Tesla's shares have experienced a tumultuous period this summer, with a notable downturn following the record-breaking IPO of SpaceX and weaker-than-expected second-quarter earnings. The stock plunged 15% in New York after its Q2 report, marking its biggest drop since March 2025 and extending its year-to-date decline to 29%. This performance led to multiple analysts, including those from JPMorgan, Cantor Fitzgerald, and Mizuho Securities, lowering their price targets for Tesla.
Despite beating revenue expectations with $28.24 billion against an estimated $25.71 billion, Tesla reported adjusted earnings per share of $0.33, significantly missing the anticipated $0.51. Net income also fell 5% year-over-year to $1.11 billion. The company's gross margin dropped to 16.8% from 17.2% a year earlier, falling short of analyst expectations of 19.4%. Operating expenses surged by 47% to $4.35 billion, primarily due to increased spending on artificial intelligence and research and development projects, leading to an operating margin plunge from 4.1% to 1.4%.
The decline in Tesla's stock also coincided with the SpaceX IPO in June. While some anticipated that the $175 billion in unmet demand for SpaceX shares might flow into Tesla, Tesla's stock actually fell about 4% to $381.59 on June 12, the day SpaceX began trading. Analysts suggested that retail investors might have been selling Tesla shares to fund their SpaceX investments, weakening the 'Muskonomy premium' that Tesla once held as the sole liquid investment in Elon Musk's ventures. Additionally, Tesla's free cash flow turned negative at $1.1 billion for the quarter, compared to $146 million a year ago and $1.44 billion in Q1 2026, while capital expenditures soared 142% to $5.79 billion as the company invests heavily in AI compute, solar, battery material, and semiconductor manufacturing.
Elon Musk has been refocusing Tesla towards AI and robotics, including the development of its driverless Cybercab, Optimus humanoid robots, and an AI-powered Robotaxi service. Tesla reported a 56% increase in active FSD subscriptions, reaching 1.48 million subscribers. However, the company faces challenges including competition from Chinese EV makers and some consumer boycotts. CFO Vaibhav Taneja indicated that operating expenditures are expected to grow in 2026 and beyond, with commodity price increases and interest rate changes continuing to add to costs.
