Tesla could slide back into cash-burn mode as Elon Musk pursues his costly AI vision

By William Gavin

The company's capital expenditures are set to surpass $20 billion this year, more than double what they were last year

Tesla CEO Elon Musk's vision for an "epic future" will be an expensive undertaking.

Tesla is gearing up for its most expensive year on record - and one that Deutsche Bank analysts predict might only be the beginning of a spending "supercycle."

The Austin, Texas-based company plans to spend more than $20 billion on a wide range of projects in 2026, Tesla Chief Financial Officer Vaibhav Taneja said on Wednesday's earnings call. Tesla reported capital expenditures of $8.5 billion in 2025 and $11.3 billion in 2024, which was its highest annual total on record.

"This is going to be a very big capex year," Musk told investors after Tesla (TSLA) reported fourth-quarter earnings. "We will continue to make sure that when we do spend capital, it is spent very efficiently. But it's a lot of things: major investments in batteries and the entire supply chain for batteries."

That $20 billion is expected to be spent on developing and expanding several factories, training artificial-intelligence models and scaling Tesla's robotaxi business. Another $2 billion is expected to be spent on an investment in Musk's xAI, which owns the Grok chatbot that is integrated into Tesla's vehicles.

That will likely push Tesla into "cash-burning mode" for the first time since 2018, according to UBS analyst Joseph Spak, who rates Tesla's stock at sell. He expects Tesla to record negative free cash flow of $6 billion in 2026. Oppenheimer and Goldman Sachs analysts also see free cash flow turning negative this year.

Read: Why Elon Musk is making a smart move by killing off Tesla's Model S and Model X

"This is a large inflection in spending to fund [Tesla's] ambitious AI goals," Spak wrote in a note to clients. "Big dreams require big risk, and the timing of when the payoff might be for some of these ventures becomes critically important."

Deutsche Bank analyst Edison Yu noted that Tesla's 2026 plans should be manageable, since the company has about $44 billion in cash, cash equivalents and investments. However, Yu, who's bullish on Tesla's stock, said Taneja's comments on the call implied Tesla is "entering an almost supercycle for capex" that could require additional capital.

Taneja said that Tesla will use what it has on hand to fund its plans, at least at first. He added that the company has had conversations with banks about securitizing its nascent robotaxi network to help raise money, or that it could take on more debt.

Tesla's plans could cost much more than its current capex estimate: Musk on Wednesday reiterated a plan to develop a massive manufacturing facility that would be capable of developing logic and memory chips, as well as packaging.

Read: Elon Musk says all of Tesla depends on one tiny - but very expensive - proposition

Those chips will be needed to power Tesla's self-driving vehicles and humanoid robots, according to Musk. And, he added, Tesla's demand will likely outstrip even the "best-case output" from partners like Taiwan Semiconductor Manufacturing Co. (TW:2330), Samsung Electronics (KR:005930) and Micron Technology (MU).

"Right now I see that as being the thing that probably limits our growth in three to four years," Musk said. To fix that, Tesla will need a "very big fab that includes logic, memory and packing, domestically."

Musk first publicly proposed a similar project last November, which he described as being capable of initially producing 100,000 wafer starts per month and eventually making 1 million each month. That would be a massive undertaking: TSMC made about 1.42 million wafers per month across a dozen fabs in 2025, according to the company.

Transforming Tesla into a serious chip manufacturer would be an expensive proposition.

Modern semiconductor factories can cost upwards of $10 billion; Samsung in 2021 invested $17 billion to develop a semiconductor manufacturing plant in Texas. Musk's proposed "Terafab" could cost "an initial $30 billion," according to Spak.

Tesla also plans to explore investing in solar-cell manufacturing with the goal of producing 100 gigawatts per year worth of products. That could cost an additional $1 billion per factory, according to Stifel analysts.

-William Gavin

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01-29-26 1413ET