Tesla's adjusted net income fell 17% to $1.2bn in the second quarter, missing Wall Street forecasts, as price cuts and shrinking regulatory-credit revenue squeezed its margins. Deliveries still set a quarterly record, yet the company posted its first cash burn in two years as capital spending surged on chips, robotaxis and robots.
Tesla's profit fell unexpectedly in the second quarter as Elon Musk's group leaned on discounts to move electric vehicles and revenue from selling regulatory credits to rivals dried up. Adjusted net income dropped 17% to $1.2bn, far below the $1.95bn Wall Street consensus collated by Visible Alpha. Shares fell more than 2% in after-hours trading.
Discounts and vanishing credits squeeze margins
The Trump administration's rollback of US climate rules stripped Tesla of income it had earned by selling regulatory credits to rivals, and that revenue dropped to $146mn from $439mn a year earlier. Demand also stayed weak at home after the administration withdrew a $7,500 consumer tax credit last year. To keep cars moving, the group offered more generous incentives, which weighed on its profit margin.
Its automotive margin excluding credits came in at 16.3%, below the 18.7% analysts had expected. According to the Financial Times, RBC Capital Markets analyst Tom Narayan said the decline was "driven by weaker pricing that we think drove much of the strong deliveries". The overall operating margin slid to 1.4% from 4.1% a year earlier.
Record deliveries, first cash burn in two years
Sales have rebounded in Europe, where customers facing higher fuel prices returned to showrooms, but US sales remain depressed after the Trump administration scrapped EV incentives. Even so, Tesla delivered a second-quarter record of 480,126 vehicles, driving revenue up 26% to $28.2bn. The company still recorded $1.1bn in negative free cash flow, its first quarterly cash burn in two years.
Capital spending surges on the AI pivot
With its automotive business still more than 70% of revenue, Musk has accelerated Tesla's pivot toward semiconductors, autonomous taxis and humanoid robots. Capital expenditure jumped 142% to $5.79bn in the quarter as the group broke ground on a chip research facility inside its Terafab venture with SpaceX and invested in the Cortex 2 supercomputer cluster. It began production of the fully autonomous Cybercab in February and now runs a robotaxi service in Texas and Florida.
Meanwhile, Musk in April lifted Tesla's 2026 spending plans to more than $25bn, nearly triple the $8.5bn it invested last year, citing the AI investment plans of big tech groups.
Source: Financial Times
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