Elon Musk-led Tesla cut its annual capital expenditure forecast by a fifth and reported surprise positive free cash flow in the third quarter on Wednesday, after investing far less in its artificial intelligence (AI) and robotics ambitions than Wall Street had expected.
The unexpected cash generated during the quarter comes at a critical moment for the electric vehicle (EV) maker, as Musk explores combining Tesla with his far more capital-intensive space venture, SpaceX.
While lower spending strengthens Tesla’s financial position ahead of any SpaceX merger deal, it won’t please investors, with the latter seeking more capital pumping at fronts like AI, robotaxis, and humanoid robots.
“The free cash flow beat was a pleasant surprise, but when combined with the lower-than-expected capex, it raises questions on the next step for the automaker,” said Ryan Lee, senior vice president of product and strategy at Direxion, which offers exchange-traded funds tied to Tesla.
“Lower capex suggests less of an ‘all-in’ approach to the AI arms race than one would expect from Elon,” he told Reuters.
Tesla now expects capital expenditure for 2026 to be roughly USD 20 billion, down from its previous forecast of more than USD 25 billion.
In the third quarter ended September 30, Tesla spent USD 4.7 billion in capital expenditure, double the amount recorded a year earlier but below the USD 7.5 billion analysts had expected on average, according to LSEG data.
Tesla reported free cash flow of USD 1.53 billion, compared with an expected cash burn of USD 4.92 billion.
The main question for investors is whether the lower spending reflects improved financial discipline or a slowdown in investment needed to turn Musk’s ambitions into commercial businesses.
“The merger still faces a high bar, but tonight’s numbers make the financial logic harder to ignore,” said Thomas Monteiro, a senior analyst at Investing.com.
“The main takeaway is that Tesla’s surprisingly positive cash flow quarter did not come from stronger profits but from spending billions less than planned at a time when SpaceX is preparing to invest up to $40 billion in a single quarter,” Monteiro remarked.
Another question whose answer investors will seek quickly is whether Tesla and SpaceX will merge.
Musk himself coined the concept as a “good idea,” stating that the companies had formed special committees to discuss a deal.
A merger would create a single company at the center of the tech titan’s long-term vision, spanning AI, energy, robotics, communications, and transportation on Earth and beyond.
However, investors will seek evidence that Tesla is investing enough to deliver on its ambitions, with the robotaxi rollout lagging Musk’s promises.
Tesla’s energy unit has recently offered a counterweight to its automotive business, which remains under scrutiny as rivals globally launch newer, often cheaper models. Tesla still relies heavily on the aging Model 3 and Model Y.
Tesla’s revenue was flat from a year earlier, despite the end of US tax credits that supported sales until 2025.
The revenue flow, despite being flat, was enough to exceed Wall Street targets, although the EV giant’s net income plunged 43%.
Tesla ended the third quarter with its largest backlog for passenger vehicles in four years.
While the sales have remained flat in the United States, high gasoline prices (due to the Iran war) have boosted demand for EVs elsewhere, particularly in Europe.
With 486,532 vehicles delivered in the third quarter, Tesla is on track to increase annual deliveries for the first time in three years.
“Demand is growing rapidly for our vehicles. It’s exceeding our production by a significant margin,” Musk said on the conference call.
“In a nutshell, after many years of sort of grind and things being fairly flat, I think we’re now headed for a lot of fun and significant growth,” the tech titan added further.
“The FSD (supervised) attach rate reached more than three-quarters of new vehicle deliveries in North America, an increase of nearly 20 percentage points from the second quarter,” Tesla said.
Tesla is now aiming to produce five million vehicles a year by about 2030, up from an expected 2.5 million this year.