Under The Hood of Tesla’s $5.8 Billion in Spending

**SPEAKER_1** (0:01)
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**Imani Moise** (0:17)
Welcome to Tech News Briefing. It's Friday, July 24th. I'm Imani Moise for the Wall Street Journal. Tesla became the most valuable car company in the world by acting less like an auto maker and more like a tech company. So why did investors send the stock lower after the company poured billions into AI and robotics? Then, AI executives are beefing up security and telling employees to leave their company branded fleeces at home, as the backlash against AI translates into more threats. We'll look at the growing trend put in the industry on edge.
But first, on Wednesday evening, Tesla reported second-quarter earnings, and though the company sold more cars than expected, that wasn't the figure investors fixated on. Elon Musk's ambitions to transform the company into something more than an auto manufacturer overshadowed its performance. The company spent nearly $6 billion on AI, robotics, and other futuristic technologies, sending its free cash flow into negative territory for the first time in more than two years. Wall Street wasn't too happy about that, and shares continued to tumble yesterday. Wall Street Journal Detroit Bureau Chief, Patrick George, dug into the numbers and joins us now to explain how Tesla is really doing and what has investors still rattled.
Can you tell us why investors are still fixated on this negative free cash flow figure?

**Patrick George** (1:42)
This is kind of when the check is due for Tesla a little bit. For many years now, this company has said that it plans on transitioning from being kind of a traditional auto maker as much as a disruptor like Tesla can be traditional and becoming a powerhouse in artificial intelligence and robotics and autonomous cars. And developing all these nascent technologies requires a massive, massive capital spend. On the Ernie's call, Elon Musk was saying, one thing they're finding is that as they try to branch into humanoid robotics, there's not really a supply chain to serve that. It doesn't exist.

**Elon Musk** (2:15)
With Optimus, there is no supply chain. So we've had to build up a supply chain in its entirety or in-house the production.
We actually have in-house a tremendous amount.

**Patrick George** (2:27)
They had to build out a lot of that supply chain when they pioneered the modern electric car industry. But there was still a lot of auto-related parts and expertise they could draw on. And they're supposedly writing the book, as it goes, in the robotics front. So it's a very expensive endeavor.

**Imani Moise** (2:43)
So how does this most recent quarter's results compare to how the company has been performing more generally?

**Patrick George** (2:48)
I'd say it was a tougher quarter overall.
At the outset of the year, it announced it was going to spend $25 billion on capital expenditures, updating factories, investing in AI infrastructure, starting its new, it's called a TerraFab. It's a chip research facility. It's working on with Intel. So it certainly told investors that it was going to be spending a lot of money this year. A lot of analysts are wondering when that payoff is going to happen, which seems to be a continuing trend with a lot of AI heavy investments right now. Even when they have a bad quarter like this, Tesla is still king. It's still on top. The most recent numbers put them larger than the next 35 to 40 automakers combined. Just massive. Ahead of Toyota, ahead of General Motors, ahead of the rising Chinese giants. Even though Tesla is often dwarfed by many of those companies in terms of overall sales and overall revenue, there is a longstanding belief by investors that this company is going to be the one that makes cars fully autonomous while integrating that with robotics at the same time. And it also has a lot of other diversified business lines too. It's increasingly a battery powerhouse as well.

**Imani Moise** (3:57)
Tesla is pitching itself as a company that does so much more than just selling cars.
How much money does it actually make from its non-car business right now? And how much of that shift is aspirational?

**Patrick George** (4:08)
That's the fascinating thing is that though it touts itself as a tech company, and it is definitely branching into robo-taxis at a slower rate than expected, and it's certainly a major player in the battery space, the bulk of its revenue, more than 70% last year, is made the old-fashioned way, and that's selling electric cars. So it is very much a car company in terms of its balance sheet. I'd say one of the things that surprised me the most was the comeback that they mounted in Q2 just in auto sales. Tesla sold 480,000 electric vehicles globally, compared to the same period last year, and most of those, it seems, were in Europe and China, less so in the United States, now that EV tax credits and things have gone away. But the politics of Elon Musk, regardless of what you think of them, had affected the brand's popularity in a lot of markets, especially Europe. And the fact that Tesla has rebounded so hard in Europe is pretty fascinating to see. I think that's also a symptom of high European gas prices amid the conflict in Iran. They are also now back to being the majority EV seller in the United States. So Tesla as an automaker continues to be really, really resilient.