tesla reported second-quarter profits were lower than expected, even though sales were higher than expected. Shares fell about 4% in extended trading Wednesday.
Analysts surveyed by LSEG estimate the company’s performance compared to Wall Street expectations:
Earnings per share: 33 cents adjusted, 51 cents expected; Revenue: $28.24 billion, $25.71 billion expected.
Tesla’s earnings report comes amid a steep decline in its stock price, which is down about 11% this month and about 17% for the year as of Wednesday’s close. The decline coincided with a decline in Elon Musk’s other trillion-dollar company, SpaceX. SpaceX made a record market debut in June and has lost more than 40% of its value since its high closing price.
Tesla’s revenue increased 26% in the same period from $22.5 billion in the same period last year, according to a statement from Tesla. Net income was $1.11 billion, or 32 cents per share, down 5% from $1.17 billion, or 33 cents per share, in the year-ago period.
Tesla’s core automotive division generated revenue of $20.52 billion, an increase of 23% year over year. Sales in the energy business, which consists of solar power generation and battery storage systems, rose 13% to $3.14 billion. Service and other business revenue, which includes out-of-warranty vehicle repair charges, increased 50% to $4.58 billion.
Despite higher-than-expected automotive revenue, the company’s gross profit decreased and was lower than expected due to lower average selling prices per vehicle and lower regulatory credit income. Gross profit margin, or the profit remaining after taking into account cost of goods sold, fell to 16.8% from 17.2% in the same period last year. Analysts had expected 19.4%, according to Street Accounts.
During the quarter, Tesla sold lower-priced versions of its popular Model 3 and Y vehicles after discontinuing its more expensive flagship Model S and X vehicles.
A Tesla Model 3 electric vehicle (EV) is loaded onto a vehicle transport truck at the company’s store in Colma, California, on Friday, January 23, 2026.
David Paul Morris | Bloomberg | Getty Images
Operating expenses rose far faster than revenue as the company poured money into artificial intelligence and other research and development projects. Operating expenses increased 47%, totaling $4.35 billion in the second quarter. Tesla’s operating margin fell to 1.4% from 4.1% a year ago.
Mr. Musk shifted the company’s focus from vehicle sales to driverless robotaxi services, expanding production of unmanned CyberCabs and converting an old factory line in Fremont, California, to begin manufacturing the Optimus humanoid robot. He promised shareholders and fans AI-powered robots that could act as babysitters, factory workers or even world-class surgeons.
Rising costs
Tesla’s free cash flow was negative in the quarter. The $1.1 billion loss came after the company generated free cash flow of $146 million a year ago and $1.44 billion in the first quarter of 2026.
“We manage our business to ensure a strong balance sheet with sufficient liquidity to fund our product roadmap, long-term capacity expansion plans, including further vertical integration, and other expenses,” Tesla said in a shareholder document.
Meanwhile, capital expenditures increased 142% to $5.79 billion from $2.39 billion in the same period last year. CFO Vaibhav Taneja told shareholders during the company’s last earnings call in April that capital spending this year would exceed $25 billion.
“Capacity additions and enhancements related to our multi-year infrastructure initiatives are underway, including AI computing, solar power, battery materials, and semiconductor manufacturing,” the company said in its financial results.
Tesla is trying to recover from years of declining vehicle deliveries, largely due to competition from Chinese automakers such as BYD, Nio and Xiaomi, which offer affordable but high-tech EVs in markets outside the United States. Some car buyers are boycotting Tesla over Musk’s inflammatory political comments and cooperation with the Trump administration.
Rising gasoline prices due to the US war on Iran led European car buyers to buy more EVs, boosting Tesla sales in the first half of this year.
Taneja told investors on Wednesday that operating expenses “will continue to increase in 2026 and beyond.” He also said that “increasing commodity prices and changing interest rates” will continue to increase Tesla’s costs.
Musk said on the earnings call that Tesla will reveal details about its chip factory soon and has already ordered equipment for a “development factory,” but declined to discuss other details of the “high-risk, high-reward bet” the company is making with its AI chips.
At the company’s financial results briefing, the company said it has “introduced the first generation line for Optimus” and will “start production soon.” Tesla also said that the initial Optimus robots will not be deployed to customers, but will be used for “training data collection and further feature development.”
“Because everything about the robot is new, this is going to be the most difficult product to scale up that we’ve ever built at Tesla,” Musk said on a conference call. He added that “there is no existing supply chain” for that.
Tesla said “active FSD subscriptions” increased 56% in the quarter, and the company now has 1.48 million total subscribers for the product. The official name for FSD in the U.S. is Fully Automated Driving (Supervised), which requires a human driver to be able to operate the steering wheel and brakes at all times in all markets.
Tesla lags far behind driverless ride-hailing companies, including: of the alphabet with waymo Baidu’s Apollo Go, but the company is currently operating robotaxis “unsupervised” in several U.S. markets.
The company has begun producing a two-seater driverless vehicle called CyberCab, but it’s unclear when it will be deemed safe for private use.
“We need to be careful not to cause an accident or harm anyone,” Musk said. “If one of us were injured, it would be front page news around the world and regulators would immediately crack down on our activities.”
Ashok Elluswamy, Tesla’s vice president of Autopilot, added during the conference call that Tesla’s Robotaxi fleet is currently running on the “v. 15” build of the FSD software. Future CyberCabs will use the same version of FSD software used in robotaxi vehicles, he said.
Musk was asked on the conference call whether Tesla and SpaceX could potentially merge.
“There’s more and more overlap, especially with Terafab. It’s going to be a really huge project,” he said. “But obviously you can’t talk about things like corporate consolidation in an earnings conference.”
Musk and other Tesla executives pointed out that Grok, the AI chatbot available in Tesla cars, is made by SpaceXAI (formerly known as xAI). CyberCab will rely on SpaceX’s Starlink for connectivity, Musk said. SpaceXAI is also developing an AI model intended to act as a “manager” for Optimus.
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