Tesla is primed to pour more into capital spending in 2026 than it has in any other year on record as it pursues a series of high-risk, high-reward opportunities. One analyst thinks the company’s newest disclosures around this spending are a worrisome sign.
On Wednesday, the company raised its projected full-year capital expenditures to “in excess” of $25 billion, up from a previous estimate of at least $20 billion. Tesla Chief Financial Officer Vaibhav Taneja also said on an call with analysts that the company expects to record negative free cash flow for the rest of the year as a result of these investments.
“I think it’s going to pay off in a very big way,” Tesla CEO Elon Musk said on the call. “So we’re investing in and improving our core technologies, battery, powertrain, AI software, AI training, chip design, manufacturing, laying the groundwork for significantly increased manufacturing production.”
The forecast came after a relatively tame March quarter, at least in terms of spending. Tesla booked capex of just $2.5 billion, less than the $4.3 billion Wall Street expected. The company also recorded positive free cash flow of $1.4 billion, surprising analysts who had been projecting cash burn for the period.
Until Taneja’s comments on the call, J.P. Morgan analysts said they thought the $20 billion capex estimate was just a way to imply that Tesla was ”disciplined.” They had earlier forecast $17 billion in full-year capex, writing in a note to clients that they were “not entirely fathoming” what Tesla could spend so much cash on.
“But we were shocked again when management during the call actually increased the guidance for capex,” the analysts said in a note to clients. They have an underweight rating and $145 price target on the stock, implying downside of 61% from current levels.
Backing the first-quarter capex out of the new full-year target implies that an average of $7.5 billion will be spent in each of the year’s remaining quarters. To put that implied quarterly spending into perspective, Tesla has spent more than $7.5 billion in annual capex just three times in its history as a public company.
But Tesla won’t likely approach its $25 billion-plus capex goal by spending evenly across the next three quarters. The company has to ramp its spending, meaning that it could weight investments more heavily toward the end of the year, according to the J.P. Morgan analysts. That implies a more than $25 billion exiting run rate of capex by the end of the year, which they “characterize as runaway, unsustainable, and highly suggestive of an advisable equity capital raise.”
As of March 31, Tesla had $44.7 billion in cash, cash equivalents and short-term investments. It also had $7.78 billion worth of long-term debt and finance leases. Last quarter, Tesla entered into an uncommitted revolving loan and security agreement with a group of banks that allows it to borrow up to $1.5 billion.
Tesla’s spending is expected to be largely focused on six factories, including a lithium refinery. The facilities will be used to make Optimus humanoid robots, Cybercab robotaxis, electric semi-truck trailers and energy products. Tesla is also developing its artificial-intelligence infrastructure.
Much of that spending is focused on businesses that won’t generate revenue for a while. Tesla’s robotaxi efforts are slow-moving, although Musk now expects “material” revenue next year, while the Optimus robots won’t enter limited production for at least another quarter.
Tesla has also placed orders for manufacturing equipment as part of a push into solar-energy production. There’s also the matter of the Terafab, a joint chip-making project with Musk’s SpaceX that could eventually cost trillions of dollars, according to one estimate.
How costs will be divided between the partners is still unclear, although Musk said Wednesday that Tesla will build a research fab in Texas capable of making a “few thousand” silicon wafers each month. It will cost “$3 billion-ish,” he said.
SpaceX will take care of the “initial part” of the larger-scale project, Musk said, although he didn’t describe exactly what that would entail. SpaceX is aiming to raise some $75 billion through an initial public offering that could be announced as soon as June.
“You should expect to see … a very significant increase in capital expenditures, but I think well-justified for a substantially increased future revenue stream,” Musk said on Wednesday, according to a transcript.
In a note to clients last week, Morgan Stanley’s Andrew Percoco said the investment is needed to ensure Tesla’s leadership in artificial intelligence and autonomous technologies. He expects Tesla to record capex of $26.1 billion and cash burn of $11.6 billion in 2026.
The “reality” is that Tesla is moving slower than investors expect, which will “likely cap upside in the near term,” Percoco said. He rates Tesla’s stock at equal weight, with a $415 price target.
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