Tesla's operating margin sinks to 1.4% on record AI spending

Tesla reported Q2 operating profit of $398 million, a 57% decline, as record capital spending on AI and robotics pushed its operating margin to 1.4%.

"We've never been more optimistic about the future," Tesla said in its shareholder deck, noting the company is in its largest and most exciting period of investment.

Revenue rose to a record $28.24 billion, beating the $26.69 billion consensus, while adjusted EPS of $0.33 missed the $0.55 average estimate. Capital expenditure hit $5.79 billion, up 142% from a year earlier, with funds directed to AI compute clusters, Optimus robot production lines and Cybercab manufacturing.

The results reflect a deliberate strategy by Chief Executive Elon Musk to redirect resources from Tesla's auto business toward autonomous driving and humanoid robots, a bet that hinges on whether those technologies can generate revenue before the car business bleeds too much cash.

Metric	Actual	Consensus	Beat/Miss
Revenue	$28.24B	$26.69B	+5.8%
Adj. EPS	$0.33	$0.55	-40%
Op. Margin	1.4%	--	--

Tesla delivered 480,000 vehicles in the quarter, a Q2 record, and said FSD subscriptions reached 1.48 million, above expectations. But lower average selling prices, the expiration of EV tax credits and higher costs tied to AI investments squeezed profitability. Auto gross margin excluding regulatory credits fell to 16.3%. By comparison, General Motors posted an adjusted operating margin of about 8% in the same period, while Ford reported roughly 7%.

The company said it has begun production of the Cybercab, with the Semi truck on track for later this year. First-generation production lines for the Optimus humanoid robot are being installed in Fremont, California, where Tesla converted the former Model S and Model X assembly space into a robotics factory. Musk acknowledged on the earnings call that capital efficiency matters less than speed, adding that the company is pursuing the fastest industrial expansion since World War II.

Tesla's Robotaxi service now operates in seven US cities, including Austin, San Francisco and Miami, though vehicle counts remain in the dozens per city. The company said it expects Robotaxi to have a material financial impact by 2027. Optimus production targets call for 1,000 units per week by September and 2,000 to 2,500 per week by year-end.

Tesla ended the quarter with $43.5 billion in cash. The spending trajectory implies the company will need to demonstrate meaningful progress on Robotaxi commercialization and Optimus production milestones in the coming quarters to justify the current valuation. The stock trades at more than 220 times trailing earnings, reflecting the market's pricing of an AI and robotics option that has yet to generate material revenue. Investors will watch the pace of Robotaxi fleet expansion and Optimus production ramp in the coming months.

This article is for informational purposes only and does not constitute investment advice.