Tesla sells more cars but net profit falls 5% as AI spending weighs on cash flow

Tesla posted stronger-than-expected sales in the second quarter but fell short on profitability, as price cuts and surging investment in AI and robotaxi operations weighed on earnings and cash flow.

Tesla's second-quarter results, released Wednesday, showed GAAP net profit of $1.11 billion, down 5% from the same period last year and below the market consensus of $1.3 billion.

Adjusted earnings per share came in at $0.33, well short of the $0.51 analysts had forecast, according to Bloomberg. Tesla shares fell nearly 3% in after-hours trading following the announcement.

Revenue growth was robust. Total second-quarter sales reached $28.24 billion, up 26% year-on-year and ahead of the $25.71 billion consensus estimate. Automotive revenue rose 23% from a year earlier.

Vehicle deliveries totaled 480,126 units, up 25% year-on-year and a record for any second quarter, driven by strong sales of the Model 3 and Model Y. A recovery in electric vehicle demand in Europe, partly attributed to rising global oil prices, also contributed to the delivery growth.

Profitability suffered, however, as Tesla lowered prices and offered purchase incentives to sustain sales momentum. Higher research-and-development spending and capital expenditures also dragged on earnings. Tesla's second-quarter R&D expenses jumped 49% year-on-year to $2.37 billion, according to the Associated Press.

A sharp drop in regulatory credit revenue added further pressure. Deregulation of US emissions standards cut Tesla's carbon credit sales to $146 million in the quarter, down 67% from $439 million in the same period last year.

Heavy investment in AI infrastructure, the robotaxi service and the Optimus humanoid robot pushed cash flow into negative territory. Capital expenditures for the quarter jumped 142% year-on-year to about $5.7 billion, swinging free cash flow to a deficit of $1.09 billion.

Tesla has begun production of the Cybercab, a purpose-built robotaxi with no steering wheel or pedals, and is expanding its robotaxi service footprint in the United States. The new businesses — including the robotaxi service — have yet to generate meaningful revenue, analysts note.

Tesla had earlier said it would launch robotaxi services in Phoenix and Las Vegas in the first half of this year, but those rollouts were delayed. The company has since started driverless services in Dallas and Houston and extended coverage to Miami and other cities, though its scale remains limited compared with market leader Waymo.

Reuters noted that a significant portion of Tesla's valuation rests on the growth potential of its autonomous driving and robotics businesses, but that the actual pace of expansion has lagged market expectations. Whether cash generated by the automotive and energy segments can sustain the company's rapidly rising AI investment costs is a key variable for future earnings.