Tesla says demand picked up in the latest quarter, helped in part by a brutal reality for drivers with gas-powered cars: gas prices jumped after the U.S.-Iran conflict disrupted oil flows through the Strait of Hormuz. That lift was enough to give Tesla its highest first-quarter order backlog in two years, even as the loss of the EV tax credit in the U.S. kept pressure on the company.
The catch is that stronger orders do not mean an easy year. Tesla now expects to spend more than $25 billion, a sharp jump from roughly $8.5 billion last year and well above the $20 billion it had been expecting just a quarter ago. That is the kind of number that makes investors twitch, especially when the broader tech sector is also piling into capital spending with no guarantee the payoff arrives quickly.
Gas prices gave Tesla a temporary tailwind
The company’s own finance chief pointed to higher gasoline costs as one factor behind the uptick in orders. That is a useful reminder that EV demand does not move in a vacuum: when fuel prices spike, the monthly math for combustion cars gets ugly fast.
There is a little historical rhyme here. Every time oil markets get jolted by geopolitics, EV makers get to make the same pitch they have been making for years: electricity looks a lot cheaper when gasoline is panicking. The Strait of Hormuz has long been one of the world’s most sensitive energy pressure points, so the shock to oil markets was never going to stay neatly contained.
Tesla’s spending bill keeps getting bigger
Elon Musk framed the surge in spending as part of a broader push across major tech companies, but Tesla’s plan still stands out. The market has already been skittish about giant AI capex cycles, and Tesla is now asking shareholders to absorb a bigger bill while the company is still fighting for predictable EV demand.
- Expected capital expenditure this year: more than $25 billion
- Roughly spent last year: $8.5 billion
- Previous estimate: $20 billion
Terafab and retrofit plans raise the stakes
Some of that money appears headed toward Musk’s newest moonshot: Terafab, a Texas chip project he says Tesla will lead on the research side. He put its cost at about $3 billion and described it as a response to the company’s need for more chips, as well as a shot at better AI silicon. That is classic Musk: part necessity, part science-fair ambition, all of it expensive.
He also finally conceded that Tesla vehicles with hardware 3 cannot reach unsupervised full self-driving. Owners of those cars are being pointed toward discounted trade-ins and upgrades, which may be the most honest answer Tesla has given on the subject in years. The headache is logistical too, because Musk says the retrofit work would require small factories in major cities rather than slow service-center installs.
The open question is whether Tesla can turn a fuel-price bump into durable demand before the spending spree starts looking less visionary and more reckless. Gasoline is high now, but so is the company’s appetite for cash.