AUSTIN, Texas (Reuters) - Tesla (TSLA.O) cut its annual capital expenditure forecast by a fifth and posted surprise positive free cash flow in the third quarter on Wednesday, after investing far less in its AI and robotics ambitions than Wall Street had expected.
The unexpected cash generated in the quarter comes at a critical moment for Tesla, as CEO Elon Musk explores combining the EV maker with his far more capital-intensive space venture, SpaceX (SPCX.O).
While the lower spending strengthens Tesla’s financial position ahead of any deal, preserving cash at the expense of investment — in AI, robotaxis and humanoid robots — could undermine the very growth story investors are betting on.
Tesla shares, which had risen 2% in after-hours trading after the company reported positive cash flow, higher gross margin and market-beating revenue, reversed course to trade down 2%. They have fallen about 14% this year.
"The free cash flow beat was a pleasant surprise, but when combined with the lower-than-expected capex, raises questions on the next step for the automaker," said Ryan Lee, senior vice president of product and strategy at Direxion, which offers ETFs tied to Tesla. "Lower capex suggests less of an 'all-in' approach to the AI arms race than one would expect from Elon."
Tesla said it expected capital expenses for 2026 to be roughly $20 billion, down from its previous forecast of more than $25 billion, but did not say what it would spend less on.
In the third quarter ended September 30, Tesla spent $4.7 billion in capex, double that of a year ago, but lower than the $7.5 billion analysts on average were expecting, according to LSEG data. Tesla reported free cash flow of $1.53 billion, compared with an expected $4.92 billion cash burn.
SPACEX MERGER UNDER DISCUSSION
Musk said on Tuesday that a merger between Tesla and SpaceX was a "good idea" and that the companies had formed special committees to discuss a deal. On Wednesday, Musk said on a conference call with analysts that he had no more to say on the matter.
A merger would create a single company at the center of Musk's long-term vision: an integrated technology and manufacturing empire spanning AI, energy, robotics, communications and transportation on Earth and beyond.
Still, investors will seek evidence that Tesla is investing enough to turn Musk’s ambitions into commercial businesses, with the robotaxi rollout lagging his promises. Tesla's energy unit has recently offered a counterweight to its auto business, which remains under scrutiny as rivals globally launch newer, often cheaper models. Tesla still leans heavily on the aging Model 3 and Model Y.
"The merger still faces a high bar, but tonight’s numbers make the financial logic harder to ignore," said Thomas Monteiro, a senior analyst at Investing.com.
"The main takeaway is that Tesla's surprisingly positive cash flow quarter did not come from stronger profits, but from spending billions less than planned at a time when SpaceX is preparing to invest up to $40 billion in a single quarter."