Tesla (NASDAQ:TSLA) shares fell more than 5% in premarket trading on Thursday after the electric vehicle maker reported earnings below market expectations, with softer automotive margins and negative free cash flow overshadowing record vehicle deliveries and continued investment in artificial intelligence.
The results reinforced investor concerns about the company’s ability to balance heavy spending on future technologies with near-term profitability.
AI and robotics investment drives higher spending
Tesla reported capital expenditure of $5.8 billion during the second quarter as it continued investing heavily in autonomous driving, robotics and artificial intelligence.
Chief Executive Elon Musk acknowledged the scale of the investment programme, telling investors, “This is a massive capex year,” while adding that the spending is expected to eventually “yield incredible returns.”
The company generated negative free cash flow of $1.1 billion during the quarter, its first negative reading in two years, reflecting the financial impact of its long-term growth strategy.
Automotive business rebounds but margins disappoint
Tesla’s automotive division showed signs of recovery after vehicle deliveries rebounded strongly during the quarter, reaching 480,126 units and comfortably exceeding market expectations.
The improved sales performance lifted automotive revenue to $20.52 billion, representing a 23% increase from the same period last year.
However, automotive gross margin, excluding regulatory credit sales, improved to 16.3%, remaining well below analysts’ expectations of 19.4%.
Adjusted earnings came in at $0.33 per share on revenue of $28.24 billion, missing consensus forecasts for earnings despite stronger-than-expected sales.
Autonomous driving remains the long-term focus
Tesla continues shifting its strategic focus beyond electric vehicles toward autonomous driving technology, robotics and artificial intelligence.
Much of the company’s market valuation is now tied to expectations for Robotaxi services, Full Self-Driving technology and the Optimus humanoid robot programme.
Ryan Lee, Senior Vice President of Product and Strategy at Direxion, said, “Tesla earnings increasingly hinge on progress in robotics and autonomous vehicles. As (Full Self Driving) improves, investors will be looking for Robotaxi to expand beyond its current markets, with Las Vegas and Phoenix representing potentially significant opportunities through the end of the year.”
Investors watch AI spending closely
Tesla has outlined plans to invest more than $25 billion in capital expenditure during 2026, targeting artificial intelligence software, semiconductor development, battery technology and manufacturing expansion.
Although Tesla is not considered an AI hyperscaler alongside companies such as Microsoft, Alphabet and Nvidia, its investment plans reflect the broader trend of major technology companies committing substantial resources to AI infrastructure.
Morgan Stanley analysts said, “We view Tesla’s accelerating capex cycle as a necessary investment to secure leadership in autonomy [and] robotics.”
However, uncertainty over when those investments will begin generating meaningful financial returns continues to weigh on investor sentiment.
Lee added, “While Tesla continues to invest heavily in AI and robotics, monetization remains the central concern following the earnings miss. Tesla has become the physical AI story, with the potential to bring artificial intelligence into consumers’ everyday lives through autonomous vehicles and robotics. The question is how quickly those investments can begin supporting the valuation.”
He also said, “There is also a case that Tesla could be investing even more aggressively, given how essential the AI buildout is to the company’s long-term thesis.”
Tesla also said battery production capacity remains “the limiting factor on ramping our vehicle production globally” as it continues expanding manufacturing.
The company added that production lines for the Optimus humanoid robot are being installed at its Fremont facility, while engineering testing of the Cybercab Robotaxi continued during the quarter.
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