Elon Musk Says This Will Be Tesla’s "Biggest Product Ever"—If It Can Solve The Supply Chain Issue
The Optimus robot weighs 154 pounds and is going to be produced where the Model S and X vehicles were made.
This article written by Georgia Fearn was originally published on Inc.com.
Elon Musk said Tesla’s humanoid robot, Optimus, will be its “biggest product ever.” But first, the company must build nearly the entire supply chain needed to make it.
“This is going to be the hardest product to scale manufacturing that we’ve ever made at Tesla because everything on the robot is new,” Musk told investors during Tesla’s second-quarter earnings call Wednesday.
Unlike electric cars, which can use established suppliers for wheels, mirrors, glass, and body panels, Optimus has no ready-made supply chain, Musk said. Tesla must develop suppliers or manufacture components itself. It also lacks enough artificial intelligence (AI) chips to scale production and must solve constraints involving memory, logic, and chip packaging.
Musk said suppliers are beginning to fill some of those gaps. Samsung and TSMC are investing tens of billions of dollars in semiconductor factories that could support Optimus and Robotaxi, he said, while Micron has given Tesla “very significant” allocation of memory despite what he called “pretty insane” prices.
Tesla has decommissioned the Model S and X lines at its Fremont, California, factory and is installing its first Optimus production line in their place. Production is expected later this year, although the first robots will be used internally to collect training data and develop new capabilities. Musk warned that the initial ramp will be “quite flat and long.”
Reliability is another obstacle. “We don’t want Optimus to go haywire,” Musk said. If one fails in the field, he added, “you’ve got a 70-kilogram robot that just flops over, and you could carry it out like a body.”
The bet comes as Tesla sold more cars in Q2 but earned far less from its operations.
Tesla delivered 480,126 vehicles in the second quarter, up 25 percent from a year earlier, while production rose 10 percent to 451,758. Total revenue climbed 26 percent to $28.2 billion. But operating income plunged 57 percent to $398 million, and Tesla’s operating margin narrowed to 1.4 percent from 4.1 percent.
Tesla attributed the decline partly to lower vehicle prices and regulatory-credit revenue, along with higher spending on AI and other research projects.
Before the results, Seth Goldstein, an analyst at investment research firm Morningstar, said free cash flow would show whether Tesla’s car business could support its AI spending. “If Tesla can largely fund its AI growth plans through cash from operations, that’s a major positive for the stock,” he told Inc.
Tesla did not fully clear that test. Operating cash flow rose 85 percent to $4.7 billion, but capital expenditures more than doubled to $5.8 billion, leaving the company with negative free cash flow of $1.1 billion. Tesla expects capital spending to exceed $25 billion this year and said it is securing debt facilities that could give it up to $30 billion in borrowing capacity.
Goldstein estimates robotaxis, Full Self-Driving, and Optimus account for more than 75 percent of Morningstar’s $450 fair-value estimate for Tesla.
