Second-quarter revenue rose 25.5% to $28.2bn ($25.7bn expected), driven by strong growth in automotive sales and services revenue.
Operating profit fell 56.9% to $0.4bn ($1.1bn expected) as rising costs more than offset revenue growth.
Over the period, Tesla produced 451,758 vehicles and delivered 480,126, with deliveries ahead of expectations.
Free cash flow turned negative at $1.1bn, as capital expenditure more than doubled to $5.8bn. Net cash, including leases, rose $4.6bn to $34.2bn at the end of the quarter.
Management expects capex of more than $25bn this year, and for that to continue growing for the next two or three years.
The shares fell 4.1% in after-hours trading.
Our view
Tesla’s headline revenue growth was impressive, but the quality of the result was less convincing. Deliveries beat expectations, yet weaker margins, a sharp drop in operating profit, and negative free cash flow highlighted the cost of supporting demand while ramping investment. The core car business may be stabilising, but the investment case increasingly rests on whether heavy spending can unlock profits from autonomy, robotics and AI.
Investment in Tesla’s next phase is accelerating and necessary. Management expects capital expenditure to exceed $25bn this year and continue rising during the next two or three years as it builds out AI infrastructure, autonomy, robotics, and chip production. The long-term potential is significant, but weaker cash flow and higher execution risk are likely in the meantime.
Tesla continues to make progress on autonomy. Its robotaxi service is available across seven cities and has covered more than 380,000 miles, with Phoenix and Las Vegas among the next targets. Cybercab production has started, although the pace and economics of the commercial rollout remain important unknowns.
Removing safety monitors in some new cities suggests that the software is improving. Even so, recent comments suggest that the pace will remain measured as the software continues to evolve, effectively pushing timelines further out. That also reduces the likelihood that unsupervised FSD will reach everyday Tesla owners in the near term.
Energy storage remains promising. Deployments reached 13.5 GWh in the quarter, up sharply from last year and the previous quarter, although performance can be lumpy. Rising power demand linked to AI is supportive, but recent forecasts point to a slightly slower near-term ramp than previously expected.
Momentum around humanoid robots is also building. Construction of the first Optimus production line has started at Fremont, with production expected later this year, and work has begun on a larger Texas facility. However, first external deliveries aren't expected until 2027, and this is perhaps Tesla’s most challenging technical product – we see further delays as likely.
These opportunities underpin much of Tesla’s lofty valuation, but meaningful financial benefits from autonomous driving and robotics are at least 2 to 3 years out in our view. Tesla’s strong net cash position provides room for continued investment, but free cash flow has turned negative, and we expect it to remain so for the foreseeable future.
All in, we continue to see Tesla as one of the strongest candidates to commercialise real-world AI. But investors are being asked to fund a costly buildout well before returns become visible, and with the valuation stretched, near-term risk remains high.
Environmental, social and governance (ESG) risk
Most of the auto industry falls into the medium-risk category in terms of ESG. Product governance, particularly around safety, and carbon emissions from products and services are key risk drivers. Business ethics, labour relations and direct carbon emissions are also contributors to ESG risk.
According to Sustainalytics, Tesla's management of ESG risks is strong.
Elon Musk’s political and extra-curricular activities are a risk to monitor. Tesla also has a high degree of key person risk: Elon Musk is core to the investment case, and the premium valuation, to some extent, relies on his continued leadership. Governance concerns also include Elon Musk's past social media posts, which impacted Tesla's share price. Other areas to watch include safety concerns around its autopilot technology and the management of its workforce.
Tesla key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember that yields are variable and not a reliable indicator of future income. Keep in mind that key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.