Tesla beats on earnings, but spending plans spook investors
Elevated capex plans and delayed product rollouts took the gloss of Tesla’s earnings beat.
Tesla is continuing its push into artificial intelligence (AI) and autonomy, but is having to spend big in order to do so. Is that making investors nervous?
Electric vehicle (EV)-maker Tesla (NASDAQ:TSLA) is frequently one of the most popular stocks among DIY investors. It is also one of the ‘Mag 7’ big tech stocks.
Tesla’s share price initially rose over 4% in after-hours trading following the announcement of better-than-expected results on 22 April, before slumping later. By the end of after-hours trading Tesla’s shares were 0.3% below their market close.
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“Shares initially moved higher after Tesla’s latest results, with a big underlying earnings beat and broadly solid margins giving investors some early encouragement,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Revenue was up for the first time since 2024, and free cash flow was a standout positive, but there are signs this was a softer beat than it first appeared, with some one-off or timing benefits helping flatter the numbers.”
Investors often look to Tesla’s CEO Elon Musk for characteristically upbeat commentary on Tesla’s future during its earnings calls, but his comments left markets flat this time around.
“The sticking points were familiar, but still important,” said Britzman. “Progress on robotaxis continues, with new cities added and miles driven rising, but the fully unsupervised rollout remains slow, and Musk’s comments suggest that a cautious pace will continue as the software evolves.”
What did its Q1 results tell us about Tesla – is the automaker’s business stalling, or is its drive into physical AI paying off?
Tesla’s results in detail
Tesla had been expected to post earnings per share (EPS) of $0.37 on revenue of $22.7 billion, according to consensus estimates from analysts polled by London Stock Exchange Group.
The results exceeded these expectations. Tesla reported adjusted EPS of $0.41 – up 52% year-on-year – with revenue up 16% to $22.4 billion.
However, there are some caveats over these seemingly positive numbers. The GAAP (non-adjusted) EPS figure of $0.13 implied just 8% earnings growth, suggesting that there had been a lot of one-off adjustments contributing towards the headline EPS figure.
Capital expenditure (capex) was another focus area, with spending during the quarter increasing 67% year-over-year to $2.5 billion. Tesla’s CFO Vaibhav Taneja indicated that capex for the year will increase to $25 billion – with Tesla having previously guided for around $20 billion – in order to support the development of six factories (some of which have already begun operation or will do this year) and the further rollout of AI initiatives such as robotaxis or the Optimus robot launch.
However, these investments mean that Tesla will see negative free cash flow for the rest of the year.
These forecasts appear to have spooked the market, with Tesla shares falling sharply in after-hours trading during the earnings call on 22 April.
Should you invest in Tesla?
Ultimately, whether or not you invest in Tesla depends on your personal circumstances and investment goals.
Big tech companies have the potential to deliver strong returns for investors.
However, they can also come with stretched valuations, and Tesla is a prime example of this; as of 22 April, it traded at a price/earnings ratio of over 355 – which is incredibly high. In order to justify this kind of valuation Tesla would have to increase its earnings rapidly over many, many years.
When stocks trade at multiples this high, it can lead to sharp selloffs in the short term if anything happens to dampen market expectations of this growth materialising.
“Ultimately, the valuation still leans heavily on Musk delivering breakthrough products that open entirely new markets,” said Britzman. “While progress is being made, last night’s comments were another example of the goalposts moving further out.”
