Tesla to Report $3.3 Billion Cash Burn as AI Spending Tests Investor Patience

Tesla Inc. is poised to report its first quarterly cash burn in over two years, with analysts forecasting a negative free cash flow of $3.3 billion for the second quarter. The significant outflow reflects the electric-vehicle maker's surging capital expenditures on artificial intelligence and robotics, putting CEO Elon Musk's long-term strategy under intense investor scrutiny.

Soaring Costs and Investor Scrutiny

Musk has increasingly shifted Tesla's focus from vehicle manufacturing to building what he calls "physical AI" businesses, including self-driving robotaxis and the Optimus humanoid robot. This futuristic vision has been a key driver of the company's high valuation, but progress on these ventures has been slower than many investors anticipated.

The company's spending on AI infrastructure and manufacturing capacity is projected to reach $25 billion this year, according to a Reuters report. This heavy investment is expected to outpace the cash generated by its core operations in the latest quarter, leading to the anticipated cash burn.

"As capex more than doubles and free cash flow turns negative, investors are increasingly focused on evidence that Tesla’s spending is strengthening its physical AI moat," Morgan Stanley analysts wrote in a recent note. This sentiment is reflected in questions submitted on Tesla's investor-relations site, where nine of the top 10 most-voted questions focus on the timeline and progress of its AI projects, including the stalled expansion of its robotaxi network.

Automotive Business Rebounds

Ad

While spending on future technologies accelerates, Tesla's core automotive business is showing signs of a rebound. The company reported record vehicle deliveries for the April-to-June period, significantly beating market expectations.

For the full year, analysts expect Tesla to deliver 1.7 million vehicles, a 3.9% increase from the prior year, which would end a two-year streak of declining annual deliveries. According to Barclays analysts, a stronger automotive segment is crucial for generating the cash needed to finance Musk's ambitious AI investments.

Profitability Outlook

Despite the heavy spending, Wall Street expects Tesla to report a second-quarter profit of 50 cents per share, up from 40 cents in the same period a year ago, according to LSEG data. However, key profitability metrics are expected to face pressure.

Automotive gross margin, excluding regulatory credits, is forecast to be 18.1%, down from 19.2% in the prior quarter, based on Visible Alpha data. Analysts at Deutsche Bank attribute this potential decline to the elimination of upfront Full Self-Driving software purchases and the impact of low-interest financing offers made in May.