Tesla just posted record delivery volume while its profit collapsed, and that split explains the stock's fall. The core auto business barely makes money now. Two things dragged margins down: Tesla stopped selling the Model S and Model X, its highest-margin cars, and the average selling price of its vehicles dropped a lot. On top of that, the company sits in a huge spending phase, so free cash flow has flipped negative. You end up owning a company that is not growing, priced at a very high valuation. Investors dislike that mix.
There is also a pull away from the stock. With SpaceX going public, anyone who wanted exposure to Elon Musk's world can now own SpaceX directly. That makes Tesla less exciting by comparison, and some longtime owners are simply moving on.
The robotics pivot was flagged, but it pays off far in the future
For the last two years the message has been clear: Tesla is no longer an electric-car company, it is a robotics company. So the shift was not a surprise to investors. The problem is timing. Optimus, the humanoid robot, is nowhere near ready. Nothing exciting will land in the next few months or the next couple of years. Building robots is hard, getting the memory is hard, and Tesla is building its own chip operation ("terafab"), which takes years to set up. Everything the company is working on, however impressive, will not show results for years.
The margin and cash-flow collapse ties directly to this. Money that could go toward selling more cars and earning margins there is going into robotics and other long-dated projects instead. There is real irony here. Gas costs about five dollars, close to six in California, so driving an electric car is a smart move and Tesla makes the best cars. Yet the company spends almost no effort trying to sell more of them.
Robotaxi gave no real clarity
Anyone who has held Tesla for years should ignore the timelines Musk gives, because they are always missed. This call brought no clarity either. Tesla has a few cars running unsupervised in Texas and other places, but these robotaxis have to be perfect, and Waymo has been doing this for years while Tesla has not.
Even if Tesla executes, the robotaxi business does not look huge. Uber is a company worth about $140 billion. If that is the target, the "Cyber Cab" business, however cool, will not be a big lift for shareholders.
The bull and bear case
I have not been bullish on Tesla for a few years. What you are really buying at today's stretched valuation is the Optimus robotics story, and you are betting it gets executed flawlessly over the next year. The bear case: what they are attempting is genuinely hard, it will take time, and competition is heavy. Tesla announced $25 billion in capex and holds about $30 billion in cash. Doing what they plan will take far more money than $25 billion and enormous effort.
My prediction: SpaceX will end up buying Tesla. The two companies share heavy synergies, and it is simpler for Musk to run them as one. That likely combination, regardless of how expensive both companies are, is one of the main reasons people still hold the stock. Musk deliberately gave few details on when the companies might combine, which is the question everyone is asking.
What would prove Optimus is real
They spoke at length about how hard it is to build the robot's hands and give them dexterity. That is a huge problem. I doubt a humanoid shape is even the best design for a robot meant to do varied tasks. The idea that we will all have robots in our homes, walking upstairs, running millions of units, requires deep faith in a payoff far in the future. I do not see it happening.
The real bright spot: AI infrastructure
The best part of the earnings call had little to do with Tesla itself. It was the shout-out to Micron, Samsung, and TSMC. That confirms the AI infrastructure trade is here to stay. The $25 billion capex number is good news for the whole chip and infrastructure trade.
Something shifted about a quarter ago. When Alphabet, Microsoft, and Meta reported on the same day and all raised capex, the market's read changed. Now that free cash flows have turned negative, that is no longer treated as a positive for the stock. Yet the AI infrastructure names still react well. The hyperscalers (big cloud spenders) and the infrastructure suppliers have split into an inverse trade for now.
My view: invest in innovation and it eventually works out. When Google and Microsoft pour money into infrastructure, they will be the very big winners over the long run, you just have to ride through the cycle. Do not swim against the tide; that is where the money is going and those companies are doing well. If you believe in AI, this capex will prove to be a great thing for the economy and for these investments. I am not worried long term, if anything more bullish. When the hyperscalers trade at very attractive valuations, they will be big winners because they are investing in the right places.
