Tesla’s big beat comes with a bigger bill ahead

Investor excitement over Tesla’s surprisingly good earnings report Wednesday quickly faded as it became clear that the financial pain they’d been bracing for is still ahead — and likely worse than expected.

Tesla reported an unexpected $1.4 billion in positive free cash flow, versus the roughly $1.5 billion cash burn analysts had forecast. However, that upside appears to say less about improving fundamentals than about timing: Tesla’s spending hasn’t really ramped yet.

Capital expenditure came in at $2.5 billion last quarter, well below the $4.4 billion analysts had expected, according to FactSet. At the same time, Tesla raised its projected 2026 capex to $25 billion from $20 billion.

That implies roughly $7.5 billion in spending in each of the next three quarters — more than double the company’s previous peak.

Last year, the company reported capex of just ~$9 billion, so this latest bump is a pretty substantial one.

“We are in a very big capital investment phase, which is going to start now and would last a couple of years,” CFO Vaibhav Taneja said during the earnings call, pointing to the six factories Tesla is funding, along with AI infrastructure, and its Terafab chipmaking project.

Musk hoped to allay spending fears by saying that the “very significant increase in capital expenditures” would be “well justified for a substantially increased future revenue stream.”

The bet is that today’s spending surge will translate into higher-margin AI and software revenue — but Tesla offered little detail on timing, saying only that “over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software, and fleet-based profits.”

The stock, which was up more than 4% after the report came out, is now down more than 3% in premarket trading. Some of that weakness can at least be excused by wider market weakness, with futures on the tech-heavy Nasdaq 100 off 0.6% this morning.