The clearest positive from the quarter was profitability. Automotive gross margin, excluding credits on a non-GAAP basis, came in at 19.2%, above the Street at 17.5% and up from 17.9% in the December quarter. What’s impressive is they pulled this off with volumes down 14% sequentially. Typically, I expect lower margins with lower delivery volumes. I believe this metric was the primary reason why the stock jumped 4% once the numbers hit.
Shares of TSLA were up 3.6% in after-hours until Elon kicked off the call with a clear message: Capex is going up. Over the next 30 minutes, shares drifted lower to near flat. The company now expects to spend $25B in Capex this year, up from last quarter’s guide of $20B. Given first-quarter Capex was only $2.5B, that implies a sharp step-up over the balance of the year and raises the possibility that total annual spending lands closer to $30B.
The step-up is to fund projects across the board, including battery improvements, AI training, Terrafab, new model production, and Optimus. This increased spending will continue in 2027, which leads me to expect around $40B in investment next year. As a point of reference, the company spent around $9B in Capex in 2025. I see this 25% step-up as good news, given it puts more space between Tesla and any other carmaker. Others are cutting spend on EVs and have made only nominal investments in autonomy compared to Tesla. It has become clearer that traditional auto is not Tesla’s competition, and at this time, it is hard for me to pinpoint a strong competitor that is thinking about getting aggressive to go after physical AI.
Yes, Tesla will go cash-flow negative over the next few quarters, but the company has $45B in cash and equivalents to more than support the investments.
Comments on these fronts were mixed. On the positive side, Tesla said there have been no safety incidents in Robotaxi operations, and paid Robotaxi miles roughly doubled quarter-over-quarter to just over 1M (this compares to Waymo at around 50M last quarter). FSD engagement also improved, with miles driven up 93% over the quarter (Deepwater estimate) and subscriptions growing 16% (reported number).
At the same time, management also made clear that more training is needed for Robotaxi and that the current version of FSD is not ready for a fully unsupervised approval path. Those comments temper expectations for any near-term step function in scale. I still believe we will see quarter-over-quarter increases in Robotaxi miles driven much greater than the 100% just reported. My guess is that will land in 2027.
As for Optimus, it is entering production with fractional units expected. Elon did not update his previous 1M robots target for 2027, but as expected, that now looks increasingly unlikely. On vehicles, the Roadster gets updated next month, but that won’t move the needle. Regarding future models, it sounds like the focus is entirely on the Cybercab and its variations, based on Musk’s comments that 90% of future production will be Cybercab. Unfortunately, the topic of a “minivan killer” had some water thrown on it in the form of the Cybercab focus. I do expect to hear more in future quarters on that model.