Tesla earnings disappoint Wall Street as Elon Musk’s AI push, pivot beyond cars hurt profits

Tesla announced its second quarter earnings, with Elon Musk's EV maker failing to meet profit estimates for the first time in more than two years and reporting a negative free cash flow as the company accelerated its AI spending and robotics ambitions.

Tesla shares dropped more than 4% in extended trading hours after profit miss and cash burn spooked investors, despite record vehicle deliveries as higher oil prices due to the raging conflict in the Middle East increased demand for electric vehicles.

What hurt Tesla's profit?

World’s richest man and Tesla CEO Elon Musk plans to spend more than $25 billion this year, which is almost triple of what it spent last year, as he bet on Tesla's AI-powered self-driving technology, robotaxis and humanoid robots over its core revenue generator, the auto business.

Tesla's profitability was hurt by higher operating expenses due to AI, lower average selling prices and weaker regulatory credit revenue despite a rise in vehicle deliveries, the company said on Wednesday.

Tesla’s capital expenditures more than doubled on a year-on-year (YoY) as well as sequential basis to $5.8 billion in the June quarter, pushing free cash flow to a negative $1.1 billion. The cash burn was significantly higher than analysts’ expectation of $3.3 billion.

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Elon Musk is confident of incredible returns
"This is a massive capex year, but I am confident that all the things that we are investing in will yield incredible returns," Musk told analysts on a post-earnings conference call. Investors are now increasingly turning their attention to Musk’s push into self-driving technology and robotics, with the company expanding its unsupervised robotaxi services.

"Monetization remains the central concern following the earnings miss. The question is how quickly those investments can begin supporting the valuation," said Ryan Lee, senior vice president of product and strategy at exchange-traded product firm Direxion, as per a Reuters report.

Tesla's shares have fallen nearly 15% this year so far. At about $1.4 trillion, it remains the world's most valuable automaker by a wide margin, reflecting investor expectations that self-driving software, energy storage, robotaxis and humanoid robots could eventually deliver higher-margin growth than vehicle sales.

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(With inputs from agencies)
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