Tesla capex cut to $20 billion delivers surprise free cash flow
Tesla spent far less than Wall Street expected in the third quarter and lowered its full-year spending plan, turning a forecast cash burn into positive free cash flow just as merger talk with SpaceX heats up.
A Tesla capex cut was the surprise in the carmaker's third-quarter report on Wednesday, Oct. 21. Tesla now expects capital spending of roughly $20 billion in 2026, down from a previous forecast of more than $25 billion, Reuters reported, and it posted $1.53 billion of free cash flow when analysts had expected a burn of $4.92 billion.
What happened
Capital expenditure in the quarter was $4.73 billion, about double the $2.25 billion of a year earlier but well below the $7.5 billion analysts expected, according to LSEG data cited by Reuters. Operating cash flow came to $6.3 billion, and the company said its cash and investments rose by $1.9 billion.
Revenue was $28.05 billion, almost unchanged from $28.10 billion a year earlier and slightly above the $27.9 billion LSEG estimate cited by CNBC. Automotive revenue was $20.56 billion, energy storage $2.88 billion, and services and other $4.61 billion. GAAP net income fell 43% to $787 million, while adjusted earnings were 48 cents a share against 43 cents expected.
Margins improved. Automotive gross margin excluding regulatory credits was 18.1%, ahead of the 16.7% Visible Alpha consensus cited by Reuters. Tesla delivered 486,532 vehicles in the quarter and said it ended September with its largest passenger-car backlog in four years, with battery supply the main limit on output.
Self-driving software is spreading. Active FSD (Supervised) subscriptions rose 67% from a year earlier to 1.74 million, CNBC reported, and the attach rate reached more than three-quarters of new deliveries in North America. Tesla began Robotaxi rides with Cybercabs in Austin on Sept. 3, and Texas has authorised 362 Model Y and 449 Cybercab vehicles for driverless operation, according to CNBC.
Why it matters
On the call, the finance chief said the lower plan reflected managing capital "efficiently" and would be funded mainly from operating cash. Tesla also secured capacity to borrow up to $30 billion, though it does not plan to draw on it this year. Spending will "continue to expand" over the next few years for the Robotaxi fleet, Optimus robots, solar, compute and a chip plant, the company said.
Not everyone read the Tesla capex cut as good news. "Lower capex suggests less of an 'all-in' approach to the AI arms race than one would expect from Elon," Direxion's Ryan Lee told Reuters. Shares rose about 2% after hours, then reversed to trade down 2% to 3%. They are down about 14% this year.
The timing matters because of SpaceX. A day earlier, Elon Musk confirmed that special committees at both companies are studying a combination, as we reported in our SpaceX Tesla merger committees story. On Wednesday's call he said he had nothing to add.
What's next
Musk said the driverless Robotaxi fleet should start to matter financially around the second quarter of 2027. The full figures are in Tesla's third-quarter update.
On Polymarket, an official Tesla–SpaceX merger announcement by Dec. 31 was priced at 21% as of 08:21 MSK on Oct. 22, compared with the odds in our earlier Tesla SpaceX merger odds piece. Whether the Tesla capex cut lasts will show in next year's budget.
This article is for information only and is not investment advice.