The electric vehicle maker delivered a quarterly earnings beat that would have sent most stocks soaring. Instead, Tesla shares slipped nearly 4% in regular trading and gave back all their after-hours gains as investors digested a capital spending plan that threatens to drain the company’s cash reserves for the foreseeable future.
Tesla reported first-quarter 2026 adjusted earnings of $0.41 per share on revenue of $22.39 billion, comfortably ahead of the $0.37 consensus estimate. The top line climbed 16% year over year. But the headline numbers were quickly overshadowed when Chief Financial Officer Vaibhav Taneja unveiled a dramatically scaled-up investment program.
Capex Quadruples as Tesla Pivots to Robotics
The company’s capital expenditure budget for 2026 has been raised to $25 billion — nearly three times its typical annual spending and up from the $20 billion estimate just three months ago. First-quarter capex alone jumped 67% to $2.49 billion. Taneja warned shareholders that free cash flow will turn negative for the remainder of the year as the company pours money into artificial intelligence infrastructure, robotaxi pilot production, and a radical factory retooling.
The most visible sign of that transformation: Tesla is ending production of its Model S and Model X luxury sedans. The California assembly lines that built those vehicles will be converted to mass-produce the Optimus humanoid robot. CEO Elon Musk confirmed during the earnings call that the third generation of Optimus will be unveiled this summer, with external customer sales targeted for 2027. The robots are already being trained inside Tesla’s own factories.
The Hardware 3 Time Bomb
A technical revelation during the call added to investor unease. Musk acknowledged that older Tesla vehicles equipped with Hardware 3 computers will not support the company’s future “unsupervised” Full Self-Driving capability. That creates a potentially enormous liability: Tesla sold millions of those cars as fully capable of autonomy. The company is planning a discounted upgrade program for affected customers, but the ultimate financial exposure remains unclear.
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The FSD business itself is showing momentum. Active subscriptions rose 51% to 1.28 million, while paid robotaxi miles nearly doubled from the prior quarter. Tesla launched unmanned robotaxi operations in Dallas and Houston in April and aims to expand to roughly a dozen US states by year-end. Services and other revenue jumped 42% to $3.75 billion, far outpacing the 16% growth in overall sales.
Margins Recover — With Asterisks
The gross margin hit 21.1%, up sharply from 16.3% a year ago. Automotive gross margin excluding regulatory credits reached 19.2%, the highest in several quarters. Tesla attributed the improvement to higher average selling prices and lower material costs.
But the quality of the margin expansion drew scrutiny. Operating income more than doubled to $941 million from $399 million in Q1 2025, yet the company acknowledged that one-time items related to warranties and tariffs drove much of the gain. The CFO confirmed a roughly $250 million tariff benefit, though he stressed it was not linked to IEEPA tariffs.
Energy Stumbles as Auto Recovery Continues
The energy storage business, a bright spot in recent quarters, hit a speed bump. Revenue fell 12% to $2.41 billion, and storage deployments plunged 38% to 8.8 GWh — well below analyst expectations of 12 to 14 GWh. European demand helped lift automotive deliveries, but the energy segment’s weakness added to questions about whether Tesla’s diversified strategy is paying off.
The stock now trades around €320 in Europe, down roughly 13% since the start of 2026. The Roadster sports car has been delayed by another month, a minor footnote in a quarter dominated by a single question: can the FSD subscription growth justify a $25 billion annual investment bill? The answer will start becoming clearer when Tesla reports its half-year results.
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