Tesla on Wednesday missed analysts’ profit forecasts for the second quarter and, for the first time in more than two years, reported negative free cash flow as the Elon Musk-led EV maker accelerated spending on infrastructure for its AI and robotics ambitions.
Shares were down about 4.5 per cent in extended trading.
The profit miss and cash burn come despite record vehicle deliveries in the quarter as a war-induced fuel price surge drove EV demand, especially in Europe, and Tesla deployed more energy storage products.
But those were not enough to offset Musk’s spending spree.
Musk plans to spend more than $25 billion this year, nearly triple what it spent last year, as he bets on Tesla’s AI-powered self-driving technology, robotaxis and humanoid robots, over its auto business, which still is the core revenue generator.
But the pivot is expensive, and while much of Tesla’s valuation hangs on the promise of potentially high-margin revenue streams, the spending is heightening investor scrutiny.
“Monetization remains the central concern following the earnings miss,” said Ryan Lee, senior vice president of product and strategy at exchange-traded product firm Direxion. “The question is how quickly those investments can begin supporting the valuation.”
Tesla’s profitability was hurt by higher operating expenses driven by AI, lower average selling prices and weaker regulatory credit revenue even as vehicle deliveries rose, the EV maker said on Wednesday.
Tesla pulled the plug on its more expensive Model S sedans and Model X SUVs. That, along with incentives to boost demand, meant average revenue from each Tesla sold dropped to $42,730 from $45,345. Money from regulatory credits, sold to traditional automakers that did not meet emissions standards, is also drying up after a policy change.
At the same time, Tesla made capital expenditures of $5.8 billion in the quarter just ended, more than double the amount of the year-ago quarter and the first quarter of this year.
That pushed free cash flow to negative $1.1 billion. Analysts had expected a cash burn of $3.3 billion.
“This is a massive capex year, but I’m confident that all the things that we are investing in will yield incredible returns,” Musk told analysts on a post-earnings conference call.
Tesla delivered 480,126 vehicles in the second quarter, above Wall Street expectations and up from 384,122 vehicles a year earlier.
The Austin, Texas-based automaker reported revenue of $28.24 billion, well above analysts’ average estimate of $25.71 billion. But adjusted profit in the quarter ended June 30 was 33 cents per share, versus analysts’ average expectation of 51 cents per share, according to data compiled by LSEG.
Automotive gross margin also came in at 16.3 per cent, compared with 18.04 per cent analysts expected, according to Visible Alpha data.
The core automotive business remains under scrutiny as competitors introduce newer models, often at lower price points, while the company continues to rely heavily on its Model 3 compact sedans and Model Y SUVs for volume.
Tesla has tried to stimulate demand through lower-priced trims, including stripped-down, affordable versions of the Model 3 and Model Y late last year, and the launch this month of a six-seater variant of the Model Y in the United States, where demand has been hit by the removal of key tax credits last year.
Wall Street expects Tesla to deliver about 1.7 million vehicles in 2026, according to Visible Alpha data. That would imply growth from last year’s levels.
Tesla’s energy generation and storage unit has emerged as a key counterweight to the auto business, helped by demand for grid-scale batteries that support renewable energy, data centers and electricity-network stability. Tesla deployed 13.5 GWh of energy storage products in the quarter, up from 8.8 GWh in the first quarter and 9.6 GWh a year earlier.
But investors have increasingly turned their attention to Musk’s push into self-driving technology and robotics, seeking clearer evidence that Tesla’s autonomy narrative is shifting from promise to commercial reality.
Tesla has said it expanded its unsupervised robotaxi service in Austin and launched unsupervised rides in Dallas and Houston in April. The company also operates a robotaxi service in Miami and expanded the service to Orlando and Tampa, Florida. Tesla has previously identified Phoenix and Las Vegas among future expansion markets.
Tesla is counting on its advanced driver assistance software – called Full Self-Driving Supervised – to spur future car sales and revenue growth, and said it grew FSD penetration in the second quarter. The company received approval in April to deploy FSD in the Netherlands, and some other European countries have also allowed the technology following the Dutch approval. Tesla is also pushing for approval in China.
Tesla’s shares have fallen more than 15 per cent this year. At about $1.4 trillion, it remains the world’s most valuable automaker by a wide margin, reflecting investor expectations that self-driving software, energy storage, robotaxis and humanoid robots could eventually deliver higher-margin growth than vehicle sales.
