Tesla Shares Decline Amid Rising Capital Expenditure Concerns
Tesla Inc. (TSLA) is likely to conclude the week on a downturn, pulling back from last week’s gains, as investors remain concerned following the company’s recent Q1 earnings report. Despite exceeding both revenue and profit expectations, apprehension arose regarding escalated capital expenditure (capex) allocated towards artificial intelligence (AI) and robotics initiatives.
During an earnings call on Wednesday, CFO Vaibhav Taneja disclosed that Tesla’s projected capex for 2026 has increased to “over $25 billion,” which will likely contribute to negative free cash flow for the remainder of the year. Following the earnings announcement, shares initially surged but quickly reversed course after the capex news, resulting in a weekly decline of approximately 7%.
Piper Sandler analyst Alexander Potter noted that the revised capex projection — up from an earlier estimate of $20 billion — signifies Tesla’s ambitious outlook, doubling its past capital expenditure peak. However, the heightened expenditure has alarmed investors, raising questions about financial stability.
On a more optimistic note, Tesla reported progress on key projects, including the production timelines for its Cybercab, Tesla Semi, and megapack batteries. The production line for the Optimus robot is scheduled to commence in the second quarter.
In a move to reinforce his message, Tesla CEO Elon Musk shared a promotional video of the Cybercab on his social media platform, X, claiming, “Cybercab has started production.” This purpose-built robotaxi, designed without a steering wheel or pedals, aims to eventually replace Tesla’s current robotaxi fleet. While the company aims to make Cybercabs available to the public in the future, current regulations by the National Highway Traffic Safety Administration (NHTSA) prohibit the sale of vehicles lacking traditional driving controls.
However, the NHTSA has proposed potential reforms regarding these regulations, which could impact Tesla’s plans. Notably, Tesla has stated it would avoid the existing 2,500-vehicle annual production cap for autonomous vehicles through a self-certification waiver.
The Cybercab’s production is integral to Tesla’s broader AI-driven product rollout. The full self-driving (FSD) software currently servicing Tesla’s robotaxi fleet in areas like Austin, San Francisco, and the newly introduced Houston and Dallas is expected to achieve “unsupervised” status soon, although Musk emphasised that safety remains a priority, leading to a cautious approach with the upgrade.
By the end of Q1, Tesla reported approximately 456,000 active monthly FSD subscribers, generating over $45 million in monthly service revenue. Further, the company announced that preparations for its first large-scale Optimus factory are set to commence in Q2, with the initial production line to be established at the Fremont facility, where the Model S and Model X assembly lines will be transitioned for Optimus production.
Tesla has invested considerable resources into developing its embodied AI initiatives, encompassing data centres and training clusters necessary for training its FSD capabilities, along with the robotics infrastructure aimed at deploying AI-powered robots and in-house produced chips.
Morgan Stanley analyst Andrew Percoco affirmed that the current investment cycle is vital to securing a sustainable leadership position in autonomy and physical AI, expressing confidence in Tesla’s long-term trajectory.
As Tesla navigates these challenges, the market is closely observing how the increased capex impacts its overall growth strategy and financial performance in the coming quarters.
