Tesla's second-quarter profit plummets 17%, price cuts and promotions squeeze profit margins, capital expenditures surge, betting on AI
American electric car maker The company’s second-quarter financial report released on July 22 showed that the company’s adjusted net profit was US$1.2 billion, a 17% decrease from the same period last year and far lower than Wall Street’s expectations of US$1.9 billion. Although deliveries hit a record high of 480,126 vehicles in the quarter, driving revenue to grow 26% year-on-year to US$28.2 billion, which was higher than market expectations, the profit decline exceeded investor expectations. The financial report shows that the profit decline is mainly due to Tesla's price reduction promotion to boost sales, while the revenue from selling regulatory credit lines to competitors has shrunk significantly. The automotive business profit margin (excluding regulatory credit) in the quarter was 16.3%, lower than analysts' expectations of 18.7%; the overall operating profit margin fell to 1.4% from 4.1% in the same period last year. Revenue from regulatory credits plummeted to $146 million from $439 million in the same period last year. From a regional market perspective, in the European market, high gasoline prices have driven some consumers to switch to electric vehicles, with Tesla sales rebounding the most strongly. But in the U.S. market, Tesla's sales remain sluggish as the Trump administration eliminated the $7,500 electric vehicle tax credit and abolished incentive rules to encourage electric vehicle production. Facing difficulties in the automotive business, which still accounts for more than 70% of the company's revenue, Tesla CEO Elon Musk has accelerated the company's transformation from electric vehicles to self-driving taxis and AI-driven humanoid robots. The company's capital expenditures in the quarter reached US$5.79 billion, an increase of 142% from the same period last year, resulting in negative free cash flow of US$1.1 billion, the first quarterly cash consumption in two years. Musk said that investment in 2026 will exceed US$25 billion, nearly three times the US$8.5 billion last year, and called this "possibly the fastest industrial expansion in the United States since World War II." Tesla's chief financial officer said capital expenditures will continue to grow over the next two to three years, and the company has secured up to $30 billion in debt lines to support investment. Currently, Tesla is building a joint venture with SpaceX to build semiconductor research facilities and investing in advanced chips and power grid infrastructure to support supercomputer clusters. The company began producing fully autonomous Cybercab electric vehicles in February this year and gradually launched robotaxi services in Texas and Florida, but Musk said the business will not contribute substantial revenue until at least next year.