Elon Musk is fueling Tesla by torching piles of cash
For bulls, Tesla is finally unleashing its financial firepower to own the future of autonomous vehicles, robots, and artificial intelligence. But the news came alongside weak fourth-quarter results and the bombshell announcement that Tesla was investing nearly $2 billion in Musk’s own artificial intelligence startup, xAI. Of all the plans and goals revealed during the call, the one thing that’s certain is that Tesla will burn a lot of money this year.
The financial results themselves were mixed and inadequate. The closely watched automotive gross margin measure, adjusted for regulatory credits, was 17.9%; this was surprisingly high when the collapse in vehicle deliveries and even foreign exchange gains were taken into account. Tesla’s energy business performed well, but gross profit remained nearly flat in the third quarter. In any case, none of this apparent power trickled down. Tesla’s overall operating margin fell to just 5.7%. “Other” costs increased, likely reflecting fluctuations in crypto values. Fourth-quarter GAAP earnings fell 60% from a year earlier.
None of it matters, of course. Tesla’s shares are determined less by reported numbers than by a complex, if vague, function that multiplies planned initiatives by the level of faith in Musk. Both factors are high. Musk announced that Tesla will retire the S and X, two of its premium-priced and oldest models, next quarter; This is perhaps an acknowledgment of sales declines, but it symbolizes the company’s transition to fully autonomous vehicles like the Cybercab. Their production is planned to start at the end of June. Tesla also plans to introduce the third-generation version of its Optimus humanoid robot soon, with mass production scheduled to begin by the end of the year. Big things are also planned in solar power, batteries, chargers and chips.
This narrative setting is entirely in keeping with Tesla’s trajectory, and Musk’s goals should be viewed with skepticism. When asked how many Optimus robots are working in Tesla factories today and what they do, Musk objected. He said the technology was still in the research and development phase, which dovetailed rather oddly with the idea that mass production would begin in less than 12 months (and that the S and X would be scrapped to switch production lines to robot-making). Musk’s expectation of having fully autonomous vehicles operating in a quarter to half of the US by the end of the year should be viewed in the context of last year’s expectation to reach half of the US by the end of the year.
It’s undoubtedly the money Tesla spent to do all this. The more than $20 billion capex figure mooted for 2026 is not only more than the previous two years combined, but also significantly higher than the $14.9 billion in 2024, Tesla’s best-ever annual cash flow from operations. This fell slightly in 2025 and the consensus is that it will fall again this year. Not surprising, since Tesla is essentially deemphasizing EV production, its main source of profit, and pouring billions of dollars into nascent businesses that, even if successful, may not turn a profit for a while.
Remarkably, this $20 billion is equivalent to half the entire value of the property, plant and equipment assets carried on Tesla’s balance sheet. This marks a radical expansion in a very short period of time. The capex budget shows Tesla burning about $6 billion in cash this year, according to consensus estimates. With $44 billion on its balance sheet, Tesla can afford it. But this means 2026 will be Tesla’s first year of negative free cash flow since 2018; before the increase in sales of then-new models and pricing brought on by the disruption of the pandemic turned free cash flow positive.
This echo of the 2010s, when Tesla was a publicly traded start-up for most, coincides with its investment in xAI. Recall that Tesla shareholders were given a non-binding vote on this issue at the November meeting. Even though the number of ‘yes’ votes outnumbered the ‘no’s, the high number of abstentions meant that it technically counted as a no. But Tesla appears to be more focused on the years, and Musk offhandedly said on Wednesday’s earnings call: “We’re pretty much doing what the shareholders want us to do.”
“Pretty much” does a lot of work there, but in a way he’s right. After that vote, while the abstentions were noted, I wrote “the signal here is green.” How could this not be the case in the context of Musk’s overwhelmingly approved trillion-dollar pay package and his shares trading at 200 times earnings despite declining sales and profits? Even as shareholders voted to put money into a strategic AI business that had clearly not remained in-house, the fact that the pay packet was justified on the grounds that it would persuade Musk to keep his best ideas in-house was somewhat lost on him.
The latest results and plans confirm the idea that Tesla investors now own something more like a blank check company. It’s a company that promises incredible abundance on many fronts, even as its current core business succumbs to the vulgarities of competitive pressure. A company that is free to interweave its strategy and assets with the CEO’s own initiatives. And to complete the picture, a picture that is ready to burn billions of dollars for the sake of it.
