Tesla, Inc. Q1 2025 earnings call

Good afternoon, everyone, and welcome to Tesla's first quarter 2025 Q&A webcast. My name is Travis Axelrod, Head of Investor Relations, and I'm joined today by Elon Musk, Vaibhav Taneja, and a number of other executives. Our Q1 results were announced at about 3:00 P.M. Central Time in the update deck we published at the same link as this webcast. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in our most recent filings with the SEC. During the question-and-answer portion of today's call, please limit yourself to one question and one follow-up. Please use the raise hand button to join the question queue. Before we jump into Q&A, Elon will be providing an update. Elon?

Hello, everyone. It's never a dull moment these days. Thanks, for sure. Every day is going to be exciting. As some people know, there's been some blowback for the time that I've been spending in government with the Department of Government Efficiency, or DOGE. I think the work that we're doing there is actually very important for trying to rein in the insane deficit that is leading our country, the United States, to destruction. The DOGE team has made a lot of progress in addressing waste and fraud. The natural blowback from that is those who were receiving the wasteful dollars and the fraudulent dollars will try to attack me and the DOGE team and anything associated with me. I'm really left with two choices.

Should we just let the waste and fraud continue, and always continuing at it to grow at a really unsustainable pace that was bankrupting the country, or to fight the waste and fraud and try to get the country back on the right track? I believe the right thing to do is to just fight the waste and fraud and get the country back on the right track and working together with President Trump and his administration. Because if the ship of America goes down, we all go down with it, including Tesla and everyone else. I think this is critical work. The protesters that you'll see out there, they're very organized. They're paid for.

They're obviously not going to say, admit that the reason that they're protesting is because they're receiving fraudulent money or that they're the recipients of wasteful largesse, but they're going to come up with some other reason. That is the real reason for the protests. The actual reason is that those receiving the waste and fraud wish to continue receiving it. That is the real thing that's going on here, obviously. Now, that said, I do think there's the large slug of work necessary to get the DOGE team in place and working in the government to get the financial house in order is mostly done. I think starting probably next month, May, my time allocation to DOGE will drop significantly.

I'll have to continue doing it for, I think, probably the remainder of the president's term just to make sure that the waste and fraud that we stop does not come roaring back, which it will do if it has the chance. I think I'll continue to spend a day or two per week on government matters for as long as the president would like me to do so and as long as it is useful. Starting next month, I'll be allocating far more of my time to Tesla now that the major work of establishing the Department of Government Efficiency is done. At Tesla, we've gone through many crises over the years and actually been through many near-death experiences. We probably were on the ragged edge of death at least maybe a dozen times. It's been so many times. This is not one of those times.

We're not on the ragged edge of death, not even close. There are some challenges, and I expect that this year will be there'll probably be some unexpected bumps this year. I remain extremely optimistic about the future of the company. The future of the company is fundamentally based on large-scale autonomous cars and large-scale, large-volume, vast numbers of autonomous human-like robots. The value of a company that makes truly useful autonomous human-like robots and autonomous useful vehicles at scale, at low cost, which is what Tesla is going to do, is staggering. I continue to believe that Tesla, with excellent execution, will be the most valuable company in the world by far. That's an important if. We must execute well. If we do execute well, I think Tesla will be the most valuable company in the world by far.

It may be as valuable as the next five companies combined. There will be a few bumps along the road before that happens. I said, I think, on the last earnings call that we'll start to see the prosperity of autonomy take effect in a material way around the middle of next year. We expect to have these be selling fully autonomous rides in June in Austin, as we've been saying for now several months. That has continued. The real question from a financial standpoint is, when does it really become material and affect the bottom line of the company and start to be a fundamental part of the, when does it move the financial needle in a significant way? That is probably around the middle of next year, second half of next year.

Once it does start to move the financial needle in a significant way, it will really go exponential from there. I'd encourage people to look beyond the sort of bumps and potholes of the road immediately ahead of us, but lift your gaze to the bright, shining citadel on a hill, I don't know, some Reagan-esque imagery. That's where we're headed. In the not too distant future, like I said, end of next year type of thing. Let's see. With respect to supply chain risk, something that Tesla has been working on for several years is to localize supply chains. This actually makes sense from a cost standpoint and from a logistics risk standpoint, to have the supply chains be at least located on the continent in which the car is built.

We are, I think, the least affected car company with respect to tariffs, at least in most respects. I mean, remains to be seen. Tariffs are still tough on a company when margins are still low. We do have localized supply chains in North America, Europe, and China. That puts us in a stronger position than any of our competitors. Undoubtedly, I'm going to get a lot of questions about tariffs. I just want to emphasize that the tariff decision is entirely up to the President of the United States. I will weigh in with my advice with the President, which he will listen to my advice, but then it's up to him, of course, to make his decision. I've been on the record many times saying that I believe lower tariffs are generally a good idea for prosperity.

This decision is fundamentally up to the elected representative of the people, being the President of the United States. I'll continue to advocate for lower tariffs rather than higher tariffs, but that's all I can do. Let me walk you through why I'm so excited about the future of Tesla. First of all, autonomy. The team and I are laser-focused on bringing robotaxi to Austin in June. Unsupervised autonomy will first be solved for the Model Y in Austin. Actually, we should parse out the terms robotic taxi or robotaxi and just generally what's the CyberCab, because we've got a product called the CyberCab. Any Tesla, which could be an S, 3, X, or Y that is autonomous, is a robotic taxi or robotaxi. It's a bit confusing.

The vast majority of the Tesla fleet that we've made is capable of being a robotaxi or a robotic taxi. Once we can make the system work where you can have paid rides fully autonomously with no one in the car in one city, that is a very scalable thing for us to go broadly within whatever jurisdiction allows us to operate. Because what we're solving for is a general solution to autonomy, not a city-specific solution for autonomy, once we make it work in a few cities, we can basically make it work in all cities in that legal jurisdiction. Once we can make it work in a few cities in America, we can make it work anywhere in America.

Once we can make it work in a few cities in China, we can make it work anywhere in China, likewise in Europe, limited only by regulatory approvals. This is the advantage of having a generalized solution using artificial intelligence and an AI chip that Tesla designed specifically for this purpose, as opposed to very expensive sensors and high-precision maps of a particular neighborhood where that neighborhood may change or often changes, and then the cost stops working. We have a general solution instead of a specific solution. With regards to Optimus, we're making good progress in Optimus. We expect to have thousands of Optimus robots working in Tesla factories by the end of this year, doing useful work. We expect to scale Optimus faster than any product, I think, in history to get to millions of units per year, as soon as possible.

I think I feel confident in getting to a million units per year in less than five years, maybe four years. By 2030, I feel confident in predicting a million Optimus units per year. It might be 2029. Let's see. With respect to energy, our energy business is doing very well. The Megapack enables utility companies to output far more total energy than would otherwise be the case. When you think of the energy capability of a grid, it's much more than the total energy output per year. If the power plants could operate at peak power for all 24 hours as opposed to being at half power or sometimes a quarter power at night, you could double the energy output of existing power plants.

Great. Thank you very much, Elon.

Before we move on, Vaibhav has some opening remarks as well.

Thanks, Elon. 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. 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 too hitting all the timelines which we had established at the beginning. Big kudos to the team for making this happen. Additionally, we also hit a record gross profit for our energy storage business in the quarter. Now, getting back into the business, there has been a lot of speculation as to the reasons for decline of our vehicle deliveries in the first quarter.

We had previously guided that we will be updating all factories, and this would lead to several weeks of lost production, which did happen as planned. 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 U.S., China, and a few other markets within the quarter. Just so people understand, we were producing the legacy Model Y till middle to end of February. We switched over, and we were able to still sell out within that period. Big achievement by all the people at Tesla to make it happen.

We have a very extremely competitive vehicle lineup, which with most vehicles going through a recent update. Add to 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 to 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. This is something you have to experience, and anybody who has experienced just knows it. We have been doing a lot lately, trying to 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 offset by a slight increase in pricing due to the launch of new Model Y, despite incentives which we had to sell legacy Model Y. Our energy storage business, like I said before, has achieved yet another milestone of 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 in order for grids to work properly with the demands from AI and all this, you need some more stability. This is by far the simplest and best solution which we are aware of, which can help do this.

We have also developed certain unique solutions to help our customers to achieve this. Additionally, on the Powerwall side, we have been selling the new Powerwall 3, and it has 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 our 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 continued to increase sequentially, primarily due to our AI-related initiatives, including Optimus, and also cost of development for vehicle programs, including CyberCab, Semi, and cheaper models. These expenses flow through R&D.

We believe, even in the current environment, it is the right strategy to keep making investments in these areas to position us for the long term. These increases were offset by decreases in SG&A from changes in our vehicle referral program. Other income reduced significantly on a sequential basis. The primary reason was 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 remeasurement. With the adoption of the new mark-to-market standard for Bitcoin, we expect increased volatility in other income in addition to the FX liquidity. I know tariffs is the hottest topic which people talk about, and it has various impacts to our business. As Elon mentioned, on the vehicle business, we've been on this journey of regionalization for years.

Specifically, in the U.S., Model Y has been rated the most American-made car on Cars.com America-Made Index three years in a row. This is part of all the work which the team has been doing over the years. To the extent that today, if you look at our vehicle lineup in the U.S., we're approximately, on a weighted average basis, 85% USMCA compliant. Like Elon said, this definitely gives us a bigger edge as compared to our other OEMs in terms of managing the tariffs. We're not immune because when the Section 232 auto tariffs become effective in May, which includes Canada and Mexico, and Canada and Mexico have been part of our regionalization strategy, they will have an impact on profitability.

I know research modeling on this impact has been about a couple of thousand gigawatts, 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 U.S. However, the equipment which we have can only service a fraction of our total installed capacity later on. We've also been working on securing additional supply chain from non-China-based suppliers, but it will take time. Also note that Megafactory, irrespective of all the impact on the U.S. from tariffs on the energy business, we do have Megafactory China, which just started operations in Q1, and that should take care of our business outside of the U.S.

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 U.S. because there is not that much capacity in the U.S. In the current trade environment, such equipment being brought in is subject to the

expenses bringing in from China right now.

Exactly. The reality is that China has the basic one which has the most capacity to provide this equipment. Our CapEx guidance, inclusive of model tariffs, even with the optimization we have tried to do, is forecasted to be still in excess of $10 billion this year. We're still evaluating what more to do on this side. To summarize, we have near-term challenges in our business due to tariffs and bad image.

We think our strategy of providing the best product at a competitive price is going to be a winner. This is the reason we're still focused on bringing cheaper models to market soon. The start of production is 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 era of demand. I would like to thank everyone at Tesla and our customers.