Tesla recently increased its capital plan to $25B – here’s where the money is going

Tesla CEO Elon Musk kicked off the company’s first quarter earnings call – or in the investor sense, a warning. Tesla’s capital spending will rise to $25 billion by 2026, far exceeding last year’s spending as it races to stay ahead of the competition and transform into an AI and robotics company, according to its first-quarter report.

That number, which includes what Tesla plans to spend on assets outside of its day-to-day operating costs, is three times higher than its annual capex budget in previous years. In comparison, Tesla’s capital expenditures for the year 2025 were $8.5 billion, $11.3 billion in 2024, and $8.9 billion in 2023.

Tesla announced in January that it expects capital expenditures to exceed $20 billion by 2026, which is already a significant increase aimed at covering its AI efforts, which include investments in computer infrastructure and data centers, as well as the expansion and increase of its production and R&D production lines, among other things.

This increase of $5 billion suggests that these programs will require more money than previously planned. But so far, its quarterly spending, which was $2.5 billion, was in line with previous levels, the report shows.

Of course, Musk sees this as a good thing, a sentiment many other shareholders likely share as he positions Tesla as a company investing in its future, namely AI and robotics.

“In 2026 we will significantly increase our investment going forward,” Musk said on an earnings call on Wednesday. “So you should expect to see a significant increase in capital expenditures, but I think there is good reason for increased revenue in the future.”

Musk was quick to note that Tesla isn’t the only company increasing its capital spending budget. Amazon, for example, has reported that it will spend $200 billion by 2026, across “AI, chips, robots, and low-Earth orbit satellites.” Google is expected to spend between $175 billion and $185 billion on capital expenditures in 2026, up from $91.4 billion a year earlier.

Tesla’s increased cost of capital is linked to Musk’s desire to develop the company beyond building and selling EVs, solar power and energy storage.

Some of the capex spending will go toward Tesla’s core technologies such as batteries and AI software, according to Musk. The company plans to invest in AI training, chip manufacturing, and “laying the groundwork” to increase manufacturing productivity, as well as investing in its robotics operations and its new semiconductor research fabric in Austin.

The Fremont, California, factory will likely absorb some of that capital as the company ends production of the Tesla Model S and Model X and begins mass production of its Optimus humanoid robot. The company said Wednesday that it has also moved out of its Austin factory for the Optimus manufacturing facility.

Tesla plans to expand its internal production of Optimus for testing and “probably” make Optimus “useful outside of Tesla sometime next year,” he said.

Tesla is also investing in strengthening its supply chain “everywhere,” Musk said, adding that this includes batteries, power, and silicon for AI.

All this spending, which CFO Vaibhav Taneja said will last for a few years, comes with a real cost. The company – which enjoyed a 4% increase in its share price due, in part, to unexpected cash flows – will enter negative territory later this year, Taneja said.

Tesla shares erased their gains in after-hours trading as Musk and Taneja pitched the plans to investors. Still, Tesla is sitting on a pile of cash. At the end of the first quarter, Tesla reported $44.7 billion in cash, cash equivalents, and short-term investments.

“Although this may seem like a lot, and we will have a negative impact on free cash flow for the rest of the year, we believe this is the right strategy to position the company for the future,” said Taneja.