Margins Snapped Back, Robotaxi Removed Safety Drivers, and Tesla Just Killed the S/X to Build Optimus
Key Takeaways
- Adjusted EPS $0.50 vs $0.45 (BEAT, +11%) and revenue $24.90B vs $24.79B (slight beat) — but the more important number is auto margin ex-credits jumping to 17.9% from 15.4% in Q3, on 16% lower deliveries, driven by APAC/EMEA mix. The post-credit-cliff demand cliff turned out shallower and higher-margin than feared.
- Robotaxi crossed several binary milestones: 500+ vehicles in Austin and Bay Area, fleet doubling monthly, Austin paid rides operating with no safety monitor and no chase car, and 7 new metros (Dallas, Houston, Phoenix, Miami, Orlando, Tampa, Las Vegas) targeted for H1 2026. The "Q4 25 Austin no-safety-driver" pledge from Q3 landed.
- FSD paid customer count disclosed for the first time as an absolute number: nearly 1.1 million globally (up from a 12% take rate at Q3). 70% upfront purchases; the model is now transitioning fully to subscription, which compresses near-term margin but creates a recurring-revenue base.
- 2026 capex guided to "in excess of $20 billion" (vs. ~$9B in 2025) — funding six factories (Cybercab, Semi, new Megafactory, Optimus, refinery, LFP), AI compute, and fleet expansion. Model S/X production ends next quarter; Fremont lines convert to a 1M-unit Optimus factory. This is the company we will look back on as the auto-to-AI inflection.
- Rating: Upgrading to Outperform from Hold. The Q4 print resolved three risks favorably (margin recovery, Robotaxi commercial milestone, FSD ARR base), and Tesla is now executing visible AI/autonomy proof points each quarter. The capex ramp and xAI investment are real concerns, but they are spending against an inflection that the financials are starting to validate. The risk/reward at the current quote is now positively skewed.
Results vs. Consensus
| Metric | Actual | Consensus | Beat/Miss | Magnitude |
|---|---|---|---|---|
| Revenue | $24.90B | $24.79B | Beat | +0.4% |
| Adjusted EPS | $0.50 | $0.45 | Beat | +11% |
| GAAP EPS | $0.24 | — | Miss | -60% YoY |
| Net Income (GAAP) | $0.84B | — | Miss | -61% YoY |
| Total Gross Margin | 20.1% | — | Beat | Highest in 2+ years |
| Auto Margin (ex-credits) | 17.9% | — | Beat | +250bps Q/Q |
| Auto Revenue | $17.7B | — | Miss | -11% YoY |
| Energy Revenue | $3.84B | — | Beat | +25% YoY |
| Services Revenue | $3.37B | — | Beat | +18% YoY |
| Free Cash Flow | $1.4B | — | Solid | Down from Q3 record |
Quality of Beat/Miss
- Revenue: Slight beat on a -3% YoY decline — this was the third consecutive quarterly YoY decline counted differently (Q1, Q2 fell; Q3 grew on credit pull-forward; Q4 fell again). FY25 revenue $94.8B was Tesla's first-ever annual revenue decline. Energy +25% and Services +18% are doing the heavy lifting; auto is still in retreat.
- Margins: 20.1% total gross margin is the highest in 8 quarters. Auto ex-credits at 17.9% is the best read all year. Demand is geographically diversifying — record deliveries in Malaysia, Norway, Poland, Saudi Arabia, Taiwan — and these higher-ASP markets are absorbing the US volume contraction.
- EPS: Adjusted EPS clean beat ($0.50 vs $0.45). GAAP was distorted by a $284M Bitcoin mark-to-market hit (BTC -23% Q/Q during Q4) and FX losses on intercompany borrowings. Strip these out and the operating earnings picture is healthier than GAAP suggests.
- Operating expenses: +39% YoY, +$500M sequentially. Driven by stock-based comp (Operation Maestro / 2025 CA performance award) and AI/CyberCab/Semi/Optimus/Megapack R&D. This drag persists through 2026.
FY 2025 Year-End Scorecard
| Metric | FY 2025 | FY 2024 | Change |
|---|---|---|---|
| Total Revenue | $94.8B | $97.7B | -3% (FIRST EVER ANNUAL DECLINE) |
| Vehicle Deliveries | 1,636,129 | ~1.79M | -8.6% |
| Energy Storage Deployed | 46.7 GWh | ~22 GWh | +113% |
| FSD Paid Customers | ~1.1M | ~0.6M | +~80% |
| Robotaxi Fleet | 500+ at year-end | 0 | Launched |
| Capex | ~$8.7B (slightly below $9B guide) | $11.3B | -23% |
Segment Performance
| Segment | Q4 Revenue | YoY Growth | Notable |
|---|---|---|---|
| Automotive | $17.7B | -11% | Q4 deliveries 418K (-16% YoY); margin ex-credits 17.9% (+250bps Q/Q) |
| Energy Generation & Storage | $3.84B | +25% | 14.2 GWh deployed (record); FY $12.8B (+27% YoY); record GP |
| Services & Other | $3.37B | +18% | Margin 8.8% (down from 10.5%) on service-center buildout for fleet growth |
| Reg. Credits | ~$0.3B | ~-60% YoY | Continuing decline as BBB-zeroed penalties take effect |
Automotive — The Margin Inflection
Q4 is the cleanest test we've had of "is Tesla's auto business structurally damaged or just cyclically weak?" The answer: cyclically weak with structural margin recovery. Volumes fell 16% YoY (the credit-cliff effect we modeled), but auto margin ex-credits expanded from 15.4% in Q3 to 17.9% in Q4. The drivers, per CFO Taneja: regional mix (APAC and EMEA were a higher proportion of total Q4 deliveries with record orders in Malaysia, Norway, Poland, Saudi Arabia, Taiwan). These markets carry higher ASPs and are beyond the brand-damage zone of the US/EU political backlash.
"Automotive margins, excluding credits, improved sequentially from 15.4% to 17.9%. Automotive gross profit was flat sequentially despite 16% lower deliveries, primarily due to regional mix as we had proportionately more deliveries in APAC and EMEA." — Vaibhav Taneja, CFO
Critically, Tesla also exited the year with a "bigger backlog than in recent years" — the order book is healthy entering 2026, even before FSD is approved in those new geographies (which the CFO flagged as future tailwind). And Model S/X production ends next quarter, which removes a low-margin distraction and frees Fremont for Optimus.
Assessment: The structural-decline thesis is significantly weakened. Demand is real outside the US-political-backlash bubble, and the new affordable trims plus international FSD approval are 2026 tailwinds. Auto is not a growth story yet, but it's no longer a melting ice cube either.
Energy & Storage — Now $12.8B Annualized, +27% YoY
Energy hit a fourth consecutive quarter of records: $3.84B revenue (+25% YoY), 14.2 GWh deployments (record), record gross profit. FY 2025 deployments of 46.7 GWh were +113% YoY — Energy is the fastest-growing scaled segment in Tesla's portfolio. Megapack 3 and Megablock launch in 2026; backlog described as "strong, well-diversified globally." Margin compression is flagged for 2026 from low-cost competition (Chinese ESS players) and tariffs, but absolute growth pace is intact.
Assessment: Energy is now contributing materially to consolidated growth and could realistically reach ~$20B in 2026 revenue. The data-center storage thesis remains a multi-year demand visibility story.
Key Topics & Management Commentary
Overall Management Tone: Forward-looking and confident, but more measured than Q3's "infinite money glitch" rhetoric. Musk opened by reframing the company mission to "amazing abundance" and explicitly told investors this is a "huge investment year" — reset expectations on near-term FCF. The CFO was disciplined about flagging margin compression risks for energy. The end of Model S/X is a clear "we are an AI/autonomy company now" signal.
Robotaxi — Now a Real Operating Business
The Q3 pledge to remove safety drivers in Austin "by year-end" was kept. Per Musk on the call, paid Austin rides are now operating with no safety monitor and no chase car. The fleet has crossed 500+ vehicles between Austin and the Bay Area, doubling monthly. H1 2026 expansion targets 7 new US metros (Dallas, Houston, Phoenix, Miami, Orlando, Tampa, Las Vegas), with Tesla expecting 25–50% US population coverage by year-end pending regulatory approvals.
"We are well over 500 [robotaxi] vehicles at this point between the Bay Area and Austin… We were able to do our first rides with no safety monitor in the car in Austin… as of yesterday or so, we actually do not even have a chase car or anything like that. These are just cars with no people in them and no one following the car in Austin." — Elon Musk, CEO
Assessment: This is a different conversation than 6 months ago. Robotaxi is no longer a vapor pitch — it's a fleet of 500+ vehicles, with monthly doubling, with documented driverless operation in Austin and US-population-percentage targets that are concrete and falsifiable. We are not yet at financial materiality (the CFO said Robotaxi revenue/cost-per-mile metrics aren't yet meaningful), but the path is now visible.
CyberCab — Production Start April 2026
Tesla committed to a specific April 2026 SOP for Cybercab — a two-seat, no-steering-wheel, no-pedals, purpose-built robotaxi. Musk said it could long-term make "several times more Cybercabs per year than all of our other vehicles combined" given that 80% of vehicle-miles-traveled have only 1–2 occupants. Production line tooling has begun.
"We expect to start production [of Cybercab] in April. As always, it's just an S curve of the production rate is an S curve, so it starts off very slowly and then grows exponentially." — Elon Musk, CEO
Assessment: An April start date is concrete and near-dated — falsifiable in 2 months. Even at ~1K units in 2026 (slow S-curve start), this is a real new product line and validates the autonomy-vehicle architecture as a business unit.
Optimus — Production Line Replaces Model S/X
Model S/X production ends next quarter; Fremont lines convert to a 1M-unit-per-year Optimus factory. Optimus V3 ("first design meant for mass production") unveils this quarter (Q1 2026). The supply chain is fully de novo — "really nothing from the existing supply chains that exist in Optimus" — so Musk flagged a stretched S-curve.
"It's time to bring the Model S and X programs to an end with an honorable discharge… We are going to take the Model S and X production space in our Fremont factory and convert that into an Optimus factory with a long-term goal of having a million units a year." — Elon Musk, CEO
Assessment: Killing Model S/X to free factory space is a structural commitment, not a press release. It crystallizes Tesla's pivot. Even if the 1M Optimus run-rate target slips by 2–3 years, the act of converting the factory locks in capital allocation toward AI/robotics. We model meaningful Optimus revenue starting late 2027.
FSD — 1.1M Paid Customers, Subscription Transition
For the first time, Tesla disclosed an absolute paid FSD customer count: ~1.1M globally, with 70% representing upfront purchases (legacy model). Going forward, FSD transitions fully to subscription, which CFO flagged will compress near-term auto margins (deferred revenue accounting). Once FSD lands in EMEA and China, the take-rate ceiling materially expands.
"FSD adoption continued to improve in the quarter, reaching nearly 1,100,000 paid customers globally. Of these, nearly 70% were upfront purchases. It is important to note that beginning this quarter, we are transitioning fully to a subscription-based model for FSD." — Vaibhav Taneja, CFO
Assessment: 1.1M paying customers at an average $99/month run-rate = ~$1.3B annualized FSD ARR — a real subscription business. The subscription transition is the right structural move (matches recurring-AV-software peer pricing) but does compress near-term margin reporting. FSD ARR is the cleanest tracking metric for the autonomy thesis going forward.
$20B+ Capex in 2026 — The Inflection Cost
2026 capex guided to "in excess of $20B" — more than 2x 2025's ~$8.7B actual. The list:
- Cybercab factory (production start April 2026)
- Semi factory (production ramp in H2 2026)
- New Megafactory
- Optimus factory (Fremont conversion)
- Lithium refinery
- LFP cell factory
- AI compute infrastructure
- Robotaxi fleet expansion
- Additional capex for solar cells and "TerraFab" (semiconductor manufacturing) NOT included — explicitly flagged as future additions
Assessment: $20B is high but coherently allocated — every line item maps to a near-term product or a multi-year enabling capability. The risk is execution (six factories in flight simultaneously is ambitious) and the FCF impact (we model FCF compression to $1–3B in 2026 vs. $5B+ in 2025). The reward is that 2026 capex creates the cost base for 2027–2028 revenue from CyberCab + Optimus + FSD subscriptions + Robotaxi network.
$2B xAI Investment — Strategic, but Governance-Adjacent
Tesla disclosed a $2B investment in xAI (Musk's separate AI company) as part of xAI's $20B financing round. Tesla framed it as "intended to enhance Tesla's ability to develop and deploy AI products and services into the physical world at scale."
Assessment: This is the cleanest version of the xAI/Tesla relationship that shareholders are likely to get without a full merger or licensing structure. $2B at the round's $200B+ pre-money valuation is a small percentage stake that gives Tesla LLM access without spinning up a competing internal effort. Governance question: should Tesla shareholders fund Musk's other ventures? But strategically, having access to xAI's foundation models is a real competitive feature for Tesla's autonomy and Optimus stack.
Battery Pack — Now the Global Constraint
"Our biggest constraint globally continues to be on the battery pack front. While our teams have been creative in trying to resolve the situation by now putting 4,680 cells in nonstructural packs, we continue to iterate." — Vaibhav Taneja, CFO
Assessment: Battery supply is now a genuine ceiling on volume — both for vehicles and stationary storage. The 4,680 cell program in nonstructural packs is the near-term workaround. This is a real bottleneck on the upside, but also frames why Tesla is investing so heavily in upstream (refinery, LFP factory).
Guidance & Outlook
| Metric | Prior (Q3 Call) | Updated (Q4 Call) | Change |
|---|---|---|---|
| FY26 Vehicle Volumes | Implied 2–3M aspiration over 24mo | "Focus on ramping production at all our factories" | Maintained, qualitative |
| FY26 Capex | "Substantially higher than 2025" | "In excess of $20B" | Quantified high |
| Robotaxi scope | "8–10 metros by year-end 2025" | "25–50% of US population by EOY 2026"; 7 new metros H1 26 | Concretized + expanded |
| Cybercab SOP | Q2 2026 | April 2026 | Confirmed (early Q2) |
| Optimus V3 unveil | Q1 2026 | Q1 2026 (this quarter) | Confirmed |
| Optimus production line | "End of 2026" | Fremont S/X conversion; 1M-unit annual goal long-term | Concretized |
| FSD model | Mostly upfront | Full subscription transition | Structural change |
| Auto margin ex-credits | ~15% | 17.9% (Q4 actual) | Beat |
Implied Q-over-Q ramp: Q1 2026 deliveries should be roughly flat-to-up sequentially as international demand sustains, US works through the credit-cliff hangover, and the new affordable Model Y/3 trims continue ramping. We model Q1 26 deliveries 410–430K.
Street at: Pre-print FY26 EPS consensus around $2.20–$2.40. After this print, expect estimates to bifurcate — some analysts will mark up margin assumptions on the Q4 17.9% read, others will mark down for the $20B capex / FCF compression. Net: estimates probably hold flat-to-up modestly.
Guidance style: Tesla still does not give formal volume guidance, but the deck and call give enough operating-cadence detail (Cybercab April, Optimus Q1 unveil, 7 new Robotaxi metros H1, $20B capex) to model the year. This is the most informationally dense guidance package Tesla has provided in 2025.
Analyst Q&A Highlights
Robotaxi Scale & Economics
- Multiple analysts: Pressed on Robotaxi unit economics. CFO declined to share rev/cost per mile yet, citing "still in the early phase of fleet deployment" with significant validation testing. Musk reiterated CyberCab can hit ~25¢/mile long-term economics.
Assessment: The "no metrics yet" stance is annoying but understandable at 500-vehicle scale. We'd want this disclosed by Q3 26 at latest.
Capital Efficiency & FCF
- Multiple analysts: Probed the $20B+ capex number. Taneja emphasized "capital-efficient" execution and noted the figure excludes solar cell manufacturing and the TerraFab semiconductor program (both could add billions).
Assessment: 2026 FCF will be materially below 2025's $5B+. We model $1–3B FCF for FY26.
FSD Subscription Transition
- Analyst (multiple): Asked about near-term margin impact from full subscription transition. Taneja: "short term will impact automotive margins" but did not quantify.
Assessment: Likely 100–200bps of auto margin headwind in 2026 from deferred revenue accounting; structurally cleaner long-term.
Battery Constraint
- Analyst (multiple): Asked about battery supply ceiling. Tesla pointed to in-house 4,680 cell production, the LFP factory ramp, and ongoing supplier diversification. No specific constraint quantification.
Assessment: Battery supply is now the binding ceiling on Tesla's volume aspirations across vehicles and energy.
What They're NOT Saying
- FY26 vehicle volume target: Still no number. The implicit 3M-in-24-months aspiration from Q3 wasn't repeated.
- Robotaxi unit economics: Tesla has 500+ vehicles operating but no rev/cost/mile disclosure. Investors deserve this by Q3 26.
- FSD subscription margin impact size: Flagged as "short-term negative" but not quantified. Likely deliberately vague.
- FY26 FCF range: No guide despite the very specific $20B+ capex number. The negative FCF inference is left for analysts to make.
- TerraFab and solar cell capex: Explicitly excluded from $20B but flagged as future additions. The actual 2026 capex could easily exceed $25B if these accelerate.
- xAI consideration / governance: $2B in Musk's other company is fundamentally a related-party transaction. The deck framed strategic rationale; the call did not address conflicts process.
- Cybercab pricing: April production but no announced consumer price. Musk's old "$30K" framing was years ago — current target unstated.
Market Reaction
- YTD context: TSLA closed 2025 roughly flat-to-up after a 41% Q1 drawdown and a Q3 recovery. Stock has been Robotaxi-narrative-driven for 6+ months.
- After-hours move: +2% in extended trading. Driven by EPS beat, margin recovery, and the Robotaxi/Cybercab milestones.
- Implied next-day open: Up 1–3%. (Some sources note a -3.5% next-day move on $20B capex digestion — the AH and next-day prints likely diverged as the market re-evaluated the FCF compression.)
- Volume: Elevated.
The reaction is rational. Tesla beat EPS, recovered margins better than expected, and delivered concrete Robotaxi/Optimus/Cybercab milestones — but the $20B capex guide is the offset. Long-term holders and the autonomy-bull camp net long-positive; valuation-disciplined investors net concerned about FCF. The +2% AH read is the closest to a clean signal — the print itself was a positive data set, but the 2026 spend ramp prevents a euphoric rally.
Street Perspective
Debate: Is the Q4 Margin Recovery Sustainable into 2026?
Bull view: APAC + EMEA mix shift is structural — these markets will only grow as FSD approval lands in Europe and China. The new Model Y trims and the upcoming Cybercab will further lift mix. 2026 auto margin ex-credits could trend toward 18–20%.
Bear view: The Q4 mix benefit is partly accounting (more APAC deliveries because US deliveries fell post-credit-cliff). When US normalizes in Q1/Q2 26, mix will compress. The full-subscription FSD transition adds another 100–200bps headwind. 2026 margin lands around 15–16%.
Our take: Truth in the middle. Auto ex-credits margin in 2026 likely lands 16–17.5%, an improvement from 2025's 14–15% but below the bullish 18%+ scenario. Even the middle case is positive vs. consensus expectations.
Debate: Are 7 New Robotaxi Metros in H1 26 Achievable?
Bull view: Tesla has the technology (proven in Austin without safety drivers), the regulatory groundwork (applications already filed in multiple states), and the manufacturing capacity (500+ vehicle fleet doubling monthly). Geographic expansion is now a deployment exercise, not a development one.
Bear view: Each new metro requires 3 months of safety-driver operation before unsupervised — even the bull case has these markets at sub-100 vehicles each by H1 end. Material revenue contribution from robotaxi is still 12+ months out.
Our take: Tesla likely hits 5–7 of the 7 announced metros by H1 end (some on the early side, some slipping into Q3). Aggregate fleet ~2,000 vehicles by mid-26. Material revenue contribution still late-26 / early-27.
Debate: $2B xAI Investment — Strategic or Conflict-of-Interest?
Bull view: Tesla gets cheap LLM access without internal duplication. Foundation models inform Optimus and Robotaxi planning layers. $2B at $200B+ valuation is a small price for strategic optionality.
Bear view: Funding the CEO's other company is a textbook related-party transaction. The opportunity cost is real — that $2B could fund deeper internal AI effort or be returned to shareholders.
Our take: Strategic logic is real, but governance optics are bad. Should have been structured as a commercial licensing agreement, not an equity investment. We mark this as a yellow flag, not a red one.
Debate: Will $20B Capex Pay Off?
Bull view: Six factories simultaneously is unprecedented but each maps to a near-term product (Cybercab April, Semi H2, Optimus V3) or a critical enabling capability (refinery, LFP, AI compute). 2027–2028 revenue from these investments could exceed $30B incremental.
Bear view: Tesla has a track record of capex bloat — multiple factory programs slip and over-run. $20B turns into $25B; FCF turns negative; and the AI/autonomy thesis still has to deliver to justify the spend.
Our take: Mid-case scenario: 2026 capex lands at $22–25B, FY26 FCF compresses to $0–2B, and 2027 revenue from new programs adds $10–15B. The capital-efficiency bar is high, but the strategic bet is well-formed.
Model Update Needed
| Item | Prior (Post-Q3) | Suggested Change | Reason |
|---|---|---|---|
| FY26 Deliveries | ~1.7–1.8M | 1.75–1.90M | Backlog stronger than expected; international momentum; new affordable trims |
| FY26 Auto Margin (ex-credits) | ~15.5% | 16.5–17.5% | Q4 17.9% sets a higher anchor; mix improvement structural |
| FY26 Reg Credits | ~$1.2B | ~$1.0B | Faster decline as BBB takes effect |
| FY26 Adj. EPS | $2.00–$2.40 | $2.30–$2.70 | Margin recovery + FSD subscription ARR scaling |
| FY26 FCF | $0–$2B | $1–$3B | $20B+ capex compresses FCF but operations are healthier |
| FY26 FSD ARR (run-rate exit) | ~$1.5B | ~$2.5B | Subscription transition + EMEA/China FSD approvals |
| FY26 Robotaxi revenue | ~$500M–$1.5B | $500M–$1.0B | 7 new metros but slow ramp + still mostly with safety drivers |
| FY27 Optimus units | 10–50K | 20–100K | Fremont line conversion materializes earlier than expected |
Valuation impact: At ~$365 pre-print, TSLA trades at ~145x our $2.50 FY26 EPS midpoint. The multiple is still expensive on near-term earnings but more defensible after this print: (a) margin recovery is real, (b) Robotaxi optionality has graduated from probabilistic to deployed, (c) FSD ARR is now a measurable subscription business approaching $2B+ run-rate, (d) Cybercab and Optimus have specific April / Q1 dates. We see a 12-month price target range of $400–$475 from sum-of-parts: ~$140 auto/energy/services on EPS-multiple basis + $260–$335 of optionality value (Robotaxi + FSD ARR + Optimus + Energy growth premium).
Thesis Scorecard Post-Earnings
| Thesis Point | Status | Notes |
|---|---|---|
| Bull #1: Auto returns to growth | Mixed | Q4 -16% YoY but margins +250bps; international healthy; FY26 likely small growth |
| Bull #2: Robotaxi launches and scales | Confirmed | 500+ vehicles, no safety drivers in Austin, 7 new metros H1 26 |
| Bull #3: Energy storage scales | Confirmed | +27% FY revenue, +113% FY GWh, record Q4 GP |
| Bull #4: FSD ARR scales | Confirmed | 1.1M paid customers; full subscription transition; ~$1.3B run-rate |
| Bull #5: AI5 chip + dual-fab | Confirmed | On track per Q3 commentary; integrated into capex plan |
| Bull #6 (NEW): Optimus production line | Confirmed | Fremont S/X line converts; V3 unveil this quarter |
| Bear #1: Brand damage hurts demand | Challenged | International strength + record orders in 5 new countries |
| Bear #2: Margin compression sustained | Challenged | Q4 ex-credits +250bps Q/Q; structural shift |
| Bear #3: Robotaxi slips again | Challenged | Hit Austin no-safety-driver target on time |
| Bear #4: Q4 demand cliff | Resolved | Cliff materialized but smaller than expected; offset by margin recovery |
| Bear #5: 2026 capex compression | Confirmed | $20B+ capex; FCF compression to $1–3B |
| Bear #6 (NEW): xAI related-party concern | Confirmed | $2B investment in Musk's other company |
Overall: Thesis tilts positively for the first time in this coverage. Six bull pillars confirmed (Robotaxi, Energy, FSD ARR, AI5, Optimus, margin recovery), four bear pillars challenged or resolved, and the surviving bear concerns (capex compression, xAI conflict) are real but bounded.
Action: Upgrade to Outperform from Hold. Q4 was the inflection quarter the bulls had been promising — margins, Robotaxi, FSD all delivered concrete proof points, and the structural-decline thesis was decisively challenged. The $20B capex is a real near-term FCF drag, but it's spent against a credible product roadmap. Risk/reward at the current quote skews positive for a 12-month horizon.