There were two reasons why investors were disappointed with Tesla’s June results and outlook:

1. The quarter’s dip in margins added risk to the story as investors wait to hear more details in October about 2025 and 2026 product announcements. Automotive gross margins excluding regulatory credits (Auto gross margins ex credits) dipped to a 5 year low, at 14.6%, down from 16.4% in Mar-24, and below analyst expectations calling for 16.6%. The reason why margins are important to the Tesla investment case is that the company needs to consistently deliver gross margins well above traditional automakers of ~10% to justify TSLA’s valuation. That said, I believe the importance of this metric has dropped over the past two quarters given long-term margins should move materially higher based on the upcoming new models that will be previewed in October, along with the potential of autonomy.
2. The timing of Robotaxi got pushed out. In the shareholder deck, the company suggested that the timing of the Robotaxi will come after “plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025” given the “Robotaxi product will continue to pursue a revolutionary unboxed manufacturing strategy”. This stokes concerns that the timeline for the next generation vehicles (Robotaxi, Model 2, Van, Roadster), as well as fully functional autonomy (unsupervised FSD, ridesharing fleet, Optimus) are further out.

At the highest level, miles driven showed an impressive q/q improvement, going from ~150m in the March quarter to ~650m in the June quarter, which is the largest single quarter acceleration.

A closer look reveals a likely deceleration in miles driven in the May and June months of the June quarter. The March quarter Shareholder Deck included data that suggested there was ~300m miles driven on the new FSD v12 Beta alone. Given they ended the quarter with ~650m miles driven, implies miles driven went from 300m in April, 175m in May, and 175m in June.

On the call, Elon said once people experience FSD, “they tend to keep using it”, which suggests that not all people continue to use it, therefore it’s reasonable to believe miles driven slowed throughout the quarter.

The two takeaways:

1. FSD is a beta product that initial users are still trying to figure out.
2. Focusing on the month to month misses the point. The reality is autonomous miles driven skyrocketed in the June quarter and will likely take another step function up when V12.5 comes out later this year. While we’re still likely a couple of years away from unsupervised FSD (Elon says as early as end of this year and would be shocked if it was not by next year), Tesla remains best positioned, ahead of Waymo, to be first to reach a million daily autonomous users.

Last quarter, Elon said Optimus was performing simple factory tasks and is believed to be able to perform some factory production tasks by the end of the year. He also said there’s a chance to sell Optimus externally by the end of next year.

Now, Elon is saying limited production of Optimus will begin early 2025 for Tesla consumption only. The production ramp will begin in 2026 and sales to customers will begin sometime after that point.

It’s clear the timeline for Optimus is getting pushed back even from last quarter. While Elon is known for ambitious deadlines and pushing timelines out, I continue to believe Optimus will likely take a decade before it is commercialized at scale. That said, if it works, it could create a business that is bigger than Tesla’s EV and autonomy business combined.

In the words of Elon:

“The long term value of Optimus will exceed that of everything else at Tesla combined. So just simply consider the usefulness, utility of a humanoid robot that can do pretty much anything you ask of it. I think everyone is going to want one. There’s 8 billion people on Earth. So that’s 8 billion right there. Then you’ve got all of the industrial uses, which is probably at least as much if not way more. So I suspect that the long-term demand for general purpose humanoid robots is in excess of 20 billion units.”

As Elon said on the earnings call:

“The value of Tesla overwhelmingly is autonomy. These other things are an annoyance relative to autonomy. So I recommend anyone who doesn’t believe that Tesla will solve vehicle autonomy should not hold Tesla stock. They should sell their Tesla stock. If you believe Tesla would solve autonomy should buy Tesla stock. And all these other questions are noise.”

No other company is like Tesla, solving enormously complex problems that were (and to some still are) thought to be impossible. Fully autonomous vehicles will take years. The value of Optimus will take years. However, once solved, the configuration of Tesla as a business changes completely. This is the investment case for Tesla.

Disclaimer