Tesla cash burn tests investor faith as $25 billion AI spending outpaces automotive revenue

Tesla cash burn to test investor faith in AI bets

July 21 (Reuters) - Tesla (TSLA.O), opens new tab is expected to report its first quarterly cash burn in over two years on Wednesday, as its spending on AI and robotics soars, intensifying investor scrutiny over when those bets will pay off. CEO Elon Musk has pivoted the electric-vehicle maker's focus from manufacturing cars to building so-called physical AI businesses such as self-driving taxis and humanoid robots. Much of Tesla's valuation hangs on that promise. However, investors are growing increasingly uneasy as spending on AI infrastructure, including data centers, and manufacturing capacity is projected to climb to $25 billion this year, outstripping quarterly cash generated by Tesla's core automotive and energy operations. "As capex more than doubles and free cash flow turns negative, investors are increasingly focused on evidence that Tesla's spending is strengthening its physical AI moat," ⁠Morgan Stanley analysts wrote in a note. Investors have been betting that Tesla's autonomous-driving technology and robotics ambitions could eventually unlock new, high-margin revenue streams. But progress has been slower than many analysts expected, and Musk has missed some self-imposed deadlines. Soon after launching its robotaxi service in Austin, Texas, in April last year, Musk predicted Tesla robotaxis would serve half the U.S. population by the end of 2025. In January, Tesla said the service would expand to seven new cities in the first half of 2026. But its robotaxi network remains confined to Austin, Dallas, Houston in Texas, and Miami in Florida. Ahead of Wednesday's earnings call, the most-voted question on Tesla's investor-relations site, submitted by a retail investor, was: "What is keeping Tesla back from accomplishing these short-term goals that they've set for themselves?" Nine of the top 10 most-voted questions center around Tesla's AI-driven bets - robotaxis, Optimus humanoid robots and its Full Self-Driving technology. "Why ⁠has growth of robotaxi vehicles stalled? When will we see Cybercab start customer rides?" asked another retail investor. Tesla has said that it has started manufacturing its Cybercab vehicle, a tailor-made robotaxi without a steering wheel and pedals. However, the vehicles have not been deployed into a robotaxi network, with Musk saying that the production ramp would be "agonizingly slow." AUTO BUSINESS REBOUNDS Tesla delivered a record number of vehicles for the April-to-June period, far exceeding market estimates, as higher oil prices helped drive sales of EVs, ⁠especially in Europe. Analysts expect Tesla to deliver 1.7 million vehicles in 2026, up 3.9% from last year, which would snap a two-year skid of declining annual deliveries. Barclays analysts said investors remained focused on Tesla's AI ambitions, but a stronger automotive business would help generate the cash needed to finance those investments. For the second quarter, however, the ⁠vehicle-sales rebound may not be enough to offset heavy spending. Tesla is expected to report negative free cash flow of $3.3 billion, according to LSEG data. Analysts expect Tesla's second-quarter profit to come in at 50 cents per share, compared with 40 cents per share in the same period a year earlier. However, ⁠Deutsche Bank analysts expect the elimination of upfront Full Self-Driving software purchases earlier this year and low interest-rate financing in May to hit profitability. Wall Street expects automotive gross margin excluding regulatory credits of 18.1% in the second quarter, lower than 19.2% in the prior three-month period, according to Visible Alpha data. Reporting by Akash Sriram in Bengaluru and Abhirup Roy in San Francisco; Editing by Mike Colias and Anil D'Silva Our Standards: The Thomson Reuters Trust Principles., opens new tab * Suggested Topics: * Disrupted * ADAS, AV & Safety * Software-Defined Vehicle * Sustainable & EV Supply Chain Akash Sriram Thomson Reuters Akash reports on technology companies in the United States, electric vehicle companies, and the space industry. His reporting usually appears in the Autos & Transportation and Technology sections. He has a postgraduate degree in Conflict, Development, and Security from the University of Leeds. Akash's interests include music, football (soccer), and Formula 1. Abhirup Roy Thomson Reuters Abhirup Roy is a U.S. autos correspondent based in San Francisco, covering Tesla and the wider electric and autonomous vehicle industry. He previously reported from India on global corporations, capital markets regulation, white-collar crime, and corporate litigation. Contact him at (415) 941-8665 or connect securely via Signal on abhiruproy.10

Tesla's cash burn will test investor faith in its AI bets

Record deliveries meet a widening cash gap as robotaxi, Optimus, and a $25bn capital bill come due ahead of Wednesday's results. Tesla reports its second-quarter results on Wednesday, and the question hanging over the call is less whether it can still sell cars than how long it can keep spending faster than it earns. The company has just posted its best delivery quarter on record, yet Wall Street expects it to burn through roughly $3.25bn in free cash flow, a gap that measures the distance between Elon Musk's autonomy promises and the cost of funding them. Much of that cost is already committed. Tesla has lifted its 2026 capital budget to more than $25bn, up from around $20bn three months earlier, with close to $20bn of it earmarked for AI, spanning Dojo compute, a data-centre buildout, the Cybercab, and the Optimus robot. The deliveries were the quarter's clear positive. Tesla handed over 480,126 vehicles, up about 25% on a year earlier and well ahead of the roughly 406,000 analysts had modelled, its strongest three months yet. The gains lean heavily on price. Cheaper Model 3 and Model Y variants and a wider Full Self-Driving rollout in Europe drove the volume, with those two mainstream cars accounting for about 97% of the total. The problem is timing. The spending is front-loaded against revenue that has not arrived, and chief financial officer Vaibhav Taneja told investors in April that Tesla would run negative free cash flow for the rest of 2026. The projected minus $3.25bn for the second quarter would reverse a positive $1.4bn in the first. The scale of the commitment is the real shift. At more than $25bn, the 2026 budget runs at roughly triple Tesla's historical pace, recasting a carmaker that once prided itself on capital discipline as a capital-hungry AI and robotics platform. The autonomy business meant to justify the outlay is still small. Tesla's robotaxi service runs in Austin, Dallas, and Houston, and its fleet remains a fraction of Waymo's, with meaningful revenue not expected before 2027 at the earliest. Optimus sits further out again. Musk has cast the humanoid robot as Tesla's largest future product, but production is only starting to ramp and it adds nothing to current cash flow. Analysts are divided on whether the promise is worth the burn. Morgan Stanley's Andrew Percoco has called robotaxi scaling the "most important catalyst" for the stock, holding a neutral rating while raising his price target to $417, and UBS's Joseph Spak has kept a similarly cautious hold. The longer view is more generous. J.P. Morgan projects Tesla's revenue climbing from about $95bn in 2025 to roughly $203bn by 2030, driven by robotaxi and Optimus, though those forecasts rest on products that barely generate income today. The near-term picture is duller. Consensus points to revenue near $27.6bn, a gross margin around 19.5%, and adjusted earnings of about $0.55 a share, with automotive margins squeezed by cheaper Model 3 and Model Y variants that lifted volumes but not profit. Markets are braced for a sharp reaction either way. Options pricing implies a post-results move of around 7% in either direction, and the shares have drifted lower this year even after the record delivery figure. Energy storage remains a rare bright spot, with 13.5 GWh deployed in the quarter, up from 9.6 GWh a year earlier, though it is not yet large enough to offset the autonomy bill. Tesla still holds more than $40bn in cash, which buys time even as the outflows widen. Strip away the projections and the results describe a company in transition, funding a bet on machines that drive and work while its core car business grows more slowly and at thinner margins. Investors have largely priced the AI story as settled fact. That is why the forward guide will matter more than the quarter itself. Any hint that capex could rise again, or that robotaxi timelines are slipping, would test how much patience the current valuation assumes. Tesla reports after the closing bell on 22 July, with the earnings call scheduled for 5.30pm ET.

Tesla cash burn to test investor faith in AI bets

CEO Elon Musk has pivoted the electric-vehicle maker's focus from manufacturing cars to building so-called physical AI businesses such as self-driving taxis and humanoid robots. Much of Tesla's valuation hangs on that promise. Tesla is expected to report its first quarterly cash burn in over two years on Wednesday, as its spending on AI and robotics soars, intensifying investor scrutiny over when those bets will pay off. CEO Elon Musk has pivoted the electric-vehicle maker's focus from manufacturing cars to building so-called physical AI businesses such as self-driving taxis and humanoid robots. Much of Tesla's valuation hangs on that promise. However, investors are growing increasingly uneasy as spending on AI infrastructure, including data centers, and manufacturing capacity is projected to climb to $25 billion this year, outstripping quarterly ⁠cash ⁠generated by Tesla's core automotive and energy operations. "As capex more than doubles and free cash flow turns negative, investors are increasingly focused on evidence that Tesla's spending is strengthening its physical AI moat," Morgan Stanley analysts wrote in a note. Investors have been betting that Tesla's autonomous-driving technology and robotics ambitions could eventually unlock new, high-margin revenue streams. But progress has been slower than many analysts expected, and Musk has missed some self-imposed deadlines. Soon after launching its robotaxi service in Austin, Texas, in April last year, Musk predicted Tesla robotaxis would serve half the U.S. population by the end of 2025. In January, Tesla said the service would ⁠expand to seven new cities in the first half of 2026. But its robotaxi network remains confined to Austin, Dallas, Houston in Texas, and Miami in Florida. Ahead of Wednesday's earnings call, the most-voted question on Tesla's investor-relations site, ⁠submitted by a retail investor, was: "What is keeping Tesla back from accomplishing these short-term goals that they've set for themselves?" Nine of the top 10 most-voted questions center around Tesla's AI-driven bets - robotaxis, Optimus humanoid robots and its Full Self-Driving technology. "Why has growth of robotaxi vehicles stalled? When will we see Cybercab start customer rides?" asked another retail investor. Tesla has said that it has started manufacturing its Cybercab vehicle, a tailor-made robotaxi without a steering wheel and pedals. However, the vehicles have not been deployed into a robotaxi network, with Musk saying that the production ramp would be "agonizingly slow." Auto business rebounds Tesla delivered a record number of vehicles for the April-to-June period, far exceeding market estimates, as higher oil prices helped drive sales of EVs, especially in Europe. Analysts expect Tesla to deliver 1.7 million vehicles in 2026, up 3.9% from last year, which would snap a two-year skid of declining annual deliveries. Barclays analysts said investors remained focused on Tesla's ⁠AI ambitions, but a stronger automotive business would help generate the cash needed to finance those investments. For the second quarter, however, the vehicle-sales rebound may not be enough to offset heavy spending. Tesla is expected to report negative free cash flow of $3.3 billion, according to LSEG data. Analysts expect Tesla's second-quarter profit to come in at 50 cents per share, compared with 40 cents per share in the same period a year earlier. However, Deutsche Bank analysts expect the elimination of upfront Full Self-Driving software purchases earlier this year and low interest-rate financing in May to hit profitability. Wall Street expects automotive gross margin excluding regulatory credits of 18.1% in the second quarter, lower than 19.2% in the prior three-month period, according to Visible Alpha data.