Tesla Stock Slips After-Hours: CEO Elon Musk Admits Hardware ‘Simply Does Not Have The Capability’ To Drive Full Autonomy

• Musk said Hardware 3 has only one-eighth the memory bandwidth of Hardware 4, a key requirement for autonomy.
• Tesla said FSD buyers will be offered discounted trade-ins or hardware upgrades, including replacing both the computer and the cameras.
• The company raised its expected annual capex above $25 billion for this year, with CFO Vaibhav Taneja calling it a “very big capital investment phase.”

Shares of Tesla, Inc. (TSLA) slipped 0.3% in extended trading on Wednesday after CEO Elon Musk said the EV maker’s latest self-driving hardware “simply does not have the capability” to support fully driverless operations, overshadowing a quarterly earnings beat and raising fresh questions about its robotaxi ambitions.

The comments came alongside first-quarter (Q1) results that topped consensus estimates but were accompanied by higher spending plans and expectations of negative free cash flow through the remainder of the year.

TSLA stock snapped two sessions of losses on Wednesday to end 0.3% higher at $387.51.

Hardware 3 Can’t Support Unsupervised FSD

During the earnings call, Musk acknowledged that Tesla’s Hardware 3 system cannot support unsupervised Full Self-Driving (FSD).

“Hardware 3 simply does not have the capability to achieve unsupervised FSD,” Musk said, adding that the platform has only one-eighth of the memory bandwidth of Hardware 4, which he called “one of the key elements” for unsupervised FSD.

Tesla had previously sold vehicles with the expectation that its hardware would eventually support full autonomy, with the FSD package priced at up to $15,000. 

Tesla said customers who purchased FSD will be offered discounted trade-ins for vehicles equipped with Hardware 4, as well as the option to upgrade existing vehicles by replacing both the computer and cameras.

“To do this efficiently, we’re going to have to set up microfactories, or small factories in major metropolitan areas,” Musk said, noting that performing upgrades through service centers would be “extremely slow” and inefficient at scale. He added that Tesla would likely need “many production lines to make the change,” and said that over time it “is going to make sense for us to convert all Hardware 3 cars to Hardware 4.”

Despite the hardware issues, Tesla said it still plans to release a Version 14 FSD update for Hardware 3 vehicles around June, which would enable features such as initiating drives from a parked state, similar to the Hardware 4 rollout.

Robotaxi Revenue Not ‘Super Material’ This Year

Musk said unsupervised FSD will begin rolling out to vehicles gradually in the fourth quarter, depending on geography and safety validation requirements. He also said, “I think probably unsupervised FSD or Robotaxi revenue will not be super material this year, but I do think it'll be material probably in a significant way next year.”

Future Fund managing partner Gary Black said on X expects Tesla’s 2026 earnings estimate to rise modestly to about $2 per share from $1.9, but added the company’s valuation multiple could decline as investors adjust to the “backpedaling on timing of unsupervised FSD and Robotaxi from 2Q until late-2026 or even 2027.”

TSLA Q1 Review

Tesla reported Q1 adjusted earnings per share (EPS) of $0.41, ahead of the $0.36 consensus estimate, while revenue came in at $22.39 billion, in line with expectations of about $22.35 billion.

The company reported $1.44 billion in free cash flow for the quarter but said it expects negative free cash flow for the remainder of 2026 as it boosts spending across AI infrastructure, robotics, chip development and manufacturing.

Tesla said capex is expected to exceed $25 billion this year, up from earlier expectations of over $20 billion, as it ramps investment for autonomy systems, Optimus humanoid robots, Cybercab production and Terafab.

CFO Vaibhav Taneja said the company has entered a “very big capital investment phase,” adding the spending cycle is expected to last a couple of years.

GLJ Research analyst Gordon Johnson noted on X that $480 million of Tesla’s gross margin improvement was driven by one-time items, adding that adjusting for those would reduce EPS from $0.41 to $0.3. He also flagged the capex surge and negative free cash flow, saying that the results were “a disaster for a company valued for hyper growth.”

How Do Retail Traders Feel About TSLA?

On Stocktwits, retail sentiment for TSLA has been ‘extremely bullish’ in the week leading up to its Q1 print amid a 328% jump in 24-hour message volumes.

Investor expectations had already leaned positive heading into the release. In a recent  Stocktwits poll, 44% of users expected Tesla to beat both earnings and revenue estimates, while 30% expected misses on both metrics. Another 15% expected an EPS beat and a revenue miss, and 11% expected the opposite. 

One bullish user said, “Call it what you want but I still see $405-406 tomorrow before open. ER is good. The call was relatively good. This dump looks like a trap. $600 end of year if you invest long term. I scalp.”

A separate bearish user flagged Musk’s robotaxi update and said, “Never forget. One of 100s of broken promises.”

So far this year, TSLA stock has lagged its “Magnificent Seven” peers, making it the group’s worst performer, with a 14% decline.

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