Tesla has held an earnings call to discuss its first quarter 2026 results, and revealed more about its plans, including a change of heart on promises that millions of cars would only need software updates for zero-supervision Full-Self Driving.
In the Q1 2026 call, CEO Elon Musk said that cars based on Hardware 3 (aka HW3) would need to be retrofitted with both new computers and new cameras. The current generation, Hardware 4 (HW4), arrived for the Tesla Model S, X, and Y in 2023, and the refreshed Model 3 in 2024.
HW3 arrived in 2019, and executives have been offering hope for software-only FSD upgrades as recently as October 2025 despite Musk expressing doubts in January that year.
The company already started shipping a mildly upgraded HW4 revision with the Model Y in January 2026, and during the call previewed a revision (possibly an AI4.5 Plus or HW4 Plus) that would double RAM to 32GB and deliver an estimated 10 percent improvement to computing power.
The upgrade process could be elaborate. Musk said in the call that Tesla was exploring “micro-factories” in major urban areas to avoid overwhelming service centers, where retrofits would reportedly be “extremely slow.” He didn’t provide a timeline for when these factories might be ready, or when upgrades would begin.
The impact could be substantial. Tesla noted in its earnings that there are 1.28 million active FSD purchases and subscriptions, and some customers paid as much as $15,000 for the option. While they won’t necessarily have to pay extra, they now face waits for hardware installations even when unsupervised self-driving is ready.
Where Tesla is going next in 2026
It’s spending billions more this year to pivot to AI
Musk also used the Q1 2026 call to outline Tesla’s near-term plans, particularly its expansions into AI and autonomy.
He confirmed that Cybercab production had begun at Gigafactory Texas, and that the robotaxi was built to meet federal safety standards and won’t face the 2,500-car yearly standards exemption cap that limits rivals like Waymo. It can make as many as it likes.
The executive also revealed that manufacturing for the third-generation Optimus humanoid robot at its Fremont plant is now expected to start in late July or August. This will come just a few months after the end of Model S and X production, and Musk claimed it would be possible despite the “insanely fast speed” needed to dismantle an existing assembly line and install a complete replacement.
The strategy shift will include dramatically larger spending. Musk warned that Tesla’s capital expenses (capex) would surge to $25 billion in 2026 to cover its AI efforts, including manufacturing, software, and data centers. That’s $5 billion higher than Tesla’s previous peak, but Musk argued it was “well justified” for a future where the company relies on more than EVs and energy for revenue.
US EV sales dropped in early 2026 for nearly everyone except Tesla
The end to federal EV incentives was the main factor.
Tesla will be dependent on EVs in the near future
Robotaxi service and robots aren’t ready for prime time
Musk was tempered about expectations for AI initiatives while discussing Q1 2026 earnings. He expected Cybercab production to be “very slow” at first, with “exponential” growth late in 2026. Likewise, he’s no longer predicting Optimus robot numbers where he previously claimed Tesla would make 10,000 units by the end of 2025.
The robotaxi service itself is also very small. While existing service in Austin has expanded, Tesla only recently started offering unsupervised rides in Dallas and Houston. San Francisco Bay Area trips still require safety drivers, and the company only said in its shareholder deck that “preparations [are] underway” for expansions to Arizona, Florida, and Nevada. Add in high crash rates and the offering is still well behind Waymo’s multi-city footprint.
A budget EV may be key
As such, Tesla is still heavily reliant on sales of human-driven EVs for its near-term revenue. This includes the long-wheelbase Model Y L that just started testing on U.S. roads. And while Musk didn’t acknowledge it during the call, there are rumors that Tesla is back to designing an affordable EV that could reach a wider audience.
The extra spending on robotaxis and robots is meant to fulfill long-view aspirations, not to balance its books in the next few months or years.
Source: Tesla (YouTube)
