Shares of electric-vehicle and power specialist Tesla(NASDAQ: TSLA) fell this week after the corporate reported its first-quarter outcomes. On the floor, this may occasionally appear unusual since Tesla’s income grew at a wholesome double-digit price and income jumped.
However the inventory market is forward-looking, and buyers could also be specializing in one thing that may weigh on the corporate’s financials for the remainder of the yr: a significant step-up in capital expenditures.
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Tesla now expects capital expenditures to exceed $25 billion in 2026, the corporate mentioned throughout its first-quarter earnings name. Much more, Tesla chief monetary officer Vaibhav Taneja mentioned that this spending will seemingly end in destructive free money move for the remainder of the yr.
So, is the inventory’s post-earnings pullback a shopping for alternative? Or is Tesla’s valuation merely asking an excessive amount of from a enterprise in the course of a capital-intensive transition, even when shares are already down 15% yr so far?
Picture supply: Tesla.
Tesla’s first-quarter car deliveries totaled 358,023, up 6% yr over yr. That may be a welcome enchancment after a troublesome 2025, when full-year deliveries fell 9% from 2024.
However the sequential pattern is much less encouraging. Tesla delivered 418,227 automobiles within the fourth quarter of 2025 and 497,099 automobiles within the quarter earlier than that. So, first-quarter deliveries had been down about 14% sequentially and 28% from the third-quarter stage.
In fact, quarterly supply patterns may be messy. The timing of when a federal electrical car credit score expired, as an illustration, was a significant boon to third-quarter car gross sales final yr.
Thankfully, the corporate’s monetary outcomes had been stronger than the supply pattern would possibly counsel. Tesla’s complete income rose 16% yr over yr to $22.4 billion, and automotive income rose on the identical price to $16.2 billion. And Tesla’s working earnings greater than doubled to $941 million.
General, Tesla is exhibiting enchancment from weak ranges final yr, however not the kind of progress that might justify the inventory’s sky-high valuation.
The inventory remains to be priced as if Tesla’s newer progress initiatives will ultimately rework the corporate’s economics.
The largest replace from Tesla’s report might have been administration’s new spending outlook. Tesla spent $8.5 billion on capital expenditures in 2025. Now, administration expects to spend greater than $25 billion in 2026 — practically 3 times final yr’s stage.
The corporate’s progress initiatives are piling up, together with Cybercab, its autonomous ride-sharing community Robotaxi, plans for a humanoid robotic known as Optimus, chip design and manufacturing, AI infrastructure, the launch of an electrical semi truck, and extra. The corporate additionally just lately disclosed an settlement to amass an AI {hardware} firm for as much as $2 billion.
“We’re additional growing our funding in AI-related initiatives, together with the AI infrastructure to help Robotaxi and the launch of Optimus,” defined Taneja through the firm’s first-quarter earnings name. “We have already began inserting orders for the analysis semiconductor fab in Austin and for photo voltaic manufacturing gear.”
This can all end in destructive free money move for the remainder of 2026, Taneja added. However he emphasised that Tesla believes “that is the suitable technique to place the corporate for the following period.”
To Tesla’s credit score, the corporate’s progress in autonomy is turning into extra tangible.
Tesla mentioned paid Robotaxi miles practically doubled sequentially in Q1. It additionally expanded unsupervised Robotaxi rides in Austin and launched unsupervised rides in Dallas and Houston in April.
The corporate additionally mentioned Cybercab — an electrical car constructed from the bottom up for autonomous driving — is in pilot manufacturing and expects quantity manufacturing of each Cybercab and Tesla Semi this yr.
However Tesla’s CEO additionally injected some warning into the manufacturing timeline. He mentioned buyers ought to count on preliminary manufacturing of Cybercab and Semi to be “very gradual,” adopted by a ramp later.
The CEO’s Robotaxi commentary had an analogous mixture of optimism and warning, with Musk saying he hopes to have unsupervised Full Self-Driving (FSD) and/or Robotaxi working in “a dozen or so states” by the top of the yr. However he additionally mentioned unsupervised FSD or Robotaxi income in all probability will not be “tremendous materials” this yr.
Thankfully, Tesla has loads of money to fund its progress initiatives, so destructive free money move within the close to time period is not a significant concern. Tesla ended the primary quarter with about $44.7 billion in money, money equivalents, and short-term investments.
My challenge with Tesla inventory is easy. The valuation seems stretched.
As of this writing, Tesla has a market capitalization of about $1.4 trillion and a price-to-earnings ratio of about 345. A valuation like this implies buyers should not actually paying for the Tesla that exists immediately. They’re paying for a future Tesla that has efficiently scaled Robotaxi, Cybercab, software program, AI infrastructure, power storage, and perhaps even Optimus into main revenue swimming pools.
That future is definitely potential. Tesla has repeatedly confirmed skeptics flawed prior to now, and the corporate’s potential to execute capital-intensive initiatives should not be dismissed.
However there are dangers. As an example, Robotaxi growth might take longer than anticipated, and even the corporate’s Cybercab manufacturing might ramp extra slowly than bulls hope. And the economics of a fleet-based autonomous transportation enterprise will not be as profitable because the market assumes.
In the end, I feel the valuation merely already costs in an excessive amount of — particularly given the uncertainties surrounding all of Tesla’s new progress initiatives.
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Daniel Sparks has shoppers with positions in Tesla. The Motley Idiot has positions in and recommends Tesla. The Motley Idiot has a disclosure coverage.
Tesla Is Down After Its Earnings Report. Time to Purchase? was initially revealed by The Motley Idiot
