Tesla’s second-quarter profits dropped unexpectedly after Elon Musk’s electric car circus used discounts to goose sales and watched regulatory credit income dry up.
The Texas-based outfit said adjusted net income fell 17 per cent from a year earlier to $1.2 billion in the three months to 30 June.
That was well below the $1.9 billion expected by the cocaine nose jobs of Wall Street, who had apparently forgotten discounts tend to cost money.
The surprise profit slide came despite Tesla delivering a record 480,126 vehicles in the quarter. That helped revenue climb 26 per cent to a better-than-expected $28.2 billion, although investors still shoved the shares down four per cent in after-hours trading.
According to the Financial Times, the numbers showed how Tesla has been cutting prices to drag buyers back after last year’s sales wobble. That dip followed Musk’s noisy role in slashing US government spending in Donald Trump’s administration, a career move that did not exactly scream customer retention.
RBC Capital Markets analyst Tom Narayan said lower prices appeared to have driven “much of the strong deliveries in the quarter”, given Tesla’s shrinking car margins.
Automotive margins, excluding regulatory credits, came in at 16.3 per cent. That missed the 18.7 per cent expected by analysts compiled by Visible Alpha, while Tesla’s overall operating margin fell to 1.4 per cent from 4.1 per cent a year earlier.
The sales rebound has been strongest in Europe, where high petrol prices have nudged some consumers towards EVs. In the US, Tesla has been hit after the Trump administration cut a $7,500 EV tax credit and dismantled rules meant to encourage electric vehicle production.
Income from selling regulatory credits to rivals dropped to $146 million from $439 million a year earlier.
With the car business still providing more than 70 per cent of Tesla’s revenue, Musk is trying to pivot the company towards autonomous taxis and AI-powered humanoid robots.
Tesla has more than doubled capital spending from a year earlier to fund its push into AI and robotics. That helped produce its first quarterly cash burn in two years, with negative free cash flow of $1.1 billion.
Musk told investors on Wednesday that Tesla remained on course to invest more than $25 billion during 2026, nearly triple the $8.5 billion it spent last year. The world’s richest person described his investment drive as “probably the fastest industrial scale-up by a company in America since World War Two”.
Musk has pointed to the more than $725 billion Big Tech companies plan to spend on AI infrastructure this year as cover for Tesla’s spending spree. Tesla’s capital expenditure rose 142 per cent from a year earlier to $5.79 billion in the quarter.
Net income under generally accepted accounting principles was $1.1 billion, five per cent lower than a year earlier. That figure includes stock-based compensation and swings in Tesla’s crypto and SpaceX investments, because apparently one circus was not enough.
Tesla chief financial officer Vaibhav Taneja said capital spending “will grow for the next two or three years”.
He said Tesla had secured debt facilities allowing it to borrow up to $30 billion to “help accelerate such investments”, alongside using its own cash. Tesla is increasing spending as it breaks ground on a semiconductor research facility tied to its Terafab joint venture with SpaceX.
It is pouring money into advanced chips and power-grid infrastructure for the Cortex 2 supercomputer cluster. The company began production of its fully autonomous Cybercab EV in February and is slowly rolling out its robotaxi service in Texas and Florida.
Musk has said the robotaxi unit will not produce meaningful revenue until next year.
