The future of Tesla is really hard to build and increasingly expensive

Tesla CEO Elon Musk is hoping that if he builds it, they will come. But he’s going to have to build it first — and that’s proving difficult, and more and more expensive.

What Musk and Tesla are attempting to build is an autonomous future where Tesla, which calls itself the “leader in real-world AI,” is “fundamentally changing the nature of transport,” providing abundant clean energy, and making our lives measurably better.

“We believe with Optimus and self-driving that you can actually create a world where there is no poverty, where everyone has access to the finest medical care,” Musk said on the company’s earnings call Wednesday, after Tesla beat on revenue but missed on earnings.

“Optimus will be an incredible surgeon,” he said, referring to the autonomous robots Tesla is developing that he says hold 80% of the company’s future value.

What gets glossed over quite a bit in the oratory of creating something genuinely awe-inspiring is just how difficult the task is, and how expensive it will be to achieve.

For Tesla, a company that’s known for its efficiency and leanness, costs are rising significantly.

Meanwhile, profits have been generally trending downward.

Of course, as we've noted before, Tesla shareholders often don’t care about near-term profitability. They’ve been in it for big gains over the long haul, and that strategy has generally played out well for them: without a boatload of profit to show for it, Tesla’s stock has vaulted nearly 1,400% since just after the beginning of the COVID-19 pandemic.

On Thursday, shareholders seemed to care at least a bit, however, as the stock fell on the heels of the earnings report.

Tesla is expecting capex, slated for around $9 billion this year, to “increase substantially in 2026” as it ramps up its AI initiatives, including Optimus. And the company’s operating costs have soared, with general and administrative expenses climbing 32% and research and development expenses jumping 57% last quarter from a year earlier.

R&D alone cost Tesla $1.6 billion in the latest quarter, a number bigger than the entire $1.4 billion profit it generated for the quarter. R&D has been bigger than profit now for three quarters straight. And the company expects R&D costs to keep growing thanks to continued performance-based equity awards for employees working on AI initiatives.

In the meantime, Tesla has been getting by on lower margins in its main auto business, which funds everything else, as it cut prices to move vehicles last quarter. Tesla’s automotive gross margin excluding revenue credits — which are gone in the US now anyway — was 15.4% last quarter, down from 17.1% a year earlier and nearly 30% for the third quarter of 2021.

And that’s not to mention the cost of Elon Musk himself, which is potentially going to skyrocket. Shareholders will vote on Musk’s record-breaking, jaw-dropping $1 trillion pay package next month.

Delays and difficultiues

The difficulty of achieving Musk’s vision is perhaps most pronounced in the repeated delays for its marquee products.

Last year at this time, the company had promised that an unsupervised version of its Full Self-Driving tech would be available to consumers in some markets this year, but it hasn’t happened yet. On the earnings call, Musk said Tesla now has “clarity” on achieving unsupervised FSD and expects to have no safety drivers “at least in parts of Austin.” He said he was so confident in the prospect that the company plans to increase vehicle production “as fast as we reasonably can,” potentially hitting a 3 million annualized rate in two years.

Even if Tesla does manage that, there’s no guarantee that people will turn up en masse to buy those cars. During the earnings call, a Tesla executive noted that 12% of existing Tesla customers pay for FSD — not exactly a show of strength in the existing tech. As it stands, despite a record quarter for revenue, analysts are expecting Tesla vehicle sales to decline for the second year in a row to about 1.7 million this year — and it could get worse thereafter, given the end of the government’s $7,500 EV tax credit.

Musk now says the company’s vaunted Robotaxi program, which is currently operating with a safety monitor in the passenger seat in Austin and a driver using supervised FSD in the Bay Area, will be expanding to 8 to 10 cities this year. That’s down from being available to “half the population of the US by the end of the year,” which he promised on Tesla’s previous quarterly call. It’s also likely that those new markets will have safety drivers — not really an autonomous experience.

Musk has repeatedly minimized the difficulty of expanding the robotaxi business. On last night’s call, he said again, “There are millions of cars out there that, with a software update, become Full Self-Driving cars.” However, scaling up might be the hardest part, according to Phil Koopman, an associate professor of electrical and computer engineering at Carnegie Mellon University and an autonomous vehicle expert, who recently wrote as much.

As Koopman put it, “One way to look at scaling robotaxis is that for every factor of 10 growth in fleet size, one should expect a fresh batch of challenges to graduate from quirks to problems.”

Even Musk’s prized Optimus has seen major hurdles and setbacks. Musk now says Tesla will unveil Optimus version 3 in the first quarter of 2026. Earlier this year, Musk had said Tesla would build 10,000 robots for internal use in 2025. Musk was straightforward about the challenge this time.

“Bringing Optimus to market is an incredibly difficult task,” Musk said on the call. “It’s not like some walk in the park.”

He noted that getting the robots’ hands to function like a human’s is “incredibly difficult” and noted that the company would still have to do “rolling changes for the Optimus design even after start of production.”