Tesla reported weaker-than-expected earnings for the second quarter even as revenue topped estimates. The stock slid about 4% in extended trading on Wednesday.

Here's how the company did compared to Wall Street expectations, according to estimates from analysts polled by LSEG

Earnings per share: 33 cents adjusted vs. 51 cents expected

Revenue: $28.24 billion vs. $25.71 billion expected

Tesla's earnings report lands in the midst of a steep decline in its stock price, which is down about 11% this month and 17% for the year as of Wednesday's close. That slide has coincided with a drop in SpaceX, Elon Musk's other trillion-dollar company, which held a record market debut in June and has lost more than 40% of its value since its peak close.

Revenue at Tesla jumped jumped 26% in the period from $22.5 billion a year earlier, the company said in a statement. Net income fell 5% to $1.11 billion, or 32 cents a share, from $1.17 billion, or 33 cents per share, a year earlier.

Tesla's core automotive segment generated $20.52 billion in revenue, up 23% from a year ago. Revenue in the energy business, which consists of solar and battery energy storage systems, increased 13% to $3.14 billion. In its services and other business, which includes fees for repairing vehicles out of warranty, revenue jumped 50% to $4.58 billion.

Despite better-than-expected revenue in its auto business, the company's gross margin dropped and missed estimates as average selling price per vehicle fell and regulatory credit revenue declined. Gross margin, or the profit left after accounting for the cost of goods sold, slid to 16.8% from 17.2% a year earlier. Analysts expected 19.4%, according to StreetAccount.

During the quarter, Tesla sold lower-cost version of its popular Model 3 and Y vehicles after retiring its more expensive, flagship Model S and X vehicles.

Tesla Model 3 electric vehicles (EV) on a vehicle transport truck at the company's store in Colma, California, US, on Friday, Jan. 23, 2026.

David Paul Morris | Bloomberg | Getty Images

Operating expenses climbed much faster than revenue, as the company poured money into artificial intelligence and other research and development projects. The 47% increase in operating expenses brought the total to $4.35 billion in the second quarter. Tesla's operating margin plunged to 1.4% from 4.1% a year ago.

Musk has shifted the focus of the company away from vehicle sales and toward its driverless Robotaxi service, ramping production of the company's driverless Cybercab, and remaking older factory lines in Fremont, California, to start manufacturing Optimus humanoid robots. He's promised shareholders and fans an AI-powered robot that will be able to step in as a babysitter, factory worker or world-class surgeon.

Skyrocketing costs

Free cash flow at Tesla turned negative in the quarter. The deficit of $1.1 billion comes after the company generated $146 million in free cash flow a year ago and $1.44 billion in the first quarter of 2026.

Tesla said in its 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 expenditures, meanwhile, soared 142% to $5.79 billion from $2.39 billion in the same quarter last year. CFO Vaibhav Taneja told shareholders during the company's last earnings call in April that capex would top $25 billion this year. 

"Capacity build out and ramp related to our multi-year infrastructure initiatives, including AI compute, solar, battery material and semiconductor manufacturing are underway," the company said in the earnings deck.

Tesla is trying to recover from consecutive years of declining deliveries, largely due to competition from Chinese automakers, including BYD, Nio and Xiaomi, that are offering affordable but high-tech EVs in markets beyond the U.S. Some car buyers have boycotted Tesla in response to Musk's incendiary political rhetoric and work with the Trump administration.

Rising gas prices resulting from the U.S. war in Iran boosted Tesla sales in the first half of the year, with European car buyers purchasing more EVs.

Taneja told investors on Wednesday that operating expenditures will "grow in 2026 and beyond." He also said, "commodity price increases and interest rate changes" will all continue to add to Tesla's costs.

Musk said on the earnings call that Tesla would soon disclose more details about the chip plant and had already ordered equipment for a "development fab," but declined to discuss other details for the "high-risk, high-payoff bets" the company is making around AI chips.

The company said in its earnings presentation that it's "installing the first-generation lines for Optimus," and will "start production soon." Tesla also said its initial Optimus robots will be used for "training data collection and further functionality development," not deployed to customers.

"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," Musk said on the call. He added that there is "no existing supply chain" for it.

Tesla said "active FSD subscriptions" rose 56% in the quarter, and the company now has 1.48 million subscribers total to that product. The full name for FSD in the U.S. is Full Self-Driving (Supervised), and in every market, it requires a human driver ready to steer or brake at all times.

Tesla is lagging far behind driverless ride-hailing companies including Alphabet's Waymo, and Baidu's Apollo Go, but the company is now "ramping unsupervised" Robotaxi rides in several U.S. markets.

The company has started production of a two-seater driverless vehicle called Cybercab, but it's not clear when it will be deemed safe and available for use by individuals.

"We need to be cautious about causing any accidents or causing any harm to anyone," Musk said. "If we injure even one person, it will be worldwide headline news, and regulators will immediately clamp down on our activities."

Ashok Elluswamy, Tesla's vice president of Autopilot, added during the call that Tesla's Robotaxi fleet is now running with the "v. 15" build of its FSD software. The forthcoming Cybercab will use the same version of the FSD software used in its Robotaxi fleet, he said.

Musk was asked on the call if Tesla and SpaceX would ever merge.

"There more and more overlap especially with Terafab. That's really going to be a gigantic project," he said. "But obviously, we can't talk about combining companies and that kind of thing on an earnings call."

Musk and other Tesla execs noted that Grok, an AI chatbot available in Tesla vehicles, is made by SpaceXAI (formerly known as xAI). Cybercab will rely on SpaceX's Starlink for connectivity, Musk noted. And SpaceXAI is also developing an AI model intended to serve as a "manager" of Optimus.

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