Tesla’s (TSLA) electric vehicle (EV) plot is increasingly giving way to an artificial intelligence (AI) story, and that is the main reason I remain bullish despite recent weakness. Shares are down nearly 20% from their December 2025 highs, reflecting investor concern about EV demand, rising capex, and the company’s lofty valuation.
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New trading tool for TSLA bearsThose concerns are fair, but I think they miss the bigger transition underway. Tesla is no longer just an EV manufacturer; it is becoming a physical AI platform built around autonomous driving, robotaxis, robotics, energy storage, and custom AI infrastructure.
Q1 Results Show the Core Business Is Still Funding the Future
Tesla’s first-quarter 2026 results were better than feared. The adjusted EPS of $0.41 beat expectations of roughly $0.37, while total revenues came in at $22.39 billion, below the Street’s $22.64 billion estimate. Automotive revenue reached $16.23 billion, also ahead of consensus, even though the 358,023 vehicles delivered were slightly below expectations.
The most important number, in my view, was the margin. Automotive gross margin excluding credits came in at 19.2%, far above the Street’s 15.4% estimate. Even after adjusting for some one-time benefits, underlying margin performance looked healthier than expected. Free cash flow of $1.44 billion also beat expectations, helped by strong operating cash flow of $3.94 billion.
This matters because Tesla’s AI ambitions require a strong funding base. The EV business may not be growing as quickly as it was a few years ago, but it remains large, profitable, and strategically important.
Capex Is Rising for the Right Reasons
Investors often dislike rising capital expenditures, but in Tesla’s case, the capex ramp should be viewed as part of the next growth cycle. Management now expects about $25 billion in capex in 2026, up from a prior guide of around $20 billion. That spending is directed toward six factory buildouts, AI infrastructure, the AI5 chip program, Cybercab and Semi production, Megapack 3, and Optimus production lines.
This will likely put pressure on free cash flow for the rest of 2026. However, I see that as an investment phase, not a structural warning sign. Tesla is building the physical infrastructure needed to scale autonomy and robotics. If those businesses work, the long-term earnings power could look very different from today’s auto-based model.
The company’s $2 billion equity investment in SpaceX to expand its chip fab partnership also highlights Tesla’s desire to vertically integrate critical AI infrastructure. That is ambitious, expensive, and risky, but it fits Tesla’s long history of attacking bottlenecks directly.
FSD and Robotaxi Are the Key Value Drivers
The bull case depends heavily on Tesla making real progress in autonomous driving. On that front, the company appears to be moving in the right direction. Full Self-Driving (FSD) paid subscribers reached nearly 1.3 million globally, up from 1.1 million in the prior quarter. Paid Robotaxi miles nearly doubled sequentially in Q1.
Tesla is targeting unsupervised FSD release in the fourth quarter of 2026, with Robotaxi expansion to roughly a dozen U.S. states by year-end. The company has also removed safety drivers in Dallas and Houston, adding to confidence that the rollout is progressing, even if the 2026 revenue contribution remains immaterial.
Regulatory progress outside the U.S. could also become a catalyst. Tesla has received approval in the Netherlands, with an EU-wide review expected in May and China approval targeted by the third quarter of 2026. If Tesla can unlock FSD across major international markets, recurring software revenue could become a much larger part of the model.
Optimus Adds Long-Term Optionality
Optimus remains at an earlier stage than FSD, but it may eventually be just as important. Tesla is preparing first-generation Optimus production lines, with production expected to start in late July or August. A second Optimus factory at Giga Texas is being planned for summer 2027.
Near-term volumes will likely be limited, and investors should not assume a smooth ramp. Humanoid robots are extremely complex products. Still, Tesla has advantages in manufacturing, batteries, power electronics, AI, and real-world data. If Optimus scales, Tesla’s addressable market could expand far beyond transportation.
Valuation Is Extreme, but Traditional Metrics Miss the Point
Tesla is undeniably expensive on traditional valuation metrics. Its P/E ratio is around 340, compared with a sector median of about 10. Its price-to-operating-cash-flow ratio is about 70, versus a sector median of around 10. On a pure auto valuation framework, the stock is difficult to justify.
However, that is exactly the point. Investors buying Tesla are not paying for a normal automaker. They are paying for optionality in autonomous software, robotaxis, humanoid robotics, energy storage, custom AI chips, and manufacturing scale. That does not eliminate valuation risk, but it explains why traditional metrics look disconnected from the market’s pricing.
The stock is not cheap, and volatility should be expected. However, if Tesla successfully converts even a portion of its AI roadmap into recurring high-margin revenue, today’s valuation could prove more reasonable over time.
Wall Street’s View
According to TipRanks, Tesla carries a Moderate Buy consensus rating, with 13 Buy, 12 Hold, and five Sell ratings. Based on 30 Wall Street analysts, the average 12-month price target is $410.21, implying about 0.38% downside from the last price of $411.79.
Conclusion
Tesla’s EV business is no longer the whole story. In fact, it may increasingly become the cash-generating base that funds a much larger AI opportunity. FSD, Robotaxi, Optimus, energy storage, and chip infrastructure are becoming the real drivers of the investment thesis.
The valuation is high, execution risk is significant, and free cash flow may be pressured in 2026. Still, I believe Tesla is entering a new phase where the AI story matters more than the EV cycle. For long-term investors willing to tolerate volatility, I remain bullish on TSLA.