Tesla released its second quarter earnings report, posting results that fell short of Wall Street expectations in key profitability metrics, though revenue exceeded analyst forecasts. The company’s stock declined approximately 4% in extended trading following the announcement.
Total revenue reached $22.5 billion, representing 26% growth compared to the prior-year period. However, net income declined 5% to $1.11 billion, or 32 cents per share, versus $1.17 billion, or 33 cents per share, in the same quarter the previous year. The automotive segment generated $20.52 billion in revenue, up 23% year-over-year, while the energy business increased 13% to $3.14 billion. Services and other revenue jumped 50% to $4.58 billion. Despite these gains, gross margin contracted to 16.8% from 17.2% year-over-year, falling substantially below analyst expectations of 19.4%, as average vehicle selling prices declined and regulatory credit revenue decreased.
Operating expenses surged 47% to $4.35 billion, driven largely by increased investments in artificial intelligence and research and development initiatives, causing operating margin to plummet to 1.4% from 4.1% previously. Capital expenditures soared 142% to $5.79 billion from $2.39 billion in the prior-year quarter, as the company invested heavily in manufacturing capacity expansion. Most significantly, free cash flow turned negative by $1.1 billion during the quarter, a sharp reversal from positive free cash flow of $146 million in the same period the previous year.
Executives indicated that operating expenses would continue to grow throughout the year and beyond, while commodity price increases and interest rate changes would add to costs. The company is redirecting focus toward autonomous vehicle technology and artificial intelligence initiatives, including manufacturing of the Cybercab driverless vehicle and Optimus humanoid robots. Tesla’s stock has declined 11% during the month and 17% year-to-date as of Wednesday’s close.
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