Tesla reported second-quarter net income of $1.11 billion, or $0.32 per share, which was significantly below Wall Street analysts' forecast of $0.53 per share. Excluding certain items, earnings were $0.33 per share, also well short of the $0.51 average analyst estimate. This profit shortfall occurred despite a 26% increase in revenue to $28.24 billion, surpassing analyst expectations of $26.42 billion. The company's shares fell by more than 4% in after-hours trading and are down nearly 17% for the year.
The decline in profitability was primarily attributed to lower average vehicle selling prices due to steep discounts offered to entice buyers, a strategy that compressed profit margins. Operating costs surged 47% to $4.35 billion, while research and development spending jumped approximately 49% from a year earlier to $2.37 billion, reflecting increased investments in AI and robotics. Additionally, Tesla saw a decline in revenue from regulatory credits.
Tesla also reported its first quarter of negative free cash flow in over two years, burning through $1.09 billion, as capital expenditures reached $5.8 billion. While the company delivered a record 480,216 vehicles in the quarter, a 25% increase from the prior year, the volume was achieved at the cost of profitability. Analysts, such as Ivan Feinseth of Tigress Financial Partners, noted that while revenue growth was genuine, the market reacted negatively to the sharp profit miss. Despite the spending, Tesla's capital expenditures for the year are projected at $17 billion, below the company's target of over $25 billion, which its CFO reiterated is required to meet ambitious growth goals.
