Tesla (TSLA) stock fell over 3% on Thursday after the company released a mixed Q1 earnings report. While the Q1 numbers showed strength in some areas, concerns over rising costs weighed on sentiment and overshadowed the overall performance. Overall, investors reacted cautiously to a sharp increase in capital spending along with the delayed revenue impact from robotaxis. Markets tend to react negatively to delays, especially when a stock is priced on strong future expectations.
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For context, Tesla reported adjusted earnings per share (EPS) of $0.41 in Q1, above analyst expectations of $0.37. However, revenue came in at $22.39 billion, slightly below the $22.64 billion consensus estimate.
Tesla Q1 Beat Offset by Higher Capex
One of the major concerns for Tesla investors is a sharp rise in capital expenditures as the company increases investment to support its AI ambitions. CFO Vaibhav Taneja said spending could reach $25 billion, up from about $8.5 billion last year.
He added that the spending may look significant and could lead to negative free cash flow for the rest of the year, but it is the right move to position the company for its next phase of growth. Broadly, Elon Musk aims to transform Tesla into a robotics and AI-focused company, which is driving higher capital expenditure.
Notably, analyst Dan Levey at Barclays said, “We were reminded that to unlock the opportunities ahead, Tesla is facing an elevated period of spend.”
Robotaxi Revenue Impact Likely Delayed
Another factor weighing on investors was the delayed revenue impact from Tesla’s robotaxi business. During the earnings call, Musk said robotaxi contributions “will not be super material this year,” adding that they are expected to become “significant next year.”
Executives also noted that Tesla is expanding its robotaxi rollout to more cities, but it may take time before it has a meaningful impact on revenue.
Robotaxis are seen as a major future revenue driver for Tesla, and investors were expecting them to start contributing meaningfully to earnings sooner. However, since that timeline has now been pushed further out, it creates disappointment in the near-term growth outlook. Markets tend to react negatively to delays, especially when a stock is priced on strong future expectations, as any pushback in timing can lead to selling pressure.
Is Tesla a Good Stock to Buy?
On Wall Street, analysts have maintained a neutral stance on Tesla stock. According to TipRanks, TSLA stock has received a Hold consensus rating, with 13 Buys, 11 Holds, and six Sells assigned in the last three months. The average price target for Tesla shares is $411.18, suggesting a potential upside of 33.4% from the current level.
