Cern Basher

Tesla's CapEx and R&D Spending - Fueling Future Growth

Since Q3, 2012 Tesla has spent a total of $74.4 billion on the combination of Capital Expenditures ($50.8 billion) and Research and Development ($23.6 billion). 

Capital Expenditures ("CapEx") and Research and Development ("R&D") are distinct types of business expenditures with different purposes, accounting treatments, and impacts on financial statements.

TLDR: CapEx is largely focused on tangible assets and spending on CapEx doesn't initially impact Tesla's net income (although depreciation charges reduce net income over time), while R&D is focused on intangible assets and R&D spending immediately reduces Tesla's net income.

Let's explore this...

--- CapEx ---
Definition: Funds used to acquire, upgrade, or maintain physical assets. Tesla has spent more than $50 billion since Q3 2012.

Examples: Buildings, machinery, equipment, software, and infrastructure.

Purpose: To enhance operational capabilities, improve efficiency, or enable new production processes.

Impact: Primarily impacts a company's balance sheet, showing an increase in assets.

Accounting: Typically capitalized and depreciated over the asset's useful life.

Focus: Tangible assets that contribute to existing operations.

--- R&D ---
Definition: Expenses incurred in seeking new knowledge, technologies, or products. Tesla has spent more than $23 billion since Q3 2012.

Examples: Salaries of researchers, materials and supplies, prototyping, and software development.

Purpose: To drive innovation, develop new products or services, and gain a competitive advantage.

Impact: Primarily impacts the income statement as an operating expense.

Accounting: Generally expensed in the period incurred, though capitalization is sometimes considered.

Focus: Intangible assets like intellectual property and new technologies.

Companies have some discretion in classifying expenses as R&D or CapEx, but it’s constrained by accounting standards and regulatory oversight. The distinction hinges on the nature of the expenditure, and misclassification can lead to financial restatements or regulatory scrutiny. For example, purchasing machinery for production is CapEx, but costs to develop a prototype are usually R&D.

For Tesla quarterly R&D spending tends to be more steady than CapEx spending (which is influenced by the global economic environment). This makes sense, as R&D is comprised largely of salaries and it's harder to dial those up or down quarter to quarter.
Tesla's disclosure on R&D expenses: "Research and development expenses consist primarily of personnel costs for our teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense."

Tesla's Guidance on 2025 CapEx

The company's 2025 CapEx guidance has changed...

Tesla's 10K disclosure on CapEx in January, 2025: "We are simultaneously developing and ramping new products, building or ramping manufacturing facilities on three continents, piloting the development and manufacture of new battery cell technologies, expanding our Supercharger network and investing in autonomy and other artificial intelligence enabled training and products, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. Owing and subject to the foregoing as well as the pipeline of announced projects under development, all other continuing infrastructure growth and varying levels of inflation, we currently expect our capital expenditures to exceed $11.00 billion in 2025 and in each of the following two fiscal years."

Tesla's 10K disclosure on CapEx in April, 2025: "...we currently expect our capital expenditures to support our projects globally to exceed $10.00 billion in 2025."

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Elon Musk's Statements on R&D

In January 2024, he highlighted the effectiveness of R&D spending, stating, "There are gigantic differences in the effectiveness of R&D spending between companies," in response to comparisons with tech giants like Apple and Microsoft, which spend significantly more.

This suggests Elon believes Tesla achieves more innovation per dollar spent, with Tesla's 2023 R&D expenditure at about $4 billion, compared to Apple's $29.92 billion.

Additionally, in April 2022, Musk stated, "I think of Tesla in its entirety as research and development," defending Tesla's approach against criticism that its R&D spending was lower than rivals like Volkswagen, Ford, and GM (Musk responds that Tesla's R&D spending is far lower than Apple). This reflects his view that Tesla's entire operation is geared toward innovation, not just a specific R&D department.

Source: https://www.sahmcapital.com/news/content/tesla-spends-less-than-apple-on-rd-in-2023-says-investor-elon-musk-hails-gigantic-differences-in-effectiveness-2024-01-27

Tesla Energy - Growth & Profit Contributor

In Q1 2025 Tesla Energy generated revenue of $2.73 billion, up 67% from the same quarter one year ago.

More importantly, gross profit of $785 million rose 95% from the same quarter one year ago - to a new quarterly record.

Tesla Energy is now Tesla's most profitable line of business, with gross margins of 28.8% in Q1 2025.

What's amazing is that Tesla has achieved this profitability in spite of rapidly declining energy ASPs (average selling prices per KWh deployed).

The chart below shows how ASPs (measured by the trailing 12-months revenue divided by the trailing 12-month deployments - to smooth out some of the lumpiness) have declined over time from over $2,500/KWh in 2017 to under $300/KWh today.

Most recently, over just the last 12 months, ASPs declined from $412/KWh to $296/KWh - that's a 28% decline - and Tesla's gross profit margins still rose from 24.6% to 28.8%!

What might explain the increase in gross margins?

I can think of a few reasons:

1) Scale - as Tesla scales up the business, the cost of production (the orange line in the chart) can be spread out over a higher unit volume. With a new Megapack factory in China and another one being built-out in Texas (near Houston), Tesla should continue to benefit from scaling this business.

2) Product Mix Shift - The gross margin increase could partly stem from a shift in Tesla Energy’s product mix. If higher-margin products like Megapacks (used for utility-scale projects) are making up a larger share of revenue compared to Powerwalls (for residential use), this could boost overall margins. Megapacks, being larger and tailored for high-value grid applications, likely carry better margins than smaller-scale products.

3) Learning Curve Effects - As Tesla produces and deploys more energy storage units, it benefits from the learning curve - accumulated expertise in design, production, and installation. This can lead to incremental cost savings through process refinements, waste reduction, or faster production cycles, all of which enhance margins.

4) Tax Credits: In some markets, Tesla Energy benefits from tax credits. These could enhance profitability without directly affecting ASPs or production costs.

5) Autobidder - Tesla’s Autobidder, an AI-powered software platform, optimizes the operation of energy storage systems like Megapacks by autonomously managing energy trading in electricity markets. The marginal cost of deploying Autobidder to new installations is minimal, making it a high-margin product. If Tesla charges licensing fees, subscriptions, or a share of the revenue generated by Autobidder-managed systems, this adds a lucrative revenue stream that boosts overall gross margins for Tesla Energy.

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What are Megapack ASPs today?

Here are four examples...

1) If you purchased one Megapack (2hr duration) and ship it to California, it will cost $1,028,580 - that's $263/KWh.

2) If you purchased 1,000 Megapacks (2hr duration) and ship it to California, it will cost $939,569 each - that's $241/KWh.

3) If you purchased one Megapack (4hr duration) and ship it to California, it will cost $962,350 - that's $247/KWh.

4) If you purchased 1,000 Megapacks (4hr duration) and ship it to California, it will cost $877,603 each - that's $225/KWh.

Just taking a simple average of all four gives us a rough average ASP of $244.

Note: This is just the pricing for shipping to California, which probably gives us the lowest possible shipping costs (since the manufacturing plant is in Lathrop, CA) - so it also gives us the best indication of the underlying $/KWh. 

That said, now that the new Megapack factory is up and running in China, ASPs could be somewhat lower in that market (it's a more competitive market). But this also means that material costs and labor costs are lower - so the profitability of a Megapack made in China might be higher than one made in the US -- only time will tell!

https://x.com/CernBasher/status/1907426868401160321

https://x.com/CernBasher/status/1915014199471706356

Strategy (MSTR) - @ 553,555 Bitcoin   

Strategy, the World's largest corporate holder of Bitcoin, has now acquired a total of 553,555 Bitcoin worth over $50 billion.  

So far this year, as of April 28, 2025, the number of Bitcoin per share has increased by 13.7%.

If we annualize the year-to-date number the growth in Bitcoin per share would hit 49% by year-end (not a prediction, just math).
Just to state the obvious (and not investment advice) - if you own MSTR shares, your Bitcoin holdings increase over time without you investing more money. This doesn't happen if you purchase Bitcoin directly or if you buy a Bitcoin ETF (where you actually lose some Bitcoin per share over time due to fees).  

Since November, 2024 Strategy has been regularly purchasing Bitcoin (generally weekly) since they announced their 21/21 plan (a plan to sell $21 billion in additional equity and $21 billion in fixed-income securities, and use all of the money raised to buy more Bitcoin through 2027).
With the first Bitcoin purchase made on August 11, 2020, the company has since made 63 purchases of Bitcoin (and one small sale of 704 Bitcoin on Dec 22, 2022).
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Cumulative Bitcoin holdings rose above 500,000 this year, and continuing to grow...

Cumulative gains currently at $13.4 billion.

Cumulative investment of $37.9 billion and current value of $51.3 billion (crossing the $50 billion mark for the first time).
The average cost per Bitcoin is $68,459.
continued...

While not every purchase is profitable (yet)...
The total longer term gains have been impressive.
Info Strategy's website...

What happens when Tesla Robotaxi goes live?

Tesla’s Robotaxi launch, set for June in Austin, Texas, is generating buzz. Initially, Tesla may deploy safety drivers to monitor operations, but the transition to fully unsupervised Robotaxi service will soon follow. 

So, what could unfold in the months and quarters after this milestone?

I've identified four possible effects:
1) Halo Effect - Seeing Tesla Robotaxis autonomously shuttling passengers will spark excitement, driving demand for Tesla vehicles. 

"I want me one of 'em self-driving machines so I can sleep while I go to work."

2) Add-On Effect - Current Tesla owners who haven’t opted for Full Self-Driving (FSD) may be inspired to purchase or subscribe to it, eager to tap into the autonomous driving experience showcased by Robotaxi.

"Honey, you're right - I am a terrible driver, it's time to get FSD!"

3) Opportunity Effect - Entrepreneurs and companies will see Robotaxi as a business opportunity, ordering Cybercabs or other Tesla models to build their own fleets. Meanwhile, ride-hail drivers may ditch platforms like Uber, investing in Teslas to generate passive income through autonomous rides.

"Make money while I go to the beach - heck yeah - I'm buying two!"

4) Value Effect - The used Tesla market will shift. Vehicles equipped with purchased FSD and AI4 hardware could see their value rise. Older models, if upgradeable to AI4 or AI5 with compatible camera suites, may also appreciate.

"I'm gonna go knock on Dan's door and see if he will sell me his used Tesla - hopefully he doesn't realize just how valuable it is."

Now, let's look at some potential profit numbers for the first three effects (I've previously examined the 4th effect - see post below):
The table above shows the impact of a 10% increase across all three effects (10% higher demand for Tesla vehicles & FSD - broken out by geographic regions). In this analysis I assumed that 1/3 purchase FSD and 2/3 subscribe.

USA - In the USA there are currently about 3 million Tesla vehicles. If Robotaxi creates 10% more demand in each of the three effects, then Tesla would earn another $7.5 billion in gross profit. Or alternatively, for every 1% incremental demand, that's about $750 million in gross profit.

China - In China there are currently about 2.4 million Tesla vehicles. If Robotaxi creates 10% more demand in each of the three effects, then Tesla would earn another $6 billion in gross profit. Or alternatively, for every 1% incremental demand, that's about $600 million in gross profit.

Europe - In Europe there are currently about 1.5 million Tesla vehicles. The same analysis shows that Tesla would earn another $3.7 billion in gross profit. Or alternatively, for every 1% incremental demand, that's about $370 million in gross profit.

Total World - If we extend the analysis to the entire world, it shows that Tesla would earn another $19 billion in gross profit. Or alternatively, for every 1% incremental demand, that's about $1.9 billion in gross profit.

Here's the same numbers displayed in a chart...
I'm not suggesting that all three of these effects happen immediately or even at the same time, but hopefully you can get a sense of the potential impact of each one.

Also, the fact that many people would choose to subscribe to FSD makes these numbers a bit messy - as we're comparing apples (one-time revenues) and oranges (recurring revenues).

To simplify the analysis we can assume that all FSD is purchased -- here's how the numbers look... 
Every 1% incremental demand, that's about an $1.0 billion increase in gross profit in the USA and $2.6 billion worldwide.

https://x.com/CernBasher/status/1770135297692487926