Tesla reported weaker-than-expected second-quarter earnings on Wednesday (Thursday AEST), missing Wall Street profit forecasts despite posting stronger-than-expected revenue, as higher spending on artificial intelligence and manufacturing expansion weighed on profitability.
The electric vehicle maker reported adjusted earnings per share of US$0.33, below expectations of $0.53, while revenue rose 26% year-on-year to $28.24 billion, ahead of the $26.42 billion consensus estimate.
Shares fell about 4% in extended trading after the results.
The earnings release comes amid a difficult year for Tesla's stock, which has fallen 17% in 2026 despite a broader rally in technology shares.
Earlier this month, the company reported a 25% increase in second-quarter vehicle deliveries, ending two consecutive years of annual delivery declines.
Net income slipped 5% to $1.11 billion, or $0.32 per share, from $1.17 billion, or $0.33 per share, a year earlier.
Tesla's automotive business generated $20.52 billion in revenue, up 23% from a year earlier.
Revenue from its energy generation and storage division increased 13% to $3.14 billion, while services and other revenue climbed 50% to $4.58 billion.
Despite the stronger revenue performance, profitability deteriorated. Gross margin fell to 16.8% from 17.2% a year earlier, well below expectations of 19.4%, reflecting lower average selling prices and reduced regulatory credit revenue.
The company said it sold more lower-priced versions of its Model 3 and Model Y vehicles following the discontinuation of its higher-priced Model S and Model X models.
Operating expenses surged 47% to $4.35 billion as Tesla accelerated spending on artificial intelligence, research and development, and manufacturing expansion.
As a result, operating margin declined sharply to 1.4%, down from 4.1% a year earlier.
Chief executive Elon Musk has increasingly shifted Tesla's focus beyond vehicle sales towards artificial intelligence, autonomous driving and robotics.
The company continues to expand its Robotaxi service, increase production of its autonomous Cybercab vehicle and prepare manufacturing lines for its Optimus humanoid robot.
Free cash flow turned negative during the quarter, with an outflow of $1.1 billion, compared with positive free cash flow of $146 million a year earlier and $1.44 billion in the first quarter of 2026.
Tesla said in the shareholder deck that it "will manage the business such that we ensure a strong balance sheet, maintaining sufficient liquidity to fund our product roadmap, long-term capacity expansion plans – including further vertical integration – and other expenses".
Capital expenditure more than doubled, rising 142% to $5.79 billion from $2.39 billion a year earlier, as the company continued investing in AI computing infrastructure, battery materials, solar manufacturing and semiconductor production.
The company also confirmed it is installing first-generation production lines for Optimus and expects manufacturing to begin soon. Initially, the humanoid robots will be used internally for training data collection and product development rather than customer deployment.
During the earnings call, Musk acknowledged the manufacturing challenge ahead.
"This is going to be the hardest product to scale manufacturing that we've ever made at Tesla, because everything on the robot is new."
Tesla also reported that active subscriptions to its Full Self-Driving (Supervised) software rose 56% during the quarter to 1.48 million. The company said it is expanding unsupervised Robotaxi operations across several U.S. cities, although its autonomous Cybercab has yet to be approved for widespread consumer use.
Musk said Tesla would prioritise safety before accelerating deployment.
"We need to be cautious about causing any accidents or causing any harm to anyone. If we injure even one person, it will be worldwide headline news, and regulators will immediately clamp down on our activities."
