Adjusted earnings were US$0.33 a share in Q2, missing the US$0.51 average of analyst estimates compiled by Bloomberg
[AUSTIN] Tesla’s profit tumbled despite a strong quarter for its automotive business, pressuring Elon Musk’s plan to refocus the electric vehicle maker on artificial intelligence and robots.
Spending on the ambitious initiatives surged to US$5.8 billion in the second quarter, resulting in Tesla’s first cash burn in two years.
The company still expects capital expenditures in excess of US$25 billion in 2026, and executives are now predicting even larger outlays going forward.
“This is a massive capex year,” Musk said late on Wednesday (Jul 22) on a conference call to discuss quarterly results. “We should be spending on capex as fast as we can – spend as fast as we can without it being too wasteful.”
Tesla’s shares fell 4.2 per cent as of 7.28 pm in after-hours New York trading. The stock had slid 17 per cent this year through the close.
The planned investments will support a significant expansion of factory operations, including production of Optimus humanoid robots, AI initiatives, the autonomous Cybercab and expansion of its robotaxi fleet.
Tesla has de-emphasised its traditional auto business, even as sales have shown signs of recovery from a two-year decline.
Despite the higher spending – and grandiose comments from the chief executive officer about more to come – Tesla’s second quarter total was short of the pace it would need to hit 2026’s capex target.
That underscored the curious dynamics around AI investing: a dramatic upswing in cash use may still not be enough to keep pace with the competition.
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Alphabet, for instance, raised its already enormous forecast for 2026 capital spending on Wednesday, telling investors that expenses could reach US$205 billion as it builds computing power underpinning its AI plans.
“Tesla is one of the few companies that should be spending more on AI,” said Max Gokhman, head of AI and digital asset solutions at Franklin Templeton. “Spending less for them is puzzling given how much their future is anchored on AI adoption into every part of their business.”
By traditional metrics, the quarter was a disjointed one for the EV maker.
Adjusted earnings fell to US$0.33 a share in the period, well short of the US$0.51 average of analyst estimates compiled by Bloomberg. It also reported negative free cash flow of US$1.09 billion.
Revenue, meanwhile, was US$28.2 billion, beating market estimates.
The results came several weeks after Tesla reported selling more than 480,000 vehicles in the quarter, well above expectations. Cars remain Tesla’s most important business, while robotaxis and other projects still are not generating meaningful revenue.
Profit was pressured by lower average vehicle selling prices as the company offered incentives to entice buyers. Tesla also phased out the S and X models – two of its priciest cars. Operating costs surged 47 per cent to US$4.35 billion.
The company reported a decline in revenue from regulatory credits, which are payments it receives from other automakers that exceed emissions standards.
That stream has dwindled as US President Donald Trump backs away from clean energy goals laid out under his predecessor.
“Tesla delivered its best-ever second quarter and first genuine revenue growth in over a year, yet the market keyed on a sharp profit miss,” Ivan Feinseth, an analyst with Tigress Financial Partners, said in a note.
While auto sales surged during the period, “that volume was bought with steep discounts, so profitability compressed”.
Full self-driving increase
Subscriptions for full self-driving software rose to nearly 1.5 million, an increase of 56 per cent from a year earlier and a continuation of an upward trend.
The EV maker did not disclose new targets for its nascent robotaxi ride-hailing business, which recently expanded to Miami, Orlando and Tampa after launching in Texas cities.
It reiterated plans to expand to Phoenix and Las Vegas. Tesla also offers rideshare service under the same app in the San Francisco Bay Area, but the service is more akin to Uber and Lyft.
Executives continued to take a cautious tone on scaling the service. Musk stressed safety, and the desire to avoid bad headlines.
Without disclosing the total number of driverless vehicles, Tesla’s head of AI, Ashok Elluswamy, said the fleet has driven more than than 380,000 unsupervised miles across six cities.
He said future city launches will continue to accelerate. But those details are unlikely to allay investors’ near-term concerns about the sluggish growth of the service and its ability to compete with market leader Waymo, which drives millions of miles per week.
The company also noted that it is working to collect more mileage data for its Cybercab before it can launch a large number of them on the road.
The purpose-built vehicle, which went into production earlier in 2026, still requires an exemption under current regulations but the National Highway Traffic Safety Administration (NHTSA) has proposed updates that could ease the pathway.
Lars Moravy, vice-president of vehicle engineering, said Tesla has a good relationship with NHTSA and does not expect to be hindered by federal regulations.
David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, said his team is “increasingly looking past standard EV sales to judge Tesla as a real-world AI and robotics enterprise”.
“Its ultimate valuation hinges on the commercial execution of full self-driving, dedicated Cybercabs, Optimus humanoid robots, and high-margin Megapack energy storage”, Wagner wrote in a note.
SpaceX IPO
The quarter included a significant milestone for another major Musk-run company when SpaceX went public in a record-setting offering.
The rocket-launch company raised tens of billions of US dollars in the process on a wave of investor hype, turning Musk into the world’s first trillionaire, albeit briefly.
SpaceX shares have declined in recent weeks, pulling Musk’s wealth down with them.
There has been widespread speculation among investors that Tesla and SpaceX could merge in the near future thanks to shared ambitions in artificial intelligence.
Musk, who has spoken about “the convergence” of his companies in the past, acknowledged their increasing overlap, but said on Wednesday that a merger was not something he could address on Tesla’s conference call.
SpaceX already acquired Musk’s AI company, xAI – now SpaceXAI – in February.
And SpaceX and Tesla already do business together: Tesla sells megapack batteries and Cybertrucks to SpaceX, while the AI chatbot Grok is available in some Tesla vehicles.
“We can’t talk about combining companies and that kind of thing on an earnings call,” Musk said. “It’s got to be done with the appropriate process.” BLOOMBERG
