One of the market’s most polarising names jumped back into the headlines this week. Tesla’s stock price had been sliding steadily through the year so far, down close to 30% from its highs in December 2025. But an ambitious announcement arrested the drop. It popped higher and reignited familiar debates, ahead of next week’s hotly anticipated earnings release.
No one reading this needs to be reminded that equity valuations are inherently forward looking, reflecting expectations rather than past performance. But Tesla has long been a stock whose price has a particularly exaggerated leaning towards promises of future developments and deliveries over present and real figures and results. On top of this, many times over the reality has not matched the expectations, nor indeed the ambitious claims and promises of its CEO. Yet this week we saw the latest example of the price being jawboned higher, in the wake of another set of disappointing figures.
On Wednesday, Tesla announced that it had delivered 358k vehicles in the first quarter, below Wall Street expectations of 370k. Production reached 408k vehicles, creating an inventory buildup of more than 50k units. However, increased optimism around robotaxis hitting the road in Texas, and even more so around the recently announced enormous Terafab project and the company’s increased AI focus in general, saw the stock finish the session around 8% higher. A strong reversal of the recent trend of weakening momentum and withering confidence. Cathie Wood for one liked what she saw, adding around $28 million worth of stock through her ARK funds.
Despite no experience making semiconductors, Terafab is being promoted as “the most epic chip-building effort ever”. Similar to the way in which Tesla vertically integrated the automotive supply chain, Terafab promises to bring the entire semiconductor manufacturing process under one roof. And what a roof! The prerequisite for “building a galactic civilisation” would include a 100 million square foot facility.
If these AI dreams are legitimate, one pertinent question that naturally springs to mind is, does Tesla have the cash to realise them? Some analysts, including Dan Levy of Barclays, have outlined concerns around outsized capital requirements for Tesla’s lofty goals. He feels that the real cost of its new chip initiative would be “likely well more than an order of magnitude higher” than what has been made public. A semiconductor analysis firm has estimated the figure at $5 trillion. On top of that, Levy highlighted the company’s negative cash flow, with declining car sales no longer sufficient to fund its many other projects.
Reminiscent of the trend of claiming to have pivoted to the blockchain from 8-9 years ago (see Long Island Iced Tea / Long Blockchain Corp), we are now seeing similar moves towards claiming an AI pivot. For example, just this week Allbirds Inc, the New Zealand footwear vendor, announced from left field that it had been reborn as NewBird AI, an “AI compute and cloud services company”. Allbirds stock jumped over 800% on the back of the press release. How many others will follow suit? Jumping on the AI bandwagon to bolster tumbling valuations at worst, diving into a brave new world with agility and ambition at best.
For Tesla, its sales are stagnant or dropping, and competition in the EV sector is increasing rapidly. Energy storage, nor solar panels, nor robotaxis, nor laundry-folding robots have been able to have any real impact on its bottom line. So for now it is a car maker, but one whose valuation is half of the entire automobile sector. Will a pivot to chip manufacturing finally see it leave the auto business in the rearview mirror and prove itself as a leader in autonomy?
Tesla’s full Q1 financial results will be released on Wednesday 22 April, during the after-market session. Equally if not more keenly observed will be the subsequent conference call, scheduled to take place soon after the release. Will the talk outweigh the numbers once again? If results miss estimates and disappoint faithful investors, can Musk find yet another way to hold up a frothy valuation? Grab your popcorn and settle in for the most entertaining show of its genre.
