Tesla reported a significant drop in second-quarter net income to $1.11 billion, or $0.32 per share, falling short of analyst expectations of $0.53 per share. Adjusted earnings were $0.33 per share. This profit decline occurred despite a 26% rise in revenue to $28.24 billion, which surpassed forecasts, and a record 480,216 vehicle deliveries.
The decrease in profitability was primarily attributed to aggressive vehicle discounts offered by Tesla to stimulate sales, which compressed profit margins. Operating costs also surged by 47% to $4.35 billion, and the company phased out its higher-priced S and X models. Furthermore, revenue from regulatory credits, payments received from other automakers for exceeding emissions standards, declined.
Tesla also significantly increased its investments in research and development, particularly in areas like semiconductors, autonomous taxis, and humanoid robots. Capital expenditures more than doubled, increasing by 142% year-over-year to $5.79 billion for the quarter. CFO Vaibhav Taneja indicated that total capital expenditures for 2026 are expected to exceed $25 billion. The company also reported its first quarter of negative free cash flow in over two years, burning through $1.09 billion.
Following the earnings report, Tesla's shares fell by 4.1% in after-hours trading and were down 17% for the year as of July 22. Analysts like Ivan Feinseth of Tigress Financial Partners noted that while revenue growth was genuine, the market reacted negatively to the substantial profit miss. Wall Street had expected adjusted net income around $1.95 billion, but Tesla's adjusted net income fell 17% to $1.2 billion.
Despite the strong sales volume, the lower average selling prices and increased operating expenses, including significant R&D spending, led to a drop in the overall operating margin to 1.4% from 4.1% a year prior. Tesla's focus on future projects such as robotaxis and AI has not yet translated into meaningful revenue, with cars remaining its primary business.
