Shares of electric-vehicle and energy specialist Tesla(NASDAQ: TSLA) fell this week after the company reported its first-quarter results. On the surface, this may seem strange since Tesla’s revenue grew at a healthy double-digit rate and profits jumped.
But the stock market is forward-looking, and investors may be focusing on something that will weigh on the company’s financials for the rest of the year: a major step-up in capital expenditures.
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Tesla now expects capital expenditures to exceed $25 billion in 2026, the company said during its first-quarter earnings call. Even more, Tesla chief financial officer Vaibhav Taneja said that this spending will likely result in negative free cash flow for the rest of the year.
So, is the stock’s post-earnings pullback a buying opportunity? Or is Tesla’s valuation simply asking too much from a business in the middle of a capital-intensive transition, even if shares are already down 15% year to date?
Image source: Tesla.
Tesla’s first-quarter vehicle deliveries totaled 358,023, up 6% year over year. That is a welcome improvement after a difficult 2025, when full-year deliveries fell 9% from 2024.
But the sequential trend is less encouraging. Tesla delivered 418,227 vehicles in the fourth quarter of 2025 and 497,099 vehicles in the quarter before that. So, first-quarter deliveries were down about 14% sequentially and 28% from the third-quarter level.
Of course, quarterly delivery patterns can be messy. The timing of when a federal electric vehicle credit expired, for instance, was a major boon to third-quarter vehicle sales last year.
Fortunately, the company’s financial results were stronger than the delivery trend might suggest. Tesla’s total revenue rose 16% year over year to $22.4 billion, and automotive revenue rose at the same rate to $16.2 billion. And Tesla’s operating income more than doubled to $941 million.
Overall, Tesla is showing improvement from weak levels last year, but not the type of growth that would justify the stock’s sky-high valuation.
The stock is still priced as if Tesla’s newer growth initiatives will eventually transform the company’s economics.
The biggest update from Tesla’s report may have been management’s new spending outlook. Tesla spent $8.5 billion on capital expenditures in 2025. Now, management expects to spend more than $25 billion in 2026 — nearly three times last year’s level.
The company’s growth initiatives are piling up, including Cybercab, its autonomous ride-sharing network Robotaxi, plans for a humanoid robot called Optimus, chip design and manufacturing, AI infrastructure, the launch of an electric semi truck, and more. The company also recently disclosed an agreement to acquire an AI hardware company for up to $2 billion.
“We’re further increasing our investment in AI-related initiatives, including the AI infrastructure to support Robotaxi and the launch of Optimus,” explained Taneja during the company’s first-quarter earnings call. “We’ve already started placing orders for the research semiconductor fab in Austin and for solar manufacturing equipment.”
This will all result in negative free cash flow for the rest of 2026, Taneja added. But he emphasized that Tesla believes “this is the right strategy to position the company for the next era.”
To Tesla’s credit, the company’s progress in autonomy is becoming more tangible.
Tesla said paid Robotaxi miles nearly doubled sequentially in Q1. It also expanded unsupervised Robotaxi rides in Austin and launched unsupervised rides in Dallas and Houston in April.
The company also said Cybercab — an electric vehicle built from the ground up for autonomous driving — is in pilot production and expects volume production of both Cybercab and Tesla Semi this year.
But Tesla’s CEO also injected some caution into the production timeline. He said investors should expect initial production of Cybercab and Semi to be “very slow,” followed by a ramp later.
The CEO’s Robotaxi commentary had a similar mix of optimism and caution, with Musk saying he hopes to have unsupervised Full Self-Driving (FSD) and/or Robotaxi operating in “a dozen or so states” by the end of the year. But he also said unsupervised FSD or Robotaxi revenue probably won’t be “super material” this year.
Fortunately, Tesla has plenty of cash to fund its growth initiatives, so negative free cash flow in the near term isn’t a major concern. Tesla ended the first quarter with about $44.7 billion in cash, cash equivalents, and short-term investments.
My issue with Tesla stock is simple. The valuation looks 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 means investors are not really paying for the Tesla that exists today. They are paying for a future Tesla that has successfully scaled Robotaxi, Cybercab, software, AI infrastructure, energy storage, and maybe even Optimus into major profit pools.
That future is certainly possible. Tesla has repeatedly proven skeptics wrong in the past, and the company’s ability to execute capital-intensive projects shouldn’t be dismissed.
But there are risks. For instance, Robotaxi expansion could take longer than expected, and even the company’s Cybercab production could ramp more slowly than bulls hope. And the economics of a fleet-based autonomous transportation business may not be as lucrative as the market assumes.
Ultimately, I think the valuation simply already prices in too much — especially given the uncertainties surrounding all of Tesla’s new growth initiatives.
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