Tesla Stock Slides After Q2 Miss and Musk’s Warning of ‘Rough Quarters’

Tesla (TSLA) shares fell sharply in after-hours trading Wednesday after the electric vehicle giant posted disappointing second-quarter results and issued a sobering outlook for the rest of the year. 

The company reported adjusted earnings per share (EPS) of $0.40, below analyst expectations of around $0.42, and revenue of $22.5 billion.

The company’s stock was down more than 5% following the earnings release. CEO Elon Musk did not sugarcoat the situation, and told investors on the earnings call to expect “some rough quarters ahead” as Tesla transitions to producing its next-generation electric vehicle platform and ramps up its AI initiatives.

Profitability Pressures Mount

Tesla’s operating margin dropped to 4.1%, down from 6.3% a year ago, as reported by QZ. Its gross margin also fell to 17.2%, the lowest since the pandemic and this highlighted the strain from ongoing price cuts and increasing competition.

The company’s full-year automotive gross margin now sits at its lowest level since the pandemic-era disruptions of 2020.

AI and Robotaxi Hype Not Enough Yet

While Musk reiterated Tesla’s long-term focus on AI and autonomy, those ambitions did little to ease concerns over short-term performance. 

He emphasized the development of Tesla’s Dojo supercomputer and the rollout of a robotaxi on August 8, calling autonomy “a game changer” for Tesla’s valuation.

However, analysts noted that the near-term monetization remains uncertain. “Investors want a roadmap with financial details,” said Dan Ives of Wedbush in a note after the call. “AI hype isn’t enough to offset missed delivery targets and margin compression.”

Tesla’s Full Self-Driving (FSD) software revenue grew modestly, but the adoption remains limited. The company did not provide specific timelines for the widespread availability of fully autonomous features.

Cybertruck and Next-Gen Model Timeline Raises Eyebrows

Production of the Cybertruck still continues at Tesla’s Texas Gigafactory, but the company declined to share delivery numbers. Musk acknowledged that the “challenges” in scaling production and reiterated that volume will remain low.

As for the highly anticipated next-generation vehicle platform, which has been made to cut costs and increase volume, Musk said that it would be a “2026 story,” dampening hopes of a near-term lift from a new mass-market product.

Free Cash Flow Concerns

According to The Verge, Tesla made $1.17 billion in profit on $22.5 billion in revenue. While this is slightly more than what Wall Street expected, it’s still 12% less than the $25.5 billion it made during the same time last year.

The company’s profit also dropped 16% compared to last year. Car sales took a big hit too when the automotive revenue fell 16.6%, from $19.9 billion in Q2 2024 to $16.6 billion this year.

One thing that helped keep Tesla’s numbers from looking worse was the sale of $439 million worth of regulatory credits. But those may not be around for long. Republicans in Congress recently backed a plan from President Trump to remove penalties for carmakers who go over fuel-efficiency limits, which means Tesla could lose this extra income soon.

Outlook

Tesla’s Q2 results highlight a transition period that has been marked by investment and volatility. While its long-term bets on AI and autonomy remain compelling to some, investors are now grappling with lower profits and delayed product rollouts.

As Elon Musk put it on the call, “We’re laying the foundation for what comes next. But yes, it may be bumpy getting there.”