With every Tesla (TSLA) quarterly earnings call, Elon Musk’s ambitions keep moving faster than the market can catch up. Musk is now thinking far beyond electric vehicles, flying cars, rockets, and robotaxis. His next move involves a number so enormous that it could change how investors view Tesla altogether. Is Musk quietly building something much bigger than SpaceX (SPCX) and Tesla, or is this just the next bold twist in his ever-growing saga of audacious ambitions?
Let’s find out if this will prove to be good or bad news for TSLA stock, which is down roughly 12% year-to-date (YTD), becoming the weakest link in the Magnificent Seven this year.
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www.barchart.com Terafab: A $100 Billion Bet on AI Chips
On the Q3 earnings call, Elon Musk said the Terafab project could require over $100 billion in long-term capital equipment spending, a staggering figure that stresses the project's ambition. Musk emphasized that Tesla and SpaceX have not yet decided how to split these costs. He cautioned investors not to expect Tesla to bear the full burden.
Musk’s goal is to address a potential bottleneck across all his businesses: access to advanced computing hardware. Tesla needs powerful chips for autonomous driving and its Optimus humanoid robots. Meanwhile, SpaceX is expanding its AI computing operations. Terafab aims to develop logic chips, memory, and advanced packaging, potentially giving both companies greater control over supply. Musk said the Austin research facility is expected to commission equipment in the first half of 2027, with the first test chips targeted for May or June. Tesla is aiming for volume production in 2028. Making the test chip would signal notable progress, but commercial success will depend on manufacturing yields, reliability, production capacity, and costs.
SpaceX’s rapid expansion helps explain the overall opportunity. In the third quarter, its revenue jumped 161% year-over-year (YoY) to $14.58 billion, including $7.56 billion in AI-related revenue. The company’s bold vision was reflected in its $19.6 billion capital expenditure for the quarter.
According to Reuters, both companies are also exploring a possible merger through independent committees, with Musk citing potential opportunities involving AI software, chip design, Terafab, robotics, connectivity, and space infrastructure. However, the companies have not agreed on merger terms. Musk also explicitly cautioned that a merger might never happen.
Tesla’s Financial Strength Will Be Tested
Tesla generated $1.5 billion in free cash flow and ended the quarter with a cash and investments balance exceeding $45 billion. The company also revised its 2026 capital expenditure guidance to about $20 billion, saying it expects to fund the spending primarily through operating cash flow. Tesla is investing in multiple initiatives simultaneously, including expanding production capacity, Robotaxi, Optimus, solar manufacturing, computing infrastructure, and semiconductor manufacturing. Management said capital expenditure will continue to increase over the coming years.
Tesla has the balance sheet to pursue these ambitions. But the Q3 earnings report also gave investors reasons to be cautious. Total revenue was flat at $28.05 billion because a 33% increase in services revenue couldn’t offset declines in the automotive and energy businesses. Operating income plunged 56% to $718 million. Operating expenses climbed to $4.78 billion from $3.43 billion a year earlier. Adjusted earnings fell 44% to $0.48 per share.
This is not a pretty financial picture for a company preparing to pour billions more into AI, robotics, and semiconductor manufacturing.
The Bigger Bet Is on What Tesla Might Become
Electric vehicles (EVs) remain Tesla’s core business, but they fell 3% in the quarter, generating $20.5 billion in revenue. But Musk is also building businesses around autonomy, robotics, energy, and AI computing. Tesla’s chipmaking ambitions could connect those operations by giving Tesla greater control over an essential input for advanced AI systems.
Tesla must prove it can make useful chips at scale, deploy them in products that customers want, and generate returns that justify the enormous investment. The first test chips in 2027 and the planned volume production milestone in 2028 will offer investors tangible progress to assess. Terafab might help Tesla and SpaceX solve a key technology challenge. However, it could also become a costly, complex project. The main question now isn’t how fast Tesla can make EVs or how many it can sell. It is whether Musk can turn his sprawling ambitions across AI, robotics, energy, and semiconductors into profitable businesses that justify the enormous capital they require. At 171 times forward 2027 earnings, Tesla's stock commands a hefty premium, leaving little room for disappointment.
That premium may help explain TSLA stock’s weak performance this year. Even Musk’s “flying car” unveiling this month failed to wow investors. Investors are paying for a future Musk has repeatedly promised but has yet to fully deliver. Until those ambitions become profit-generating businesses, Tesla’s valuation will remain hard to justify.
Analysts now have a high price estimate of $600 for TSLA stock, which implies a potential upside of 52% from current levels. On Wall Street, TSLA holds a consensus “Moderate Buy” rating overall. Of the 41 analysts covering the stock, 14 recommend it as a “Strong Buy,” two rate it a “Moderate Buy,” 22 rate it a “Hold,” and three rate it a “Strong Sell.”
www.barchart.com On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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