Tesla reported strong second-quarter vehicle deliveries, but the company's quarterly results once again showed that investors are less willing to evaluate the business solely based on revenue growth. Profitability, the scale of capital expenditures, and Tesla’s transformation from an automaker into an artificial intelligence company are taking on greater importance.
In the second quarter, Tesla increased electric vehicle deliveries by 25% year over year to 480,126 vehicles. Revenue grew by 26%, reaching a record $28.24 billion and exceeding analysts' expectations. However, most other financial metrics came in significantly below forecasts. Earnings per share came in at just $0.33, compared to the $0.51 expected by the market, while net income declined by 5% to $1.11 billion. After the financial statements were published, Tesla stock fell by more than 4%, as investors increasingly focused on profitability rather than sales growth.
The automotive segment generated $20.52 billion in revenue, up 23% from a year earlier. The energy business increased revenue by 13% to $3.14 billion, while the service division, which includes post-warranty vehicle servicing, grew by 50% to $4.58 billion.
At the same time, profitability continued to decline. The gross margin fell from 17.2% to 16.8%, while the market expected about 19.4%. Margins were pressured by a lower average selling price for vehicles, a decline in revenue from regulatory credits from $439 million to $146 million, and a sharp increase in costs.
Operating expenses jumped by 47%, reaching $4.35 billion. As Elon Musk explained, a significant part of these funds is being used to prepare for mass production of Optimus humanoid robots, the development of Cybercab robotaxis, and the expansion of the company's own AI infrastructure. As a result, operating profit declined by 57% to $398 million.
Capital spending tells an even more striking story. During the quarter, capital expenditures increased by 142% to $5.79 billion, while free cash flow turned negative at -$1.1 billion. By the end of the year, Tesla expects to invest more than $25 billion. Moreover, these investments go far beyond the automotive business. In addition to battery production, the company is actively investing in computing power, the development of its own semiconductors, and AI technologies. In effect, Tesla is gradually becoming one of the largest infrastructure investors in AI.
The most notable example remains the Optimus humanoid robot project. According to Musk, the first mass-produced robots will be used internally by Tesla to train and refine AI models before being deployed to customers. The company's CEO described scaling up their production as the most difficult task in Tesla’s history.
During the earnings conference call, Musk also confirmed that Tesla and SpaceX are becoming increasingly interconnected. One of the key joint projects will be Terafab, which will manufacture advanced semiconductor components for AI infrastructure, while SpaceXAI is already developing AI models for Optimus robots.
Further highlighting these ambitions, Musk said Tesla had secured a large allocation of Micron memory chips on favorable terms. These components will be used both in the company's computing infrastructure and in its robotics and autonomous driving systems. At the same time, analysts do not rule out the possibility that some of the supplies could also be used by Musk’s other companies.
Rumors of a Tesla-SpaceX merger also resurfaced. Musk acknowledged that there are an increasing number of areas of cooperation between the two companies but declined to comment on a potential merger during the quarterly conference. Nevertheless, these remarks only reinforced market expectations that integration across Musk's companies will continue to deepen.
Overall, Tesla's results highlighted two contrasting trends. On the one hand, the core business continues to grow steadily and deliver record revenue. On the other hand, the company is rapidly increasing investments in AI, robotics, and custom semiconductor development, putting pressure on profitability and cash flow. For now, investors appear willing to finance this transformation, but over time the market will need to see not only large-scale investments but also meaningful financial returns on them. Earnings reports from Meta, Microsoft, and other S&P 500 constituents will further shape investor sentiment toward corporate AI spending.