The bill for Tesla's AI expansion just keeps getting bigger

• Elon Musk has a warning for Tesla investors: buckle up, things are about to get expensive.
• Tesla is hiking capex spending to $25 billion this year as it doubles down on AI and robotics.
• It's an unprecedented spending spree, and executives said it will put Tesla's finances under pressure.

Elon Musk is going on a major spending spree as he looks to turn Tesla into an AI powerhouse.

Tesla said on Wednesday it would hike capex spending this year to over $25 billion as it doubles down on Musk's aggressive pivot to AI and robotics.

It marks a massive surge from last year, when Tesla spent $8.5 billion on physical assets and infrastructure, and is above the $20 billion figure the company gave investors in January.

The huge capex budget, which is more than half of Tesla's total cash in hand, is a signal that Musk is going all in on the company's new direction.

The money will go toward six new factories, executives said on Wednesday's earnings call. It will include funding for Cybercab production lines in Texas, AI infrastructure to support Tesla's robotaxi push, and retrofitting a California factory that produced the outgoing Model S and X to build Tesla's Optimus robot.

Tesla shares fell over 3% after hours following the company's earnings call, but analysts largely shrugged at the prospect of elevated spending. Dan Ives, a managing director at Wedbush Securities and Tesla bull, said that the spending spree was justified by Tesla's ambitious AI plans.

"Tesla is morphing into a physical AI stalwart. The path is here and it requires more CapEx," he wrote in a Thursday note.

Terafab plans revealed

Another expensive new project revealed on Wednesday is a $3 billion semiconductor research fab in Austin, the first stage of Tesla's mammoth Terafab chip manufacturing moonshot.

Musk has said Terafab, which is a joint project with SpaceX and Intel, will aim to produce around 1 Terawatt of annual compute.

That's around 50 times the current global supply, and Bernstein analysts have estimated that hitting that target could cost as much as $13 trillion.

Musk said that the "initial phase" of scaling up the Terafab will be handled by SpaceX, which is set to go public later this year at a valuation as high as $2 trillion.

Despite Tesla's ambitious investment plans, the company spent only $2.5 billion of its vast capex budget in the first quarter, helping it record a surprise $1.4 billion in positive cash flow in a major earnings beat.

That's a signal that the next few months will see a major ramp-up of activity and spending, putting pressure on Tesla's finances. On Wednesday's earnings call, Tesla CFO Vaibhav Taneja said the company expects negative cash flow for the rest of the year.

Investors may also have to wait a while to see the payoff from Tesla's spending splurge, with Musk estimating that the company would not see "material" revenue from robotaxis or its self-driving products until next year at the earliest.

Despite this, the billionaire told investors that the surge in spending would be "well-justified" by substantially increased future revenues, and drew comparisons with other tech giants like Google and Meta that are also making major infrastructure plays.

"I think it's going to pay off in a very big way," Musk said on Wednesday's earnings call.