Wall Street comments on Tesla's financial report: The automotive gross margin is a surprise, waiting for robots, and preparing for a wave of capital expenditures

Wall Street's core consensus on Tesla's fourth-quarter financial report is that the unexpectedly high gross margin in the automotive business is the biggest surprise, highlighting its operational resilience in the face of industry adversity.

However, the real focus and point of contention lies in the company's announcement of an aggressive strategic transformation and the accompanying high-intensity investment cycle. Capital expenditures are expected to exceed $20 billion in 2026, far above market expectations, with an anticipated cash burn of about $8.1 billion, marking Tesla's unprecedented shift from an electric vehicle manufacturer to a deep transformation into an AI and energy ecosystem giant.

Specifically, the company announced it will cease production of the Model S/X models, redirecting capacity to the Optimus robot production line with a target annual output of 1 million units, and plans to launch Robotaxi services in seven cities in the first half of 2026. This series of initiatives, along with a $2 billion investment in xAI, clearly points to future businesses such as AI training computing power, autonomous driving taxis, and general-purpose robots.

Concerns from Wall Street have arisen as a result. Despite acknowledging its execution capabilities, several investment banks have expressed caution regarding the surge in capital expenditures and cash burn. Morgan Stanley and Goldman Sachs have subsequently lowered their price targets. The core question in the market is: Can the long-term potential value of the physical AI businesses (FSD, Robotaxi, Optimus) that Tesla is building support the current valuation and justify this wave of "capital expenditure"? Investors will enter a critical observation period to "wait for robots" to realize technological and commercial progress.

Automotive Business Strong but Outlook Uncertain

Tesla's automotive business revenue for the fourth quarter of 2025 was $17.7 billion, a year-on-year decline of 11%, but its profitability far exceeded market consensus. Although delivery volumes fell by 16% both sequentially and year-on-year, Morgan Stanley analysis indicates that due to structural factors such as an increase in the proportion of high-margin models sold, the automotive business gross margin (excluding regulatory credits) reached 17.9%. Meanwhile, the cost per vehicle further optimized to approximately $34,100, continuing to improve from $35,700 in the previous quarter.

In addition to the core automotive business, regulatory credit revenue reached $542 million, significantly higher than the market expectation of $329 million. The energy business also performed well, with revenue growing 25% year-on-year to $3.8 billion and a gross margin of 28.6%, becoming the company's highest-margin growth engine.

It is noteworthy that management did not provide specific guidance on delivery volumes for 2026, only stating that it would focus on maximizing production capacity utilization. Morgan Stanley has lowered its global delivery expectations for Tesla in 2026 and 2027 to 1.72 million and 1.88 million units, respectively, based on the direct impact of ceasing production of the Model S/X models.

Surge in Capital Expenditures Raises Cash Flow Concerns

Tesla's capital expenditure guidance for 2026 significantly exceeds market expectations, raising widespread concerns about the company's cash flow over the next few years. The company expects capital expenditures to exceed $20 billion in 2026, a substantial increase from approximately $8.5 billion in 2025, and far above the market's previous expectation of about $11 billion Goldman Sachs has raised its expectation from $13 billion to $20 billion and predicts that the company will experience negative free cash flow as a result.

Morgan Stanley analysts believe that high-intensity investments will put significant pressure on the company's cash outflows, expecting to consume approximately $8.1 billion and $500 million in free cash flow in 2026 and 2027, respectively, until it can return to positive cash flow by 2028. Management stated that in the short term, it will primarily use its cash reserves to fund investments, but has also left room for potential debt financing and other options.

As of the end of the fourth quarter of 2025, Tesla held a total of $44.1 billion in cash, cash equivalents, and investments, an increase of $2.4 billion quarter-over-quarter, providing a buffer for its strategic transformation. Notably, the free cash flow for the quarter was $1.4 billion, while capital expenditures were only $2.4 billion, below the market expectation of $2.9 billion, highlighting that the fourth quarter is not the starting point of a high capital expenditure cycle.

AI Business Progress and Strategic Transformation

Tesla's business layout in the fields of autonomous driving and robotics is accelerating and achieving key progress.

In terms of the Robotaxi business, the fleet size has exceeded 500 vehicles, operating in Austin and the San Francisco Bay Area. Among them, some operational vehicles in Austin have removed safety supervisors, achieving fully autonomous driving and entering a critical phase of commercial trial operation. The company plans to expand services to seven cities, including Dallas, Houston, Phoenix, Miami, Orlando, Tampa, and Las Vegas in the first half of 2026.

The number of subscribers for FSD (Full Self-Driving) has grown significantly. As of the end of the fourth quarter, the number of active subscribers reached 1.1 million, a year-on-year increase of 38%, accounting for about 12% of the company's total vehicle deliveries. In terms of regional expansion, it has successfully entered the South Korean market and continues to seek regulatory approval in China and Europe. To further promote the subscription model, the company plans to stop selling one-time buyout options in the U.S. market after February 14, 2026.

The commercialization path for the humanoid robot Optimus is clearer. The third-generation product is expected to be released in the first quarter of 2026, with the first production lines being installed, aiming to start mass production by the end of 2026 and planning to deliver to external customers starting in 2027. The company emphasizes that due to the complexity of its supply chain far exceeding that of traditional automotive products, the capacity ramp-up in the early stages of mass production will follow a typical S-curve.

Investment Banks Lower Target Prices and Maintain Cautious Stance

Morgan Stanley has lowered Tesla's target price from $425 to $415 and maintains an "Equal-weight" rating. Analysts point out that although Tesla continues to lead in the physical AI field, its surging capital expenditure plans will lead to significant cash consumption (expected to reach $8.1 billion in 2026), which may limit the stock price's valuation expansion space in the short term.

Goldman Sachs also maintains a "Neutral" rating and has lowered its target price from $420 to $405. Analysts acknowledge the company's progress in AI-related businesses (such as FSD and Robotaxi) but emphasize that competition is intensifying. Waymo plans to double the number of cities it operates in by 2026, while NVIDIA announced at CES that it will open-source its autonomous driving model Alpamayo, both of which could constrain Tesla's future profit growth potential.

UBS maintains its "Sell" rating, with a target price unchanged at $307. Analysts believe that while the surprise in gross margin exceeding expectations in the fourth quarter is encouraging, it is not enough to change the company's core investment narrative. Tesla still faces fundamental challenges such as a slowdown in global electric vehicle demand and intensified competition in international markets from brands like BYD.