Market AnalysisJul 24, 20262 Min

Tesla’s Q2 earnings a mixed bag for investors: Here’s what you should know

Elon Musk’s Tesla released its earnings for the second quarter on Wednesday and left investors with a mixed feeling.

While revenue topped estimates on the back of record vehicle sales seen during the quarter, profit failed to meet expectations as the company invested heavily into its ambitious artificial intelligence (AI) and research and development projects.

As investors kept making sense of these numbers, optimism faded and the decline in the share price snowballed to 4% in extended trading hours on Wednesday.

What do the numbers say?

Tesla’s revenue jumped by a decent 26% year-on-year to $28.24 billion in the June quarter compared with $22.5 billion a year earlier. This was higher than the expected $25.71 billion.

The company’s core automotive segment accounted for most of its revenue, generating $20.52 billion during the quarter, up 23% from a year ago.

Earlier this month, Tesla had announced that it delivered 480,126 vehicles worldwide during the June quarter, up 25% compared to the same period last year.

The company’s energy generation and battery storage business also saw a boost, with revenue increasing 13% to $3.14 billion compared to the year-ago period.

Revenue for the services and other business, which includes fees for repairing vehicles out of warranty, jumped 50% as well to $4.58 billion.

Yet, the overall profit figure disappointed.

Tesla reported second-quarter net income of $1.11 billion, or 32 cents per share, for the June quarter. This was 5% lower compared with $1.17 billion, or 33 cents per share, a year earlier.

Musk tried to justify the profit decline with a simplistic statement.

“We’re investing a lot in growing the core business and really preparing for the future,” he said during a conference call with analysts.

This was true to an extent. The company’s capital expenditure soared by a huge 142% to $5.79 billion from $2.39 billion in the same quarter last year.

Tesla’s CFO Vaibhav Taneja told analysts that the company expects capital expenditure to increase further in the second half of this year. This would drive full-year spending to over $25 billion.

Musk said this money was going into building the driverless Robotaxi service, ramping production of Tesla’s driverless Cybercab, and remaking older factory lines in California to start manufacturing the Optimus humanoid robots.

Musk also mentioned that the production timeline for the much-awaited Optimus remains on track. “The initial Optimus builds will be used in our Optimus Academy for training data collection and further functionality development,” the company said in a statement. Though it did not disclose when the latest version of Optimus would be revealed.

Whether Tesla and SpaceX would merge?

Another possibility that excited investors was the possible merger between Musk’s two companies Tesla and SpaceX. According to reports, dozens of questions were submitted by individual investors for Wednesday’s conference call just asking about the same.

But Musk’s response was not very clear, though his statement indicated that he was considering this plan.

Musk said while there was “overlap” across the two companies, “we can’t talk about combining companies on an earnings call. It’s got to be done with the appropriate process.”