Tesla profit disappoints as Elon Musk’s AI spending surge leads to cash burn

Tesla on Wednesday missed analysts’ profit forecasts for the second quarter and, for the first time in more than two years, reported negative free cash flow as the Elon Musk-led EV maker accelerated spending on infrastructure for its AI and robotics ambitions.

Shares were down about 2.5% in extended trading.

Musk plans to spend more than $25 billion this year, nearly triple last ​year’s $8.53 billion, as he bets on Tesla’s AI-powered self-driving technology and robotics, over its auto business, which still is the core revenue generator.

But the pivot is expensive, and while much of Tesla’s valuation hangs on the promise of potentially high-margin revenue streams, the spending is heightening investor scrutiny.

Thomas Monteiro, senior analyst at Investing.com, said it could become difficult for Tesla to keep up with its recent capital-spending pace as its cash burn worsens.

“Given that most of the Tesla premium rests on future narratives, every capex dollar Tesla commits will be judged more harshly than it was a year ago,” he said.

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Adjusted profit in the quarter ended June 30 was 33 cents per share, versus analysts’ average expectation of 51 cents per share, according to data compiled by LSEG.

Tesla’s profitability was hurt by higher operating expenses driven by AI, lower average selling prices and weaker regulatory credit revenue even as vehicle deliveries rose, the EV maker said on Wednesday.

Capital expenditure in the quarter came in at $5.8 billion, compared with the expectation of about $6.2 billion.

Tesla reported negative free cash flow of $1.1 billion, compared with analysts’ expectation for cash burn of $3.3 billion.

“This is a massive capex year, but I’m confident that all the things that we are investing in will yield incredible returns,” Musk told analysts on a post-earnings conference call.

EV sales in the quarter helped assuage some fears for now. Tesla delivered 480,126 vehicles in the second quarter, above Wall Street expectations and up from 384,122 vehicles a year earlier.

The Austin, Texas-based automaker reported revenue of $28.24 billion for the three months ended June 30, compared with analysts’ average estimate of $25.71 billion.

Automotive gross margin came in at 16.3%, compared with the expectation of 18.04%, according to Visible Alpha data.

Tesla also deployed 13.5 GWh of energy storage products in the quarter, up from 8.8 GWh in the first quarter and 9.6 GWh a year earlier.

But the core automotive business remains under scrutiny as competitors introduce newer models, often at lower price points, while the company continues to rely heavily on its Model 3 compact sedans and Model Y SUVs for volume.

Tesla has tried to stimulate demand through lower-priced trims, including stripped-down, affordable versions of the Model 3 and Model Y late last year, and the launch this month of a six-seater variant of the Model ‌Y in the ⁠United States, where demand has been hit by the removal of key tax credits last year.

Wall Street expects Tesla to deliver about 1.7 million vehicles in 2026, according to Visible Alpha data. That would imply growth from last year’s levels, but analysts remain divided over whether the second-quarter rebound reflects sustainable demand or timing effects after a weak first quarter.

Analysts say sustaining the momentum could be difficult, with third-quarter growth set to face a high bar after a strong performance in the same period last year.

Investors have increasingly turned their attention to Musk’s push into self-driving technology and robotics, seeking clearer evidence that Tesla’s autonomy narrative is shifting from promise to commercial reality.

Tesla’s energy generation and storage unit has emerged as a key counterweight to the auto business, helped by demand for grid-scale batteries that support renewable energy, data centers and electricity-network stability.

Tesla has said it expanded its unsupervised robotaxi service in Austin and launched unsupervised rides in Dallas and Houston in April. The company also operates a robotaxi service in Miami and expanded the service to Orlando and Tampa, Florida. Tesla has previously identified Phoenix and Las Vegas among future expansion markets.

The company received approval in April to deploy its advanced driver assistance software – called Full Self-Driving Supervised – in the Netherlands. Some other European countries have also allowed the technology following the Dutch approval.

A key vote to decide on Europe-wide approval for the technology is expected later this year. Tesla is also pushing for approval in China.

Tesla’s shares have fallen more than 15% this year. At about $1.4 trillion, it remains the world’s most valuable automaker by a wide margin, reflecting investor expectations that self-driving software, energy storage, robotaxis and humanoid robots could eventually deliver higher-margin growth than vehicle sales.