Tesla cuts spending before potential SpaceX deal even as Musk bets future on AI, robots

Tesla announced on October 21 it was cutting its annual capital expenditure forecast by a fifth, and reported positive free cash flow in the third quarter. The company spent less on AI and robotics than Wall Street had anticipated. This comes at a pivotal time for Tesla, as CEO Elon Musk is considering a potential merger between Tesla and SpaceX.

While the reduced spending bolsters Tesla's financial position before any deal, it also raises questions about the company's future investments in AI, robotaxis, and humanoid robots, which are key growth areas for investors. Tesla shares initially rose after the positive cash flow report, but then dropped 2% in after-hours trading.

They have fallen about 14% in 2026. Ryan Lee, a senior vice-president at Direxion, noted that the lower-than-expected capex indicates Tesla's less aggressive approach to the AI race. The company projected its 2026 capital expenses to be around $20 billion, down from the previous estimate of over $25 billion, but did not specify what areas would see reduced spending.

In the third quarter ending September 30, Tesla's capital expenditures were $4.7 billion, double the $4 billion the year before but lower than the $7.5 billion analysts expected. Tesla generated free cash flow of $1.53 billion in the quarter, beating expectations of a $4.92 billion burn. Musk previously suggested a merger between Tesla and SpaceX was a "good idea."

On October 21, he confirmed on a conference call that no further discussion would take place. A merger would consolidate Musk's vision of an integrated technology and manufacturing empire focusing on AI, energy, robotics, communications, and transportation, both on Earth and in space. However, investors will want to see more solid evidence of Tesla's commitment to turning Musk's ambitions into commercially viable businesses, particularly with the robotaxi rollout behind schedule.

Tesla's energy sector provides some relief to its automotive division, which remains under pressure from competitors launching newer, cheaper vehicles. The company's energy unit has recently supported its auto business, while the Model 3 and Model Y remain the backbone of Tesla's production. Despite these challenges, Tesla's revenue remained flat year-over-year, exceeding Wall Street targets due to the absence of US tax credits that supported sales in 2025.

Net income dropped 43% for the quarter. Tesla reported the largest backlog for passenger vehicles in four years, with demand rising due to high gasoline prices, particularly in Europe. Tesla delivered 486,532 vehicles in Q3, positioning the company to increase annual deliveries for the first time in three years. Tesla's share of the FSD attach rate surpassed three-quarters of new vehicle deliveries in North America, a nearly 20 percentage-point increase from the previous quarter.

Gross automotive margins, excluding regulatory credits, reached 18.1% in Q3, surpassing analysts' estimates of 16.7%. The company aims to produce 5 million vehicles annually by 2030, up from 2.5 million expected this year.