Tesla just increased its capital expenditures to $25 billion. This is where the money goes.

Tesla CEO Elon Musk began the company’s first-quarter earnings call with a critical warning — or, depending on the investor’s mindset, a caveat. Tesla’s capital expenditures will rise to $25 billion in 2026, far exceeding its previous annual spending as it races to stay ahead of the competition and transition into an artificial intelligence and robotics company, according to its first-quarter earnings report.

This figure, which covers what Tesla plans to spend on physical assets outside of day-to-day operating expenses, is three times higher than its annual capital budget in previous years. For comparison, Tesla’s annual capital expenditures were $8.5 billion in 2025, $11.3 billion in 2024, and $8.9 billion in 2023.

Tesla announced in January that it expects capital expenditures to exceed $20 billion in 2026, already a significant increase intended to cover its AI initiatives, including investments in computing infrastructure and data centers, expanding manufacturing product lines and research and development, among other elements.

This $5 billion increase indicates that these initiatives will require more money than previously planned. But so far, the report showed that its quarterly capital expenditures, at $2.5 billion, were in line with previous quarters.

Of course, Musk views this as a positive, a sentiment that many other shareholders are likely to share as well because it positions Tesla as a company that is investing in its future, specifically artificial intelligence and robotics.

“Coming into 2026, we will significantly increase our investments in the future,” Musk said on Wednesday’s earnings call. “So you should expect to see a significant, very significant increase in capital expenditures, but I think there’s justification for a significant increase in future revenue stream.”

Musk is quick to point out that Tesla isn’t the only company raising its capital spending budget. For example, Amazon expects to spend $200 billion in capital expenditures in 2026, across “artificial intelligence, chips, robotics, and low-Earth orbit satellites.” Google is scheduled to spend between $175 billion and $185 billion in capital expenditures in 2026, up from $91.4 billion the previous year.

The increase in Tesla’s capital expenditures is related to Musk’s desire and ambition to develop the company beyond building and selling electric vehicles, solar energy and energy storage.

Some of the capital spending will go toward Tesla’s core technologies such as batteries and artificial intelligence software, according to Musk. The company plans to invest in training in artificial intelligence, chip design, and “lay the groundwork” for increased industrial production, as well as investing in its robotics operations and its new semiconductor research factory in Austin.

The Fremont, California, plant will likely absorb some of that capital as the company ends production of the Tesla Model S and Model The company said Wednesday that it has also cleared land outside its Austin factory to create a dedicated Optimus manufacturing facility.

He said Tesla plans to ramp up its internal production of Optimus for testing and then “most likely” make Optimus “useful outside of Tesla sometime next year.”

Tesla is also investing money to strengthen its supply chain “across the board,” Musk said, adding that this covers batteries, energy and AI-based silicon.

All this spending, which CFO Vaibhav Taneja said will continue for a few years, comes at a real cost. The company, which enjoyed a slight 4% stock price rise, partly due to an unexpected $1.4 billion in free cash flow, will head into negative territory later this year, Taneja said.

Tesla shares erased gains in after-hours trading, as Musk and Taneja presented those plans to investors. However, Tesla still has significant amounts of cash. At the end of the first quarter, Tesla reported $44.7 billion in cash, cash equivalents and short-term investments.

“Although this may seem like a lot, and we will have a negative free cash flow impact for the rest of the year, we believe this is the right strategy to position the company for the next phase,” Taneja said.