Tesla’s $25 Billion Capex Bombshell Overshadows Q1 Earnings Beat

Tesla delivered a first-quarter earnings surprise that would normally have sent shares higher — but the market is now fixated on a far pricier story unfolding behind the numbers.

The electric vehicle maker posted adjusted earnings of $0.41 per share for the first quarter of 2026, topping the analyst consensus of $0.37. Revenue came in at $22.38 billion, narrowly missing the $22.6 billion estimate. The gross margin climbed to 21.1%, its strongest level in years, while the automotive gross margin excluding regulatory credits hit 19.2% — a multi-quarter high.

Yet the stock fell roughly 4% on Thursday to around €320, extending its year-to-date decline to 14%. The reason lies not in what Tesla earned, but in what it plans to spend.

Capex Shock Reshapes the Narrative

CFO Vaibhav Taneja dropped a bombshell on the earnings call: capital expenditures for 2026 will surge to over $25 billion, up from a prior forecast of $20 billion and compared to just $8.6 billion in 2025. First-quarter capex alone hit $2.49 billion, a 67% jump year-over-year.

Operating expenses rose 37%, driven by AI research and stock-based compensation. Research and development spending reached $1.95 billion in the quarter. The immediate consequence, as Truist Securities pointed out, is that Tesla is now expected to generate negative free cash flow for the full year despite the earnings beat. The bank maintained its “Hold” rating with a $400 price target.

The after-hours gains evaporated as investors digested the implications. Tesla shares initially rose about 4% post-close before reversing course entirely.

Margin Quality Raises Eyebrows

The gross margin improvement to 21.1% from 16.3% a year earlier drew scrutiny. Tesla attributed the gains to higher average selling prices and lower material costs. But the quality of the improvement came into question when the company disclosed that one-time items related to tariffs and warranty reserves were the primary drivers behind the operating profit jump from $399 million to $941 million year-over-year.

Should investors sell immediately? Or is it worth buying Tesla?

Taneja confirmed a tariff benefit of roughly $250 million, though he stressed it was not linked to IEEPA tariffs. The automotive gross margin excluding regulatory credits stood at 19.2%, the highest in several quarters but boosted by these non-recurring factors.

FSD Growth Accelerates, Energy Stumbles

The brightest spot came from Tesla’s Full Self-Driving business. Active FSD subscriptions surged 51% to 1.28 million, while paid robotaxi miles nearly doubled compared to the previous quarter. The services and other segment grew 42% to $3.75 billion, significantly outpacing total revenue growth of 16%.

That momentum faces a significant headwind. CEO Elon Musk confirmed on the call that vehicles equipped with the older Hardware 3 (HW3) computers — introduced in April 2019 — will not support the upcoming “unsupervised” FSD system. Many customers paid between $8,000 and $15,000 for the FSD package with the expectation that HW3 would be sufficient for full autonomy. Tesla now plans to offer a discounted upgrade program for affected owners, a move that impacts millions of vehicles.

Tesla launched unmanned robotaxi operations in Dallas and Houston in April, with Musk targeting expansion to roughly a dozen US states by year-end.

The energy segment delivered the quarter’s biggest disappointment. Revenue fell 12% to $2.41 billion, while energy storage deployments plunged 38% sequentially to 8.8 GWh — well below the analyst range of 12 to 14 GWh. Tesla pointed to a new Megafactory in Houston and the upcoming Megapack 3 production as catalysts for the remainder of the year.

Product Pipeline and the Path Forward

On the product front, Tesla plans to introduce cheaper variants of the Model Y and Model 3. The Cybercab, Tesla Semi, and Megapack 3 are all slated for series production in 2026.

The stock currently trades around €324, down roughly 13% year-to-date. The $25 billion capex commitment for 2026 has become the defining variable for Tesla’s investment case. Whether the accelerating FSD subscription growth can justify that spending level is a question that will likely demand an answer by the mid-year results.