Tesla first cash burn in two years to test investor faith in AI

Automobile manufacturer Tesla is expected to report its first quarterly cash burn in over two years when it releases Q2 results after the close on Wednesday, a warning sign for investors who have bet that the company’s spending on robots and self-driving cars will pay off.

LSEG data puts the company’s second-quarter free cash flow at minus $3.3 billion. This is a direct opposite to the positive $1.4 billion cash flow in the first quarter, and it lands just as Tesla’s core car business is finally recovering. Chief Financial Officer Vaibhav Taneja told investors in April that the company would run negative free cash flow for the rest of 2026.

Tesla’s capital budget has pushed past $25 billion for the year, up from about $20 billion three months earlier. Almost $20 billion of this capital budget is aimed at AI, covering Dojo compute, a data center expansion, the Cybercab, and the Optimus humanoid robot. Reports claim capital expenditure is expected to reach $6.7 billion in the quarter alone. A year ago, Tesla’s free cash flow was at about $5.6 billion.

Automobile business not the issue

Tesla delivered over 480,126 vehicles in the quarter, up about 25% from a year earlier and above the 397,000 to 406,000 analysts had expected, its best three-month stretch on record. Cheaper Model 3 and Model Y variants and a wider Full Self-Driving car rollout were the main reasons for the volume increase, with those two cars making up about 97% of the total.

There were also several other factors leading to this increase. These include a fully upgraded new Model Y, aggressive global pricing, and the fading of what Deepwater Investment’s Gene Munster called “the EV winter that started in March of 2024.”

Tesla revenue not living up to expectations

The businesses meant to earn back the $25 billion capital are still not at the level. Tesla’s robotaxi service runs in a few US cities, and its fleet is a fraction of Waymo’s, with meaningful revenue not expected before 2027. The Cybercab is in production but is still not widely used for ride-hailing. Optimus adds nothing to current cash flow and is only just starting to develop.

Analysts remain split on if the promise of revenue is worth the current spending. Morgan Stanley’s Andrew Percoco holds a neutral rating and raised his price target to $417, calling robotaxi scaling the “most important catalyst” for the stock.

Looking into the future, J.P. Morgan projects Tesla revenue rising from about $95 billion in 2025 to $203 billion by 2030, even though that forecast leans on products that barely generate income in the present.

For Q2, estimates cluster around revenue of $26 billion to $28 billion and adjusted earnings near $0.50 to $0.55 a share. Energy storage was a bright spot at 13.5 GWh deployed, up from 9.6 GWh a year earlier. Tesla also holds more than $40 billion in cash.

The stock has drifted lower this year, down around 16%, even with the record automobile deliveries. Tesla shares traded at $382.58 as at the time of writing, up 3.52%.

Don’t just read crypto news. Understand it. Subscribe to our newsletter. It's free.