The Q2 2025 Earnings Call provided us with a lot of information - and much of it related to FSD. There’s a lot of major news to unpack that impacts HW3 owners, AI4 owners, and future purchasers waiting for AI5.
Tesla addressed the previously promised upgrade for HW3 owners, talked about HW4 and also gave us dates of when to expect HW5 (AI5) and beyond.
The HW3 Upgrade
One of the biggest updates from the call was the clarification on the promised hardware upgrade for millions of owners with HW3 (AI3) vehicles. For those hoping for a path to the newer AI4 or future AI5 FSD computer, Tesla has confirmed that this upgrade is on hold until they can solve autonomy.
As we talked about in our HW3 upgrade article, Tesla will not consider offering such a complex and costly upgrade until after FSD Unsupervised is solved and becomes available to customer vehicles. The reasoning is that an upgrade could potentially involve more than just a simple computer swap, potentially requiring changes to other core vehicle components.
The key here is that the power and cooling requirements for HW4 hardware are far greater than those available in HW3 vehicles. If this trend continues with AI5, Tesla will need to build a customized solution for HW3 upgrades that falls somewhere in the middle - capable enough to perform FSD Unsupervised, but still able to fit within the required tolerances.
Camera Upgrades Might Be Needed
In addition, while Tesla has stated that they don’t intend to swap the cameras, this may become a requirement for two reasons. HW3 already has considerable difficulty reading signs, and HW4 is marginally better at doing so. Complex signs, such as “No Right Turn on Red,” could indicate that HW3 vehicles may require a camera upgrade, at least for the primary cameras, if not the side repeaters, bi-pillar, and rear cameras, to comply.
These changes will also require extensive rewiring, as the wiring in HW3 vehicles is not capable of the higher bandwidth required for higher-res cameras. The lack of future-proofing for HW3 vehicles is definitely becoming apparent here.
The second reason is the inclusion of the forward bumper camera on more of Tesla’s fleet. Today, every new vehicle except the Model 3 comes with a bumper camera. While Tesla does not use it for FSD yet, we believe that it will be necessary for low-speed maneuvers in crowded locations and parking lots - the key to making Summon and Banish truly autonomous.
Essentially, for the foreseeable future, HW3 vehicles will continue to be developed on a lagging, separate FSD software branch. Tesla intends to release updates for HW4 vehicles first, then take the time to optimize them, and then release updates for HW3 vehicles once they are ready. Realistically, while HW3 vehicles will still receive FSD updates, it seems that they have reached their physical operational limits and will not achieve the same performance or have all the same features as AI4 or future AI5 vehicles.
HW4’s Unsupervised Capabilities
The earnings call yesterday reinforced the capability of the current-generation HW4 hardware, which is included in all new Tesla vehicles. This is the same hardware that is powering the current Robotaxi FSD fleet that is currently operating and expanding in Austin. This confirms that HW4 is fully capable of supporting a true, driverless experience.
The question going forward will be what the limits of HW4 are, and how soon Tesla is approaching them. Will Tesla provide a smoother path to upgrade HW4 to AI5?
Given the ongoing situation with HW3, we don’t expect that they will. Tesla is contractually bound to provide Unsupervised FSD (autonomy) with the purchase of FSD, but it’s not required to upgrade vehicles so that they can achieve a higher level of safety and comfort. As long as a vehicle is capable of autonomy, then Tesla has met their commitment.
At this point, we don’t expect a clean upgrade path to AI5 - Elon has previously mentioned that it will consume nearly 2-3x the energy of AI4, which means an entirely new electrical and cooling package will be required for AI5, which AI4 vehicles won’t be able to easily support, short of a major retrofit.
However, if you want Unsupervised FSD and are satisfied with not getting a potential upgrade in the future, AI4 is a very compelling choice today. It is already demonstrably capable of Unsupervised FSD, which means you’re getting a vehicle that can and will do autonomy in the future.
If you’re still undecided about a purchase, a 48-month lease could be the most sensible option. Tesla is not intending to introduce AI5 until the end of 2026, and it will likely take months or years for the software divergence between HW4 and AI5 to occur.
AI5 is a Performance Jump; AI6 is a Leap
Tesla also provided the first concrete details on its next-generation FSD hardware, which will be known as AI5. The new computer is projected to be 3 to 5 times more capable than the already powerful HW4 hardware. That’s a massive leap in processing power, which will enable more complex neural networks and faster, more human-like decision-making.
This next-generation hardware isn’t expected to reach mass production until at least the end of 2026 - and the first vehicles receiving it will likely be Tesla’s Cybercab.
Going forward, Tesla intends to use AI6 as a means to closely integrate the training hardware and the vehicle hardware. That means that its Dojo supercomputer chip will live in AI6 vehicles. Two chips in a vehicle or on board an Optimus humanoid robot, while hundreds will live in a training cluster.
Tesla already uses HW4 hardware in Cortex, its Supercompute training cluster at Giga Texas. However, the vast majority of the training hardware is built around Nvidia’s H200 chip, which means Tesla needs to build the training software for the H200, then rebuild the trained models for HW4 hardware.
This change to Dojo training compute and Dojo in-vehicle compute means that Tesla will be able to further optimize the process, simplifying the entire training pipeline.
Closing One Door, Opening Another
The Q2 call was filled with interesting facts that drew solid lines in the sand for what Tesla’s future hardware path will look like. For owners of HW3 vehicles, the path to next-generation hardware is on hold, but at least there’s some clarity.
However, Tesla is offering FSD transfers in many regions worldwide, including North America and Europe, as a way to upgrade customers to newer vehicles equipped with hardware capable of running the latest FSD version.
For current HW4 owners, their vehicles are already equipped with the hardware capable of running in an Unsupervised future, and can look forward to support for at least another few years. In the future, Tesla vehicles will be equipped with even more powerful hardware, including AI5 in late 2026 or early 2027, and AI6 several years later.
If you missed any part of Tesla’s earnings call and its Q&A session, be sure to check out our recap, where we cover everything Tesla talked about, including FSD Unsupervised, the Robotaxi, and much more.
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Tesla has released an official LED light strip upgrade for the frunk of the Model 3 and Model Y in the U.S. and Canada. The light strip, priced at $100 USD ($130 CAD), is a great addition to light up one of the most useful storage areas of an EV.
According to Tesla, the new light strip is designed for easy installation by the customer. The light strip connects directly to the vehicle’s power supply using an included adapter, eliminating the need for batteries or wiring harnesses. That makes this a clean OEM setup without the hassle of needing a separate power source.
The light is built to last, and is equipped with a constant current control module and an IP67 dustproof and waterproof rating on both the light itself as well as the adapter, so you don’t need to worry about it getting wet in the rain if you happen to leave your frunk open.
Not a Tesla App
Vehicle Compatibility
The new frunk light strip is available for all Model 3 and Model Y vehicles from model years 2020 to 2024, so it does exclude earlier Model 3s.
For newer vehicles, a revised version of the light strip is being developed, compatible with the updated wiring harness of 2025 and 2026 Model 3 and Model Y vehicles.
The revised version is already available on Tesla’s shop in China, which means its release in North America is likely not too far away.
Sign of More to Come?
This isn’t the first time Tesla has made an OEM version of a popular third-party accessory, such as the custom puddle lights. Another popular third-party accessory is a powered frunk add-on.
Currently, the Cybertruck is the only Tesla vehicle with a powered frunk, and getting an official modification that won’t risk denting your hood would be amazing to see. It would also greatly improve the utility of the frunk, as many people avoid opening it since it has to be manually closed.
This new accessory is a welcome addition to the lineup of accessories for owners looking for a simple and high-quality add-on for their Tesla and and we’re hoping to see more of this in the future.
In case you missed the Q2 2025 Earnings Call or just want to see all the notes, we’ve got you covered.
We’re covering everything, from Tesla’s X post to their investor’s deck, and more importantly, Tesla’s Q&A session that was held during the call. Surprisingly, Tesla started the webcast perfectly on time once again.
This call was filled with answers to a lot of questions owners have been asking, from the HW3 upgrade to FSD Unsupervised.
Let’s dive in.
FSD Supervised & Unsupervised
Tesla continues to prepare for the broader release of FSD Supervised (HW3) in China, pending regulatory approval
While Tesla has rolled out FSD in China, it’s currently limited to HW4.
Tesla is prepared to launch FSD Supervised in Europe, pending regulatory approval
Still no approval in Europe, sales are expected to improve considerably once FSD is approved
The Netherlands is the primary regulator for Tesla, and Tesla is close to gaining their approval, before it goes to the EU for further approvals
Approvals are on their way, Elon feels confident that it could be as soon as the end of this quarter, if not by the end of the year. As a side note, Tesla recently launched FSD Transfers in Europe.
It took a lot of effort and time to get there, and this is the first
This is the first step for the next phase of deliveries
Teslas will self-deliver in the Bay Area and Austin by the end of this year
Tesla has expanded AI training compute to 67,000 H100 equivalents at Giga Texas’s Cortex
Tesla is still aiming to be cautious, but the service area and number of vehicles will increase extremely rapidly soon
Tesla intends to loosen the Supervision of FSD - within the next several weeks
Requirements for safety cause issues, as people disengage Autopilot to use the controls or use their phone, which is less safe than simply keeping FSD active
Production release of FSD Supervised is several months behind the FSD Robotaxi build (coming soon to customers)
This will be a big step-change improvement in the experience, similar to the experience that some have had in Austin so far
Autonomy is a key driver for vehicle sales
FSD has seen significant improvements; parameter count will increase to roughly 10x
This is a challenge, due to memory bandwidth, but Tesla is confident in this (Ashok said yes in the back). This will clearly be HW4 only, which is already constraining them.
Tesla has seen a bigger uptick in FSD adoption in recent months in North America
Nearly 50% of Tesla owners who could try FSD have never tried it. Even more have not tried it in a recent version.
Tesla intends to educate and get people to try it more, so they can know about it and its benefits
Robotaxi
Tesla has launched the Robotaxi Network in Austin, and has already expanded the service area once, and will continue to get larger soon. Robotaxi has been great so far, customers love the experience so far they say.
There have been no noticeable safety-critical incidents at this point yet
First expansion is done, more expansions - 10x operation area expansion coming up soon
Tesla will be removing the safety monitor once regulatory approval is received
Tesla intends to expand the service area again within “a couple of weeks.”
Tesla is aiming to gain regulatory permission to launch in the Bay Area, Florida, Arizona, and a number of other places
Tesla intends to aim for access to autonomous ride-hailing for half the population of the US by the end of the year, pending regulatory approval
7,000 miles on the clock already for Robotaxi, only a handful of vehicles are active
An expansion of the area and vehicles is coming soon
Tesla expects it to have a material impact on Tesla’s financials by the end of 2026
Tesla’s validation vehicles aren’t mapping - they are doing rapid-scale testing with new iterations of new FSD builds to ensure they work
This means that Tesla doesn’t need to “map” areas - they just need to test new builds and move on quickly
Personally owned vehicles in the Robotaxi Network
Tesla is still working on getting everything scaled up, which is leaning too far forward
It will happen, but not immediately, likely still sometime next year
Tesla will have some criteria to ensure that personally owned vehicles are eligible to be added to the fleet
Unsupervised FSD
Available for personal use in certain geographies, hopefully by the end of the year
Safety is a concern here, but it will become available for end-users by the end of the year for a number of cities in the US
Same hardware in the Robotaxi Model Ys as the hardware that is shipped in customer vehicles today
It is just a software upgrade away
Vehicles
The Model Y is now one of Tesla’s most affordable vehicles with the RWD variant, which starts at $45K USD
Model Y is the best-selling car in Turkey, Switzerland, Austria, and several other nations
Model Y may become the best-selling car for 2025, after barely losing
The new Model Y production ramp was a big step for this Quarter
Affordable Vehicle
Tesla confirms that their plans for a new vehicle that will launch in 2025 remain on track, including initial production of a more affordable model in 1H25
Tesla confirmed that production has started of the lower-cost model in 1H25
The vehicle has been delayed, and the ramp will happen next quarter, slower than expected, due to the cut of the EV credit and the focus on factory rollover to new vehicles
The affordable vehicle will be capable of FSD
Will start in North America, and Tesla is still pushing hard on this
Likely will become available for sale in Q4 2025
Cybercab
Tesla will continue to pursue the unboxed methodology for the production of the Cybercab in 2026
Cybercab isn’t about incredible handling or cornering or anything; it is about building an affordable, safe taxi
It is far more efficient and lighter, designed for a gentle ride
The cost per mile of the Cybercab will be very low, much lower than the existing fleet
AI5 / HW5
Tesla wants to get FSD Unsupervised finished on AI4 before figuring out what to do with HW3 vehicles. The focus is first to get FSD Unsupervised out
This means no hardware upgrade at least until 2026
AI5 is still planned for next year, and AI6 is in the far future
AI5 volume production will be in late 2026 or early 2027
AI5 will be extremely powerful - it is powerful enough that it blows past the export restriction requirements
This may require the chip to be nerfed to be imported to countries like China
Tesla wants its Dojo Supercomputer chip to match the same chip in its vehicles
E.G. 2 AI6 chips in a car, 100s in a Dojo
Dojo 2 will operate at scale by 2026, at around 100,000 H100 equivalents
Optimus
Optimus 3 is coming soon, a big design leap
Optimus 3 sounds like the final production design
Tesla is still retooling and prototyping - final prototypes by the end of 2025
Scale production in 2026, still aiming to build 1 million units per year by 2030-2031.
100,000 units per month, in about 60 months
Elon still sees it as the biggest product ever
Optimus 3 is designed entirely DIY, each part is designed in-house, from motors to power electronics, sensors, mechanical elements, etc.,
Training Optimus to use its limbs and sensors using a neural net is challenging, but the same principles are applied for vehicles
The same AI inference principles for training Tesla uses for vehicle FSD are the same as Optimus FSD
Tesla is still the leader in real-world AI - there is no competitor that’s doing all the same things
Tesla is better than Google or Waymo, or anyone else at real-world AI
Best inference efficiency and intelligence per gigabyte
You can have all the parameters you want, but if the model can’t be run on a real machine, it doesn’t matter
Tesla has the highest intelligence density per hardware
E.G. Grok 4 is immensely intelligent, but it is a terabyte-sized model - it can’t compare to the real-world use of FSD
Optimus V3 will be present for the Shareholder Meeting later in the year
Batteries
Lithium refining and cathode production in North America to begin in 2025, which will move key production onshore to the US
Tesla will begin production of LFP cells within the US by the end of 2025
Not enough people appreciate the scale of battery demand, especially due to grid-scale storage
Energy
Record Powerwall deployments for the fifth consecutive quarter
Tesla Energy’s gross profit is now $846 million, which is increasing quarter-over-quarter and year-over-year
Megapack is now deploying from Mega Shanghai as ramping of the new factory continues
Energy continues to grow really well, despite tariff challenges
The US average usage is 1 TW, but the average is 0.5 TW
Adding batteries could make a massive impact on the US grid
Due to the size and scale of the Energy business, the deliveries tend to differ greatly quarter-over-quarter
Customers for Megapack are willing to accept the tariffs, as the net positive impact of Megapack on their energy grids is massive
Financial
Tesla saw an overall decrease in revenue YoY by 12%, due to:
Decline in vehicle deliveries
Lower regulatory credit revenue
Reduced selling price (ASP) for vehicles
Decline in Energy revenue due to lower ASP
Tesla did see an overall increase in revenue from their Services category of 17% YoY.
Tesla saw an EPS (GAAP) of 0.33, up from 0.12 last quarter, but down from 0.4 last year.
Total automotive revenues shrank by 16% YoY, and total revenue shrank by 12% YoY
Total profit shrank by 15% YoY, but Tesla still posted a free cash flow of $146 million this quarter
New Model Y had a big impact on margins and sales, making a big difference quarter-over-quarter
Test drives in North America are up 20% quarter-over-quarter
Tesla delivered record volumes in South Korea, Malaysia, the Philippines, and Singapore
Tesla launched the Model Y in India, with sales opening in Q2 and deliveries beginning in Q3
Tesla is focused on making prudent investments to expand the company’s vehicle and energy sectors for growth, but the macroeconomic environment may hinder this going forward
Tesla noted that they have sufficient liquidity to fund their product roadmap, expansion, and research
Tesla expects hardware-related profits to be accompanied by an acceleration of AI, software, and fleet-based profits
Real-world AI will make Tesla the most valuable company in the world
Repeal of the IRA EV Credit by end-of-quarter will impact sales
Tesla now intends to roll back some of the incentives it has running due to lack of vehicle supply
Tesla is building vehicles as fast as possible to allow customers to buy vehicles
Tesla may not be able to guarantee delivery of vehicles under the credit
Regulatory credit impact will have an impact, which will lead to lower revenues
Tesla doesn’t plan their business around regulatory credits, but it will have an impact
Cost of tariffs increased around $200m, with about 2/3rd of that in automotive, while the rest is in energy
The biggest impacts will happen in the following quarters
Tesla is working to manage margins and tariff impacts in an uncertain regulatory environment
Tesla expects shifts in demand in Q3 due to the BBB
Tesla will continue to grow R&D income over the next few quarters, even in the face of volatility, but the future is in AI
Other
Tesla added over 2,900 new Supercharger stalls across Q2 2025 - an 18% year-over-year growth of the network
Tesla Diner has been a huge hit, receiving worldwide attention around the world
Sounds like more Diners will be built
Shareholders are welcome to push forward a Shareholder Proposal to have Tesla invest in xAI
New Master Plan coming soon
Will address the transition from pre-autonomy to post-autonomy
Elon is still concerned about the % of ownership, hopes this will be addressed at the next Shareholder Meeting
He hopes to not be in a position to be ousted by activist shareholders
Listen to the Event
You can listen to the entire event below, which starts at the 4 minute, 45 second mark.
![Tesla Hollywood Diner Opens: A Look at the Food, Merch, Features and More [VIDEOS]](https://www.notateslaapp.com/img/containers/article_images/2025/tesla-diner-mosaic.webp/1f15f0d02c11a96d7fa1399f47581304/tesla-diner-mosaic.jpg)
