Tesla shares slip 4% as capex surge and cautious AI roadmap raise

Tesla’s shares opened lower, down about 4% near $370, after the company reported a first‑quarter earnings beat but highlighted a steep rise in capital expenditures and a more cautious tone on autonomous driving [1]. Investors are weighing the strong automotive margin expansion against the cost of Tesla’s expanding AI and robotaxi ambitions.

Key takeaways

• Capital expenditures jumped 67% YoY to $2.493 billion, driven by AI compute, battery materials and new production lines for Cybercab, Semi, Megapack 3 and Optimus [1].
• Operating expenses rose 37% YoY, with R&D alone at $1.95 billion, prompting analysts to warn of potential negative free‑cash‑flow this year [1].
• Active Full Self‑Driving (FSD) subscriptions grew 51% YoY to 1.28 million, while services revenue increased 42% to $3.745 billion [1].
• Tesla acknowledged that millions of vehicles with older “Hardware 3” lack components needed for full autonomy, raising “costly redress options” for the company [1].
• Despite the concerns, automotive gross margin expanded to 21% and free cash flow rose 117% to $1.444 billion [1].

Rising spend fuels free‑cash‑flow worries

Tesla’s Q1 2026 report shows a capital‑expenditure surge to $2.493 billion, a 67% increase from the same period a year earlier. The spending is tied to AI compute infrastructure, battery‑material purchases, semiconductor manufacturing and the rollout of new production lines for the Cybercab, Semi, Megapack 3 and the humanoid robot Optimus. Operating expenses also climbed 37% YoY, with AI‑related research and development accounting for $1.95 billion of the increase. Truist Securities flagged that, despite the earnings beat, the heightened capex could push Tesla into negative free‑cash‑flow for the year and maintained a Hold rating with a $400 price target [1].

Autonomous‑driving outlook tempered amid hardware gap

During the earnings call, Elon Musk confirmed that many Tesla vehicles built with older “Hardware 3” lack the components required for full self‑driving, even though owners have paid for the capability. Bloomberg described this as creating “costly redress options” for the company. Nevertheless, the software side showed momentum: active FSD subscriptions rose 51% YoY to 1.28 million, and services revenue grew 42% to $3.745 billion. Tesla also launched unsupervised robotaxi rides in Dallas and Houston and completed the tape‑out of its AI5 inference processor in April, though critics argue the robotaxi push may distract from core EV operations [1].

Why it matters

The market’s reaction underscores a split between bullish metrics—such as a 21% automotive gross margin, a 117% rise in free cash flow, and a cash pile of $44.743 billion—and the growing cost base tied to AI and autonomous‑vehicle projects. If the capex trajectory continues, Tesla could face cash‑flow pressure that outweighs short‑term earnings strength. At the same time, the admission that older hardware cannot deliver promised autonomy may erode consumer confidence and invite regulatory scrutiny. Investors will likely watch upcoming production milestones for the Cybercab and the Megapack 3 ramp, as well as the evolution of Tesla’s robotaxi service, to gauge whether the company can balance its ambitious AI roadmap with sustainable cash generation.