Tesla cuts AI, robotics spending plans ahead of potential SpaceX deal

Tesla announced it reduced its expenditure on AI and robotics in the third quarter, resulting in a free cash flow beat that surprised Wall Street expectations. The unexpected cash flow development occurred at a crucial juncture for Tesla, as CEO Elon Musk is considering a merger between the EV manufacturer and SpaceX. While the lower spending bolsters Tesla's financial position ahead of a potential deal, cutting back on investment in AI, robotaxis, and humanoid robots may weaken the growth narrative investors are counting on.

Tesla shares declined by nearly 13% since the start of the year, with the stock down about 1% at the time of publication. The company's free cash flow for the quarter increased to $1.53 billion, compared to the expected burn of $4.92 billion. CEO Musk stated on a conference call with analysts that a merger between Tesla and SpaceX was a "good idea," and that the companies had formed special committees to discuss the deal.

However, investors will closely monitor whether Tesla is dedicating enough resources to bring Musk's vision of an integrated technology and manufacturing empire to fruition. Tesla's energy unit has provided a counterbalance to its auto business, which remains under scrutiny as rivals launch newer, often cheaper vehicles. The company's energy business is currently investing up to $40 billion in a single quarter, which could potentially bolster Tesla's financial position.

Despite a flat revenue figure from a year earlier, Tesla's free cash flow beat exceeded Wall Street targets. The company reported a 43% plunge in net income during the quarter. Tesla's strong vehicle deliveries, aided by high gasoline prices, have fueled demand for EVs, particularly in Europe. The company is on track to increase annual deliveries for the first time in three years, with 486,532 vehicles delivered during the third quarter.