Tesla slides 4% after hours as Q2 earnings miss, FCF turns negative

Tesla reported Q2 revenue of $28.24B, beating estimates by 7%, but adjusted EPS of $0.33 missed by 39%.

"Operating expenses will continue to elevate this year and beyond as higher commodity prices and interest rates continue to increase company costs," CFO Vaibhav Taneja said.

Net income fell 5% to $1.11B from $1.17B a year earlier. Free cash flow turned negative $1.1B as capital expenditure surged 142% to $5.79B. Automotive gross margin excluding regulatory credits was 16.3%, down from 19.2% in Q1 but up from 15% in Q2 2025. Energy storage revenue rose 13% to $3.1B.

Shares fell 4.13% in after-hours trading to $358.55. The earnings miss and negative free cash flow underscore the cost of Tesla's AI and robotics investments, with the company calling it "the largest and most exciting period of investment" in its history.

Revenue beat, profit miss

Revenue of $28.24B topped the consensus estimate of $26.36B, rising 26% from $22.5B in Q2 2025. The top-line beat was driven by record deliveries of 480,126 vehicles, up 25% year over year.

But profitability deteriorated sharply. Adjusted EPS of $0.33 missed the $0.54 consensus by 39% and declined 18% from $0.40 a year earlier. Operating expenses surged 47%, driven by AI infrastructure buildout and stock-based compensation, pushing operating margins down to 1.4%.

CapEx surge pressures cash

Tesla's capital spending more than doubled to $5.79B, flipping free cash flow from positive $1.44B in Q1 to negative $1.1B in Q2. The company held $43.5B in cash on hand.

CEO Elon Musk said during the earnings call that Tesla will soon announce details regarding a chip factory and has already ordered equipment. He also said the company is installing the first-generation production line for the Optimus robot and will begin production soon, calling it "the most difficult product the company has ever manufactured to scale."

Margin compression in focus

Automotive gross margin excluding regulatory credits fell to 16.3% from 19.2% in Q1, as one-time warranty and tariff gains from the prior quarter did not repeat. Regulatory credit revenue continued to normalize lower, adding to margin pressure.

The earnings miss and negative free cash flow signal that Tesla's heavy investment cycle is weighing on near-term profitability. Investors will watch for any updates on Optimus production timelines and Robotaxi expansion in the coming quarters.

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