Tesla’s earning calls in the last few quarters have always been a study in extremes: The EV-maker’s profits from making and selling cars and batteries keeps shrinking, while CEO Elon Musk’s promises of wonders to come for the likes of robotaxis and humanoid robots keep ballooning. The Q1 edition, held after the market close on April 22, set a new standard. Digging into financial statements reveals that Tesla earned almost zip in repeatable, bedrock profits on the EV side. Yet Musk greatly ramped his already super-ambitious investment agenda for pending blockbusters, “revolutionary” offerings that he’s long promised as a year or two away, but that suffer serial delays, and keep gestating as prototypes either in the labs, or making trial runs on the roads.
So the question arises that didn’t get answered on the call: How is Tesla going to pay for all that extra CapEx when the only arm generating cash is fading? And can it possibly earn a big enough return on all the capital newly piled on its balance sheet to reward shareholders?
In the last couple of years, this reporter’s been calculating an adjusted GAAP net earnings number for each Tesla quarter. The aim: gauging what the EV giant actually books, on a sustained basis, from its car and battery business. To get that number, I subtract income from the sale of regulatory credits, an item Musk himself avows will disappear over time (though it’s stayed higher than expected so far), and gains on sales of digital assets (I add the losses back to the profit line).
In Q1, Tesla posted GAAP profits of $491 million. That’s already a depressing number. At its peak in 2023, Musk’s company was averaging four times that number at around $2 billion a quarter. But almost all of Q1 earnings—$470 million after-tax to be exact—flowed from the carbon credits line ($297 million) and gains on trimming its Bitcoin trove ($173 million). Hence, Tesla made only $21 million in what I’ll call its “core” franchises. Over the past two quarters, using this metric, it’s actually lost almost $70 million.
With each earnings release, I’ve also been counting “core” profits over the last 12 months. I marshal that annual stat to assess how much of Tesla’s giant market cap is attributable to how it’s performing now, and how much should be assigned to Musk’s vision of what’s on the horizon. I call the latter “The Musk Magic Premium.” So here we go. Over the past four quarters, Tesla’s booked $2.13 billion in core profits. As of mid-morning on April 23, its market cap stood at $1.4 trillion. Hence, its PE based on GAAP profits from the places it makes money today towers at 657. In autos, Tesla is now a no-growth engine. Still, we’ll assign those baseline profits a generous multiple of 15, which is higher than average for big carmakers. On that formula, Tesla’s profit-spinning side’s worth $32 billion (the PE of $15 times core profits of $2.13 billion). As a share of the total valuation, The Musk Magic Premium has reached its all-time summit at almost 98%.
On the call, Musk got straight to the big issue. His second sentence: “We’re going to be substantially increasing our investments in the future. So you should expect to see a very significant investment in capital expenditures.” He then highlighted the new research chip fab at the Giga Texas Campus, and noted that Tesla’s “working on a lot of large, ambitious projects.” How big got clarified in CFO Vaibhav Taneja’s portion of the call. He stated that “we’re paying for six factories, some have already started, some will go into operation in the later part of this year,” adding that “We’re further increasing our investment in AI-related initiatives.”
Taneja then declared that “our current expectation for 2026 is over $25 billion in CapEx.” That’s a far bigger number than analysts were expecting. In Q1, Tesla spent $2.5 billion on CapEx. So for the rest of the year, it’s pledging outlays of at least $22.5 billion, or $7.5 billion a quarter. That’s 3x the first quarter amount.
Taneja added that Tesla will post negative free cash flow for the rest of the year. How big could that deficit be? In the past four quarters, Tesla’s recorded average cash from operations—the fount the feeds CapEx—of $4 billion a quarter. But Musk is pledging to spend almost double that in CapEx going forward, for quarterly shortfalls of at least $3.5 billion, and knowing Musk, probably more.
The plan raises two issues. First, where is all that money going to come from? Will Tesla shoulder new debt or issue shares that would dilute the current stockholders? The second: Musk will be adding loads of assets on a balance sheet where the left side’s total already jumped from $91 billion in mid-2023 to what looks like around $170 billion by the close of 2026. Tesla’s generating puny and declining returns on the plants, inventories and other assets now on its books. To reward investors, it will both need to compensate for that weakness plus achieve absolutely gigantic returns on the fresh capital it’s amassing at top speed.
The market didn’t like the CapEx surprise. By midday on April 23, Tesla’s shares had dropped 3.7% to $373, bringing the decline since the start of 2026 to 17%. Investors are right to question whether Tesla can earn remotely enough five or ten years forward to merit a valuation of $1.4 trillion, when it makes peanuts now. It’s easy to get mesmerized by Musk’s pitch. But doing the math to identify the actual numbers Musk must conjure for a glorious finale may get you to grab your remote, and click off the show.
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