Tesla Beats Q4 Estimates, but the Stock Slips as Musk Doubles Down on AI, Robots, and a $20B CapEx Shock

Tesla’s fourth-quarter earnings report delivered a familiar mix of solid headline beats, growing strategic ambition, and rising investor unease around execution risk and capital intensity. While the company exceeded Wall Street expectations on revenue and earnings, the underlying picture showed a business in transition—moving away from a maturing auto franchise and leaning harder into autonomy, robotics, and energy, all of which come with higher uncertainty and heavier spending. Shares initially surged toward $450 in after-hours trading but later cooled sharply, sliding back toward the low-$430s as investors digested the scale of Tesla’s planned investments and the near-term pressure on margins.

Tesla reported adjusted EPS of $0.50 for the quarter, ahead of consensus expectations of $0.45, while revenue of $24.9 billion modestly topped estimates of $24.8 billion. Operating profit came in at $1.4 billion, also above forecasts. On the surface, the quarter looked like a clean beat. However, earnings per share declined 32% year over year, and operating income fell 11%, underscoring the structural headwinds facing Tesla’s core automotive business. Full-year revenue declined 3% to $94.8 billion—the first annual revenue contraction in the company’s history—driven by lower vehicle deliveries and reduced regulatory credit revenue.

The automotive segment remained the primary drag. Fourth-quarter automotive revenue fell 11% year over year to $17.7 billion, reflecting weaker deliveries and intensifying competition, particularly in China. Tesla had already pre-announced a 16% year-over-year decline in Q4 vehicle deliveries and an 8.6% drop for the full year, confirming that demand growth has stalled as the product lineup ages and rivals such as BYD continue to gain share. Model 3 and Model Y volumes remain relatively resilient, but higher-end “Other Models,” which include Model S, Model X, and Cybertruck, saw especially sharp declines.

Margins were a key focus for investors, and here the picture was mixed but slightly better than feared. Tesla reported a gross margin of 20.1% in Q4, a sequential improvement that suggested ongoing cost reductions and factory utilization efforts are partially offsetting pricing pressure. That said, operating leverage remains elusive. Operating expenses jumped 39% year over year, driven largely by AI-related R&D and infrastructure investments, pushing net income down 61% to $840 million. Tesla is still profitable, but the margin trajectory highlights how quickly incremental spending is absorbing gains from cost discipline.

In contrast, Tesla’s energy generation and storage business continues to gain momentum. Energy revenue rose 25% year over year to $3.84 billion, making it one of the company’s fastest-growing segments. Management highlighted strong demand for Megapack products, with Megapack 3 and Megablock production on track to begin in 2026 at the new Houston Megafactory. Services and other revenue also grew 18% year over year, supported by higher Supercharging usage and vehicle services. While still smaller than autos, these segments are increasingly important stabilizers as vehicle growth slows.

The earnings call, however, was dominated not by near-term financials but by Elon Musk’s expansive vision for Tesla’s future. Musk made clear that Tesla is accelerating its transformation into what he described as an “AI and autonomy company,” even at the expense of legacy vehicle programs. In a notable strategic shift, Tesla plans to wind down production of the Model S and Model X in early 2026, converting those Fremont factory lines to Optimus humanoid robot production. Musk framed the decision as part of a broader move toward autonomy, stating bluntly that “it is time to bring the S/X programs to an end.”

Autonomy remained the centerpiece of Musk’s remarks. He reiterated expectations that Tesla could have fully autonomous vehicles operating across 25% to 50% of the U.S. population by year-end, pending regulatory approvals, and said robotaxi services should be active in dozens of major cities by the end of the year. Tesla plans to expand robotaxi coverage to seven additional U.S. cities in the first half of 2026, building on pilots already underway in Austin and San Francisco. The company also disclosed that it now has roughly 1.1 million Full Self-Driving customers, with a strategic pivot toward a $99-per-month subscription model.

Optimus, Tesla’s humanoid robot, was another major theme. Musk confirmed that the third-generation Optimus will be unveiled in the coming months and described it as the first design intended for mass production. Tesla plans to begin initial production before the end of 2026, with an eventual target capacity exceeding one million robots per year. While the vision is ambitious, Musk acknowledged that Optimus remains in the R&D phase, making near-term financial contributions unlikely.

One of the more market-moving comments from the call centered on AI hardware constraints. Musk noted that “memory is a bigger limiter than AI logic,” highlighting that memory bandwidth and availability—not just compute—are becoming bottlenecks in advanced AI systems. That comment sparked sympathy moves in memory stocks such as Micron and Western Digital and reinforced the idea that Tesla’s AI ambitions are tightly linked to the broader semiconductor supply chain. Tesla continues to develop its own AI chips while relying on Nvidia hardware, and Musk reiterated plans to eventually build a chip fab, though not in the near term.

All of this ambition comes with a steep price tag. Tesla now expects capital expenditures to exceed $20 billion in 2026, nearly double Wall Street’s prior estimate of roughly $11 billion and well above the $8.5 billion spent in 2025. The increased spending will fund AI compute infrastructure, Optimus production lines, energy capacity, and autonomous vehicle development. Investors appeared comfortable with the vision but less enthusiastic about the timing, particularly given slowing auto demand and declining near-term profitability.

The stock’s reaction reflects that tension. Shares initially spiked toward $450 following the earnings release but quickly rolled over, sliding back toward the $430 area. Technically, Tesla remains trapped in a descending triangle and continues to trade below its 20-day moving average. Unless the stock can reclaim that level convincingly, the setup suggests the risk of further downside in the coming sessions as enthusiasm around AI collides with concerns over execution and capital intensity.

In short, Tesla’s quarter was good enough to beat expectations but not strong enough to silence doubts. The company is clearly betting big on autonomy, robotics, and energy, even if that means sacrificing near-term margin stability. For investors, the story is less about what Tesla earned in Q4 and more about whether this aggressive pivot can ultimately justify the stock’s premium valuation—and the massive investments now coming into view.