According to Tesla CFO Vaibhav Taneja, rising gas prices following the war between Iran and the United States partly helped boost those numbers.
Soon after the US attacked Iran on February 28, Iran shut down most traffic through the vital oil chokepoint of the Strait of Hormuz. This action weakened oil trade and caused gas prices to rise around the world. The resulting turmoil has been called “the greatest energy crisis ever” by energy experts.
While gas prices are hitting most industries hard, some early evidence claims the troubled US EV industry could benefit, as rising gas prices underscore the vulnerability of gas-powered vehicles in times of geopolitical uncertainty.
At the time of this writing, gas prices are still high and are likely to remain that way for at least some time. Trump this week announced an indefinite ceasefire in Iran, but the decision has not reopened traffic through the strait. Experts estimate that even after the full opening of the strait, it will take several months for oil prices to return to normal.
But even with gas prices in its favor, things are still not entirely favorable for Tesla. Because while demand is growing, it also comes with incredibly large capital expenditure commitments. Tesla is expected to spend more than $25 billion this year. For comparison, the company spent about $8.5 billion last year, and just a quarter ago it expected to spend $20 billion in 2026.
Tesla CEO Elon Musk said, “Starting with 2026, we are going to significantly increase our investments in the future, so expect to see a very significant increase in capital expenditures.” “And, obviously, Tesla is not alone in this. I think you’ve seen most, if not all, certainly major technology companies significantly increase their capital investments.”
In fact, the last round of tech earnings saw a surprising increase in capital spending across the board. While the results have investors extremely excited, the AI-savvy market is ultimately grappling with the possibility that this massive amount of AI spending without a clear vision of sufficient demand in the short term could prove dangerous to the economy.
Some of Tesla’s big financial commitment is bound to go toward Musk’s incredibly ambitious plans, which he highlighted in the call.
The first of those massive commitments is TerraFab, the giant chip factory that the two Musk-led companies, Tesla and SpaceX, will operate in a joint effort in Texas. Musk had announced the initiative last month, which planned to make chips for both ground and space purposes despite not having any of the deep expertise required for chip-making. On Wednesday, Musk said the research fab will be built by Tesla, not SpaceX, which he currently thinks will cost “$3 billion-ish.”
Musk has pitched TerraFab as a response to a shortage in the number of chips his companies need, but on Wednesday he made promises that aim for much more than that.
“We expect to hit a wall if we don’t make the chips ourselves, that’s the reason for TerraFab,” Musk said in the call. “I think we probably have some ideas about how to make fundamentally better AI chips. These are kind of research ideas, meaning a long-shot idea, but if it pays off by a long shot, it’s probably a big improvement.”
The second incredibly ambitious commitment concerns full self-driving.
Musk has promised unsupervised full self-driving to Tesla owners for years, claiming it’s very close. But the company has undoubtedly failed to deliver on those promises, and customers around the world are angry, some even taking legal action.
Musk and his CFO have made contradictory comments in the past on whether vehicles will be able to reach full self-driving without supervision. Now, Musk finally admitted that a Tesla currently equipped with hardware 3 computers won’t actually be able to reach unsupervised full self-driving.
“Hardware 3 does not have the capability to achieve unsupervised FSD,” Musk said. “We thought at one time it would have that, but relative to the Hardware 4, it only has 1/8 the memory bandwidth.”
Instead, Musk suggested that Teslas with Hardware 3 would be offered “discounted trade-ins” and computer upgrades.
“To do this efficiently, we have to set up micro factories or small factories in major metropolitan areas,” Musk claimed. “If it’s just done at the service center, it’s extremely slow and ineffective to do, so we basically need multiple production lines to make the change.”
As seen many times before, Musk has a habit of making big commitments and biting off more than he can chew. Only time will tell whether the $3 billion TerraFab and Tesla retrofitting microfactories will join that long list.
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