Tesla anticipates billions of dollars in additional spending this year to support chief executive Elon Musk’s ambitions to transform the electric vehicle maker into an AI and robotics company.
Capital expenditure this year will pass $25 billion, the company revealed on Wednesday, about three times last year’s spending. The planned investment is an increase on a prior forecast of about $20 billion.
“You should expect to see a very significant increase in capital expenditure,” Mr Musk said during a conference call after Tesla released its first-quarter results.
The investments will be put towards a dramatic expansion of factory operations, including the production of its Optimus humanoid robot, AI initiatives and the Cybercab autonomous car. Tesla’s traditional automotive business has declined for the past two years, putting greater pressure on the planned shift to those initiatives.
The revised spending plan shows the heavy costs Tesla faces if it is to achieve its goals, said Dec Mullarkey, managing director at SLC Management. It is “sobering up the assessment of free cash flow potential for the year”.
Tesla shares were little changed in late trading, erasing an earlier gain after executives announced the higher spending estimate. Through Wednesday’s close, the stock declined about 21 per cent since a record high in mid-December.
In the first quarter, adjusted earnings rose to 41 cents a share, Tesla said, beating the 34 cent average of analyst estimates compiled by Bloomberg. That marked the second straight quarter of better-than-expected results.
The report included promising signs for Tesla's core automotive business. The company said it had seen “continued growth in demand” for its vehicles in parts of Asia and South America, as well as a rebound in North America and the Europe-Middle East region.
The surprisingly optimistic comments came several weeks after the car maker reported lower-than-expected vehicle sales to start the year. The first quarter was the second worst for vehicle deliveries since mid-2022, trailing only a year earlier when Tesla paused production of its Model Y and faced widespread backlash to Mr Musk’s political activities.
The report “confirms that while the legacy EV business is no longer growing rapidly, it’s stable enough to fund Tesla’s heavy investments in robotics and self-driving technology”, said Andrew Rocco, a Zacks Investment Research analyst.
Tesla pointed to rising fuel prices as beneficial for its business, driving increased customer interest.
“We have seen a slight growth in terms of quarter-over-quarter deliveries on the order backlog front,” chief financial officer Vaibhav Taneja said during the conference call.
Tesla will be boosting vehicle output as part of its capital expenditure plan, Mr Musk said. The company is “laying the groundwork for what we expect to be a significant increase in vehicle production in the future”, he added.
For the first three months of this year, however, Tesla spent less than $2.5 billion – well below the outlay the company will need to average in each quarter to reach its expenditure forecast for the year. This contributed to Tesla posting $1.4 billion in positive free cash flow for the quarter, far better than analysts’ expectation that the car maker would burn through almost $1.9 billion.
The company’s energy and storage division reported revenue of $2.4 billion in the first quarter, a 12 per cent drop from a year earlier. While the company did not provide details of why growth stalled at the unit, which had been a bright spot for the past several years, Mr Taneja said “the energy storage business is inherently lumpy”. Tesla still expects energy deployments this year to be up from last year.
The car maker reaffirmed plans for its nascent ride-hailing business it calls Robotaxi, and said the business is on track to expand to Phoenix, Arizona; Las Vegas, Nevada; and Miami, Orlando and Tampa, Florida, in the first half of this year. Robotaxi, which was originally envisioned as a driverless service, was launched in Austin, Texas, last year and has slowly expanded since then. This month it also launched in Houston and Dallas, Texas.
While the company has not provided details about fleet sizes, or disclosed how many vehicles operate without a safety monitor on board, the ramp remains slow, and Mr Musk said it will probably not see material revenue until at least next year. Tesla also offers a ride-share service under the same app in the San Francisco Bay Area, but it is more similar to Uber and Lyft.
Tesla said it remains on track to begin manufacturing key products including Cybercab, Semi and an updated version of its Megapack battery storage system.
The spending needed to support production “increases near‑term cash burn and execution risk, but can be a long‑term positive for the stock”, said Ivan Feinseth, chief investment officer at Tigress Financial Partners. “Investors may increasingly view it as an AI compute and robotics infrastructure platform rather than just an automaker.”
