'll be able to request?
Elon Musk
Yeah. We're still debating the exact number to start up on day one, but it's, I don't know, maybe 10 or 20 vehicles on day one and watch it carefully to scale it up rapidly after that. So we want to make sure that we're paying very close attention to the first time this happens. But yes, you will end of June or July. Just go to Austin and order a Tesla autonomous drive.
Travis Axelrod
Great. The next question comes from George at Canaccord.
George Gianarikas
Hi, thank you for taking my question. It has to do with FSD pricing. Can we envision when you launch unsupervised FSD that there could be sort of a multitiered pricing approach to unsupervised versus supervised similar to what you did with autopilot versus FSD in the past?
Lars Moravy
I mean, this is something which we've been thinking about. I mean, just so now for people who have been trying FSD and who've been using FSD, the thing given the current pricing is to achieve because for $99, basically getting a personal shop.
Elon Musk
Yeah. I mean, we do need to give people more time to, if they want to look like a key breakpoint is, can you read text messages or not? Can you write a text message or not? Because obviously, people are doing this, by the way, with an autonomous do all the time.
And if you just go for a drive down the highway and you'll see people texting while driving doing 80 miles an hour. Yes, putting on makeup, doing their hair with the mirror down and texting and driving at 80 miles an hour. This is a common occurrence.
So we will be getting launch, you name it, -- so any, but right now, the car is very consistent that you pay attention to the road, which reduces the value somewhat because it's very rigorous about you paying attention to the road. And we'll gradually lighten up on that every few weeks or every month, we'll relax that a little bit and make it so you can be more and more able to do things you want to do and not have the car demand your is attention.
So that value -- it will really be profound when you can basically do whatever you want, including sleep. And then that $99 is going to seem like the best $99 you ever spent in your life.
Travis Axelrod
And George, do you have a follow-up?
George Gianarikas
My follow-up is about geographic expansion. Just maybe discuss additional markets. There's been some news around India recently that you could launch this year and next. Thank you.
Ashok Elluswamy
So yeah, I mean, we've been working on getting into India. India is a very hot market. And especially the current -- and I don't want to talk just about tariffs, but the current line structure within is that any car which we send in is subject to 70% tariff, also like a 30% luxury tax on it. So the same car which we're is like 100% more expensive than what it has. So that creates a lot of anxiety is like people feel, okay, they're paying too much for the car.
And by the way, we're not getting the money. The local government is getting the money. And that's why we've been very careful trying to figure out when is the right time. We -- like I said, we are working on it. It will be a great market to enter because India has a big middle class, which we would want to tap in and tap market which we want to be in. But again, these kind of things create a little bit of tension which we're trying to work around.
Travis Axelrod
Great, thank you so much. The next question comes from Adam Jonas at Morgan Stanley. Go ahead.
We can't hear you, Adam, so maybe we'll put you back in the queue and we'll move to Colin Langan from Wells Fargo while Adam figures out his audio. Colin, unmute yourself.
Colin Langan
Do you hear me?
Travis Axelrod
Yes.
Colin Langan
Great. You're still sticking with the vision-only approach. A lot of it on the people still have a lot of concerns about sun glare, fog, and dust. Any color on how you anticipate on getting around those issues? Because my understanding, it kind of blinds the camera when you get glare and stuff.
Elon Musk
Actually, it does not blind the camera. We use an approach, which is a direct photon count. So when you see a processed image, so the image that goes from the -- with sort of photon counter, the silicon photon counter, that they get -- goes through a digital signal processor or image signal processor. That's normally what happens.
And then the image that you see looks all washed out because if it's -- you pointed a camera at the sun, the post-processing of the photon counting washes things out. It actually adds noise. So quite a big breakthrough that we made some time ago was to go with direct photon counting and bypass the image signal processor. And then you can drive pretty much straight at the sun, and you can also see in what appears to be the blackest of blacks.
And then in fog, we can see as well as people can, probably better but slightly better than people than the average person anyway.
Colin Langan
So the camera is able to see when there's direct glare on it?
Elon Musk
Yeah.
Colin Langan
Okay. And then just there are obviously media reports the other day that the affordable model was delayed. It doesn't sound like that's correct. Those reports also talked about it being more of a cheaper version of the Model Y. Any color on what we should expect? Is it a cheaper version of the Model Y? Or is it actually going to be a design change with it?
Ashok Elluswamy
So I think Lars only covered it in answering one of the say.com questions. The real thing which we are trying to focus on is affordability. And using our existing lines, and there's always limitations when you're using the existing lines as to how many different form factors can you bring to it. So that's the way I would say you should think about it. And I don't know if Lars, you anything more to that?
Lars Moravy
Yes. I think I said this before in the call, like with the recent upgrades to the Model 3 and the Model Y platforms, we need some pretty great cars pretty big prices and a bunch of features and things like that. I think it's easy to consider that moving forward, Tesla doesn't make bad cars, and we always make -- our intent is not to make a car that is any worse than any car we've ever produced in the past. And so the models that come out in the next months will be built on our lines and will resemble form and shape the cars we currently make and is that they'll be affordable and they'll be able to buy them.
Travis Axelrod
Great. We might have time for one last question. Adam, we'll try your audio again. Do you want to try to unmute yourself, Adam? All right. Unfortunately, still not working -- go ahead.
Adam Jonas
Yeah, in the February 28 Joe Rogan interview, Elon, you advocated for a ramp in tariffs to give people time to adjust. Otherwise, you said the system would break and bad things would happen. So are things breaking yet? And if the announced -- if the tariffs as announced remain in place, when would things start breaking?
Elon Musk
Well, at the risk of stating the obvious, I'm not -- I'm one of many advisers to the President, I'm not the President. But I've made my opinion clear to the President and that -- and other people made their opinion clear to the President. He talks to many people and he makes his decision. And I'm hopeful that the President will observe where the predictions are more accurate than the predictions of others and perhaps where he might advise differently in the future, which we'll see. But I'm an advocate of predictable tariff structures and generally I'm an advocate for free trade and lower tariffs.
Now, one does need to take a look at where if some country is doing something predatory with tariffs or is providing extreme support for -- if a government is providing extreme financial support for a particular industry, then we have to do something to counteract that. But I think that's on a case-by-case basis strategically. But the President is the elected representative of the people and is fully within his rights to do what he would like to do.
Adam Jonas
Okay. Elon, I respect that. Just as a follow-up, thanks again. Between China and United States, who, in your opinion, is further ahead on the development of physical AI, specifically on humanoid and also drones? I'd be interested. And is it even close and kind of how --
Elon Musk
I mean, a friend of mine posted on X, I reposted it. I think of a prophetic statement, which is any country that cannot on drones is doing to be the vast state of any country that can. And we can't -- America cannot currently manufacture its own drones. Let that sink in, unfortunately.
So China, I believe manufactures about 70% of all drones. And if you look at the total supply chain, China is almost 100% of drones are -- have a supply chain dependency on China. So China is in a very strong position.
And with America, we need to tip more of our people and resources to manufacturing because this is -- and I have a lot of respect for China because I think China is amazing, actually. But the United States does not have such a severe dependency on China for drones and be unable to make them unless China gives us the parts, which is currently the situation.
With respect to humanoid robots, I don't think there's any company and any country that can match as well. Tesla and SpaceX are number one. And then I'm a little concerned that on the leaderboard, ranks 2 through 10 will be Chinese companies. We're not confident that rank one will be Tesla.
Travis Axelrod
Great. Well, I think that's unfortunately all the time we have for today. We appreciate all your questions and look forward to talking to you next quarter. Thank you very much, and goodbye.
