Tesla’s $25 Billion AI Bet Puts Cash Flow in the Red as a Secret $2 Billion Deal Emerges

Tesla shares drop 15% as $25B capex plan, a $2B AI acquisition, and SpaceX merger talk overshadow strong Q1 earnings and margin gains.

The narrative around Tesla is shifting faster than its cars can accelerate. The company that once defined the electric vehicle boom is now pouring its resources into a future built on artificial intelligence, autonomous driving, and robotics. But the market is struggling to keep up with the scale of the ambition — and the cost.

Tesla shares are trading at roughly €320, down around 15% since the start of the year and now sitting below their 200-day moving average. The stock has been left behind by the broader tech rally, even as the company posts headline-grabbing earnings. The first quarter of 2026 delivered adjusted earnings per share of $0.41, comfortably ahead of the $0.37 Wall Street had penciled in. The automotive gross margin improved sharply to 21.1%, helped by lower material costs and firmer pricing.

Yet the cheer from those numbers was short-lived. The culprit: a capital expenditure plan that has stunned even the most bullish analysts.

A $25 Billion Spending Spree

Tesla now expects to spend more than $25 billion this year on capital projects — $5 billion more than its previous guidance. The company is building six factories simultaneously, including a lithium refinery and production lines for its Optimus humanoid robot. Chief Financial Officer Vaibhav Taneja warned that this investment wave will push free cash flow into negative territory for the remainder of 2026. The company does not expect to turn cash-flow positive again until the second half of 2027.

That sobering outlook overshadowed an otherwise strong quarter. Tesla generated $1.44 billion in free cash flow in Q1, but the spending trajectory ahead has investors bracing for a prolonged period of cash burn.

A Hidden $2 Billion AI Acquisition

Buried in the fine print of Tesla’s quarterly report is another bombshell. The company is acquiring an unnamed AI hardware firm, paying in stock. The deal is worth up to $2 billion, though only $200 million is guaranteed upfront. The remaining $1.8 billion is contingent on the target hitting specific technical milestones. Neither the shareholder letter nor the earnings call mentioned the transaction, leaving analysts to piece together the details from the filing.

The acquisition signals Tesla’s deepening commitment to building its own AI infrastructure. But it also raises questions about dilution, given that the purchase is being settled in equity.

The Merger Fantasy That Won’t Die

As Tesla’s industrial ambitions grow, so does speculation about a far more dramatic corporate event. Wedbush analyst Dan Ives has put the probability of a Tesla-SpaceX merger at 80% to 90% by early 2027. The idea, pushed by prominent Tesla investors like Ross Gerber, is that a combined entity would create a kind of “Berkshire Hathaway for artificial intelligence.” Many Tesla shareholders are said to be clamoring for exposure to SpaceX’s rocket and satellite businesses.

Critics warn that such a deal would dilute Tesla stock and distract from the company’s operational challenges. For now, it remains a fantasy — but one that refuses to fade.

Software Surge, Hardware Headaches

There is a bright spot in Tesla’s pivot toward recurring revenue. Subscriptions for its Full Self-Driving (FSD) software have surged. The number of active users hit 1.28 million, up 51% year-over-year, after Tesla cut the monthly price to $99. Revenue from the services segment jumped 42% to $3.8 billion.

But the hardware side is creating friction. Older vehicles equipped with the Hardware 3 computer will not support the coming autonomous driving features. Tesla is now offering discounted upgrades to those customers, a costly and time-consuming fix. The company also produced roughly 50,000 more vehicles than it delivered in Q1, building up inventory that may eventually force price cuts.

Robotaxi Delays and a Roadster Revival

Elon Musk has tempered expectations for the robotaxi rollout. The fully autonomous system, requiring no human supervision, is not expected to reach selected regions until the fourth quarter. Even then, the service will initially launch in only a handful of U.S. states in 2026. That timeline tests the patience of investors who have been promised a revolution in autonomous mobility for years.

On a lighter note, Musk has set a new target for the long-delayed Tesla Roadster: a reveal at the end of May. But with the company’s capital being funneled into AI factories and robotics, the sports car feels more like a sideshow than a strategic priority.

For now, Tesla’s core EV business remains the only reliable driver of its stock. Until the multibillion-dollar bets on AI and autonomy start generating real profits, the market will keep asking the same question: how long can the company afford to spend like this?