Tesla just increased its spending plan to $25 billion — this is where the money is going

Tesla CEO Elon Musk kicked off the company’s first-quarter earnings call with a monetary heads-up — or depending on the investor’s mindset, a warning. Tesla’s capital spending will soar to $25 billion in 2026, far exceeding its previous annual spending as it struggles to stay ahead of the competition and transition into an artificial intelligence and robotics company, according to first quarter earnings report.

That number, which covers what Tesla plans to spend on physical assets outside of its day-to-day operating expenses, is three times higher than its annual capital budget in previous years. For comparison, Tesla’s annual capital expenditures were $8.5 billion in 2025, $11.3 billion in 2024 and $8.9 billion in 2023.

Tesla had announced in January that it expected capital spending to exceed $20 billion in 2026, already a significant increase intended to cover its AI initiatives, including investments in computing infrastructure and data centers, and the expansion and ramping of R&D production and production lines, among other things.

This increase of $5 billion indicates that these initiatives will require more money than previously planned. But so far, its quarterly capital spending of $2.5 billion was in line with previous quarters, the report showed.

Of course, Musk sees this as a positive, a sentiment likely to be shared by many other shareholders, as he positions Tesla as a company investing in its future, namely artificial intelligence and robotics.

“With 2026 we will significantly increase our investments going forward,” Musk said on the earnings call on Wednesday. “So you should expect to see a significant, very significant increase in capital spending, but I think it’s justified for a significantly increased future revenue stream.”

Musk was quick to note that Tesla isn’t the only company increasing its capital expenditure budget. Amazon, for example, has forecast capital spending of $200 billion in 2026, on “artificial intelligence, chips, robotics and low-Earth-orbit satellites.” Google is expected to spend between $175 billion and $185 billion in capital expenditures in 2026, up from $91.4 billion the previous year.

Tesla’s increase in capital spending is linked to Musk’s desire and ambition to grow the company beyond making and selling electric vehicles, solar power and energy storage.

Part of the capital outlay will go toward Tesla’s core technologies, such as the battery and artificial intelligence software, according to Musk. The company plans to invest in AI training, chip design and “laying the groundwork” to ramp up production, as well as invest in robotaxi operations and its new semiconductor research factory in Austin.

The Fremont, California plant will likely absorb some of that capital as the company ends production of the Tesla Model S and Model X and begins to scale the Optimus humanoid robot. The company said Wednesday that it has also cleared ground outside its Austin plant for a dedicated Optimus production facility.

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

Tesla is also spending money to strengthen its supply chain “across the board,” Musk said, adding that this covers batteries, power and silicon AI.

All that spending, which CFO Vaibhav Taneja said will take a few years, comes at a literal cost. The company — which enjoyed a brief 4 percent rise in its share price due in part to a $1.4 billion free cash flow windfall — will head into negative territory later this year, Taneja said.

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

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