Tesla's (TSLA) aggressive capital spending on artificial intelligence initiatives should boost revenue, though it may take some time before those gains materialize, UBS Securities said in a Thursday note to clients.
The electric vehicle manufacturer now sees more than $25 billion in capital investment, Chief Financial Officer Vaibhav Taneja said during an earnings call late Wednesday. In January, he said 2026 capex would be "in excess of $20 billion."
At the same time, Taneja flagged a negative free cash flow for the rest of 2026 on Wednesday. The company is paying for six factories and has enhanced its investment in AI-related initiatives, including the infrastructure to support Robotaxi and the launch of autonomous humanoid robot Optimus, he told analysts.
"We are in a very big capital investment phase, which is going to start now and would last a couple of years," Taneja said.
Tesla shares were down 2.4% intraday Thursday, despite the company reporting stronger-than-expected first-quarter results.
"We expect elevated capex for a number of years," UBS analysts including Joseph Spak wrote. "(Tesla's) physical AI ventures offer large potential revenue opportunities, but (it) could take a while to get there."
Tesla reported first-quarter capex of $2.49 billion, indicating a "big step up" for the rest of the year, Spak said.
"Since we expect capex to remain elevated over coming years, we see potential for depreciation to more than double over coming years weighing on (earnings per share)," Spak said.
UBS reiterated its neutral rating on Tesla's shares, while raising its price target to $364 from $352.
The brokerage upgraded its EPS projections for Tesla to $2 from $1.83 for 2026 and to $2.43 from $2.35 for 2027.
"Overall, we continue to believe current levels more properly balance the long-term opportunity with near-term concerns on fundamentals and potential fund flows," Spak said.
On the call, Tesla Chief Executive Elon Musk said the company's increased capital investments are "well justified."
"I think you've seen in most, if not all, certainly the major technology companies, substantially increasing their capital investments, and we're going to be doing the same," he told analysts. "I think it's going to pay off in a very big way. So we're investing in and improving our core technologies, battery, powertrain, AI software, AI training, chip design, manufacturing, laying the groundwork for significantly increased manufacturing production."
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