In case you missed it:

I sent a portfolio & performance update today. Soon after, amid the software sell-off, I decided to make another transaction. To avoid inbox clutter, I updated the article I already sent with the second transaction and current holdings.

Auto revenue missed by 8%, while the rest of its smaller segments sharply beat expectations to offset that weakness. Last quarter, Tesla discussed that the end of EV incentives created a rush to purchase Tesla vehicles, which accelerated demand for the period. That led to tougher growth comps, but the Y/Y growth comp overall got 6 points easier and they still slowed by another 5 points. In terms of stronger pockets of demand, deliveries set new highs in smaller emerging markets like Saudi Arabia, Taiwan and Poland. Musk said Asia-Pacific (APAC) and EU demand was strong, but it is worth noting that Tesla did not include the market share chart it usually does in its earnings presentation.

CapEx is expected to double from $8.53B to $20B next year, implying meaningful cash burn for 2026. In terms of financing this spend, they have plenty of cash on hand. Additionally, Tesla CFO Vaibhav Taneja offered another idea I found a little odd. It sounds like they’re planning on using robotaxi cashflows as collateral to underwrite financing for this year, but they haven’t meaningfully scaled that business and they’re still only in two cities with 500 cars. That seems aggressive to me, but if banks are willing to issue that debt, then that’s their prerogative. Furthermore, it sounds like CapEx will stay elevated for the next couple of years, as Tesla has several big investment priorities that we’ll discuss in a moment.

Tesla doesn’t provide formal financial guidance. It trades for 180x forward EPS. EPS is expected to compound at a 47% clip over the next two years. I do not think they will generate positive FCF next year based on their CapEx guidance being $5.5B larger than consensus operating cash flow guidance.

Heading into 2026:

In 2026, Tesla’s roadmap is ambitious. Many of its planned investments are continuations of existing programs and based on its new mission to provide “amazing abundance.” 

It will launch and deploy the 5th and 6th generations of its AI inference chips and prep for more iterations thereafter to support autonomous fleet plans and Optimus. Generally speaking, it will be adding a lot more AI compute capacity to support future scale, including building its Cortex 2 Gigafactory in Texas to 2x onsite compute at that campus. From there it will expand capacity for its vertically-integrated battery supply chain, including payments tied to the new domestic lithium refinery capacity creation (now in pilot production). 

“The lithium refinery in Corpus Christi is not a copy of others. It's an entirely new process that is fundamentally more efficient and more advanced than anything else in the world. The same is true of our cathode refinery in Austin… we’re the only lithium refinery and cathode refinery player in America.” – CEO Elon Musk

The mega-cap will prep capacity in Austin for Cybercab production with its next-gen, fully-autonomous “unboxed” assembly technology that they expect to cut costs by 50%. Unboxed simply means built in subsections and only assembled at the end.

Tesla plans to start building units (without pedals or steering wheels) this spring. The ultimate goal is for Tesla to make “far more” of these than any other model to support transportation demand. Furthermore, costs for its new Tesla Semi (truck) facility in Nevada come due and it will spend on shifting some manufacturing capacity to gear it up for Optimus production (goal is 1M/year by 2027). That reshuffling includes sunsetting Model S and X programs in Fremont in favor of the humanoid robot. This change will allow the space to eventually support 1M units produced per year, according to leadership. From here on out, Tesla will focus on “autonomous vehicles,” or those with unsupervised FSD. Autonomous cars sold on the consumer side going forward will be Model 3, Y and Cybertruck. Speaking of which, Cybertruck manufacturing lines will upgrade to Tesla’s new manufacturing tech this year.

Interestingly, Musk is adamant that Tesla “needs to build” a Terafab (big chip manufacturing facility) to supplement Taiwan Semi, Micron and Samsung. There could be an announcement coming soon. They aren’t confident they’ll be able to get needed supply from these key partners three years from now, which is fair. Over the next “roughly 3 years,” they do feel confident in chip availability. After that, things naturally get less certain. Musk talked about the world discounting very real geopolitical risks stemming from hefty reliance on Taiwan Semi, and he does not want to be vulnerable if those concerns lead to shortages in the coming years. They know how important AI compute power is for Optimus and Robotaxi success and they’re determined to more tightly control their future in this area – like they’ve done in other departments like lithium refining. Tesla rightfully loves end-to-end control of supply chains, and will push aggressively forward on plans to make sure it has the needed raw materials processing, battery formation and futuristic car assembly know-how to control its destiny.

“Vertical integration has enabled us to achieve economies of scale in a profitable manner, quickly troubleshoot bottlenecks in production and iteratively optimize our technologies more rapidly than others.” – Investor Slide Deck

Separately, there’s a good chance they add a solar cell factory to the roadmap this year. Neither this nor the Terafab is part of their $20B 2026 CapEx guide and, if they go forward with potential plans, would raise the forecast.

Energy Generation and Storage:

Megapack 3 (commercial battery storage system) and Megablock (connects four Megapacks and a transformer) production will begin in Texas this year. They expect growth rates for this segment to remain elevated for the foreseeable future with a strong backlog informing their optimism. At the same time, margins will likely be pressured in 2026 due to price competition from competitors and tariffs. Nonetheless, Tesla is confidently working towards their goal of 100 gigawatts in annual solar-powered energy (again while owning most of the supply chain).

More on Optimus:

The 3rd generation of their Optimus concept will debut this quarter, with a much better hand design and an eye towards “mass production.” They called it the first design meant for this rapid scaling, but said the same thing about the 2nd generation in previous earnings calls. It’s very hard to build an entire supply chain from scratch and create a brand-new product line. It’s even harder to time the delivery of that product. So, while it’s fair to criticize Tesla for often being tardy on schedules (which Musk openly admits), we also have to acknowledge that they’re doing very hard things. This means the ramp will take longer, as there aren’t prebuilt systems, templates or vendors it thinks it can use to help bring this creation to life.

Tesla thinks the toughest competitors for this emerging segment will be from China. Musk also believes that generation 3 is better than anything over there, with the gap vs. domestic competition even larger. Musk thinks that nobody touches the mixture of hand dexterity, physical AI and manufacturing muscle of Tesla.

More on Robotaxi Scaling:

In addition to building out a lot more compute, Tesla also knows it will need to set up charging, storage, maintenance and cleaning systems that seamlessly scale without headache. I’d just like to point out that they can do all of these things with Uber and focus on building their disruptive hardware, but Musk isn’t interested at this stage. Tesla wants to do it all themselves, which is yet another source of CapEx growth for 2026, as these fleets will need infrastructure to support their success.

Robotaxi continues to operate in Austin and San Francisco, with Austin now offering some of their rides without a safety driver or a second car following closely behind. This year, Tesla expects to be in “dozens of cities,” or up to 25% of the USA if regulations allow this to happen. I just have to say it. They’ve been talking about this business scaling across the USA for a long time and have pushed the goalpost back several times. It’s time for them to prove it, especially as several other competitors quickly approach their commercial debuts.

FSD:

More:

They’re now making Model Y units built with their 4680 battery cells. Considering batteries are their #1 global constraint, that’s a big positive for supply availability.

It’s so easy for two different people to assess this company, financial statements and team and arrive at conclusions that are worlds apart.

Someone can see this company’s base of vertically integrated assets as giving them the best chance to lead in autonomous vehicles and humanoid robots. They can believe in defensible cost advantages stemming from this supply chain unity. They can shrug off 3 years of lackluster financial performance if they think Musk is right when he talks about how much bigger these growth curves will be than anything Tesla (or anyone) has delivered. They can see 220x earnings and a 5X PEG ratio and think it’s cheap.

And while I entirely understand where they’re coming from… while I get that Musk has delivered amazing innovation in the past… I see real risks to this investment case. Nothing that makes me think shorting it is anything but reckless, but enough to make me think risk/reward looks underwhelming. The reality is that timelines for the big bets Tesla is making are highly uncertain. They’ve pushed things back several times and there’s no guarantee that delays are done. Every time the schedule to market is elongated, a crowded field of competition has more time to establish themselves and Tesla’s future dominance gets less likely. If we’re to go with the bull opinion that this is no longer a car company (their main financial driver), then the things they’re placing value in are (to me) very speculative and risky. It could work out and deliver all the value Musk is touting. That would probably make me look very wrong here. Or? It could work out and deliver a lot less value than that… and it could also not work out. That is possible too. With the earnings multiple this lofty, it feels like people have already concluded they’ll win both markets.

Apple’s revenue guidance was a comfortable 4% ahead of expectations. EBIT was 6% ahead of expectations and its 48.5% GPM guidance was 100 bps better than estimates. Good guide.

Apple trades for 31x forward EPS. EPS is expected to grow by 11% this year and next year. Estimates for this year should rising following the report.

Memory Inflation:

Around half of the analyst questions during the earnings call involved memory availability and pricing. The constant headlines about Micron, SK Telecom and others aggressively hiking prices led many to believe Apple’s gross margin would take a modest hit. That didn’t really happen during Q1. And, even though the impact is supposed to slightly worsen next quarter, its 48.5% GPM guidance represents a strong 150 bps of Y/Y expansion. It didn’t want to comment beyond Q2, but Cook did hint at memory inflation continuing for at least a few more quarters. Apple thinks they have several options at their disposal to help combat that margin headwind if it does keep ramping.

iPhone Demand:

iPhone was the standout product for Apple this quarter. Demand across every member of the iPhone 17 family was easily better than Apple expected, as the consumer tech giant took considerable market share. Strength was broad-based across key geographies and, specifically, it was the top seller in places including Australia, Japan, urban China and the USA. Upgrade and new customer growth rates were healthy, while customer satisfaction rates moved from an elite 98% to a more elite 99%.

These results were great, and they could have been even better. Apple is dealing with constrained access to needed Taiwan Semi 3-nanometer manufacturing capacity to make the chips needed to power its phones. This is related to how sharply iPhone demand outperformed this quarter, and means guidance for next quarter doesn’t represent how strong customer demand levels are for this product right now. They’re not sure when this supply issue will be resolved.

Non-iPhone Product Demand:

Mac struggled with tougher comps related to fantastic M4 Mac launches last year. Still, the install base grew and 50% of customers were new to the product, showing the runway for new user growth still remains long. Mac U.S. user satisfaction bounced back from 96% to 97% Q/Q after falling a tick last quarter.

In WAH, the new AirPods have been a hit. Live translation tools, great noise cancellation and enhanced comfort are all resonating. These are currently supply constrained, which is why the category didn’t deliver Y/Y growth during the quarter. In other segment news, 50%+ of Apple Watch customers were new to the product.

Services Demand:

Apple TV grew engagement by 36% Y/Y, with Cook excited about the impact of upcoming scripted releases and the MLS and F1 seasons. And… Most importantly… Ted Lasso season 4 this summer.

Apple was asked about 3rd-party data pointing to App store growth noticeably slowing to 7% Y/Y during December 2025. They didn’t say the data was wrong, but the overall strength of the revenue guide says they’re not struggling to find any demand right now (thank you iPhone). During the quarter, Apple added digital ID Wallet features and new ad impressions on its App store. With a growing base of 2.5B active devices, they have so many ideas left on how to cross-sell more services and enhance customer monetization. 

More on China:

Apple was the top smartphone, tablet and desktop in Urban China. This drove a lot of the outperformance, as store traffic rose by well over 10% Y/Y and conversion rates stayed strong.

AI:

Visual intelligence, which uses your camera to learn about surroundings, has turned into a very popular feature. Thanks to this, writing tools, photo cleanup and a few other perks, Apple is enjoying steady progress on customers using Apple Intelligence in some way. The usage rate is over 50% and rising.

In terms of why Apple chose Google to collaborate on the upgraded Siri launch, Cook had some very nice things to say about the search giant.

“We basically determined that Google AI technology would provide the most capable foundation for Apple Foundation Models.” – Apple CEO Tim Cook

Good quarter and great guidance. I have been pretty critical of Apple over the last couple of years. I’ve questioned whether or not they’re innovating quickly enough to fend off emerging competitive threats from rivals like Meta. The blue bubble moat has been powerful for years, but it alone will not be enough forever. I’ve also wondered whether we were ever going to see respectable revenue growth and strong EPS expansion driven by anything other than buybacks. I still have concerns about wearables competition, but the last two quarters were quite good in terms of profitable growth and the guidance looks just as healthy.

At the end of the day, Apple is still a consumer tech king with an iconic brand and an elite business. I live on their devices… I just prefer other places to invest my finite capital.