Tesla's earnings rise, but AI expenses are adding up

Driving the news: The company reported Q1 revenue of $22.4 billion, up 16% from a year earlier.

• Net income totaled $477 million, up 17%, but operating expenses ballooned 37%, to $3.78 billion.
• Its operating margin fell to 4.2%, declining sequentially for the second consecutive quarter.

State of play: The company recently discontinued the Model S sedan and Model X crossover to make way for the production of the Optimus robot at its factory in Fremont, Calif.

• The Model Y crossover — its most popular vehicle — could be similarly sidelined: "Once in production, we expect that Cybercab will begin to replace the existing Model Y fleet and will be the largest volume vehicle in the fleet over time," Tesla said in its earnings presentation.

Zoom in: Tesla's first-quarter EV deliveries — a close proxy for sales — totaled 358,023.

• That was up 6% from the same period a year earlier, when the company was dealing with a sales backlash from Musk's leadership of President Trump's Department of Government Efficiency.

• But the quarter's performance marked an "underwhelming start" to the year, missing consensus estimates of 370,000, Wedbush Securities analyst and Tesla bull Dan Ives wrote in a research note.

What's next: Tesla said it expects to reach volume production of the Cybercab and electric Semi in 2026.

• And the company is partnering with Musk's SpaceX, which is approaching an IPO, to build what Tesla called "the largest chip fab ever."
• "We anticipate greater chip demand than what existing and planned industry capacity can accommodate," Tesla said in its earnings presentation.