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By Brian Nelson, CFA
On July 22, Tesla (TSLA) reported mixed second quarter results, with revenue exceeding the consensus forecast but non-GAAP earnings per share coming in below expectations. Total revenues increased 26%, while gross profit expanded 23%, as gross margins contracted 41 basis points from the same period a year ago. Income from operations fell 57% year-over-year, as its operating margin contracted 269 basis points, to 1.4%. Adjusted EBITDA fell 4% year-over-year, as adjusted EBITDA margins shrunk 353 basis points, to 11.6%. In the quarter, non-GAAP net income and non-GAAP earnings per share fell 17% and 18%, respectively.
Management summarized the results as follows:
Q2 was a strong quarter for our core vehicle, energy and services businesses as well as our manufacturing, infrastructure and AI initiatives. Our focus remains on strengthening these core businesses and making the necessary investments that will deliver Amazing Abundance.
Tesla generated over $100B in revenue on a trailing twelve-month basis for the first time. We achieved record second-quarter vehicle deliveries, with continued growth in new markets and strength in established markets. Our Energy Storage business returned to growth, achieving its second-best quarterly deployment number and record deployments on a trailing twelve-month basis. The Services and Other business achieved record profitability and margin in the quarter.
Cybercab began production at Gigafactory Texas, and Tesla Semi remains on track for production this year at our new factory in Nevada. Progress also continued on battery pack capacity expansion – the main limiting factor to near-term vehicle production volume increase. Megafactory Texas is nearing completion, with start of production planned for this year. Additionally, site selection, preparation, construction and equipment procurement progressed in the quarter for solar and semiconductor manufacturing.
FSD (Supervised) penetration continued to grow in the quarter with more customers opting for subscription at the time of vehicle purchase. Robotaxi rollout continued in the U.S. and is now live in seven major metros. Construction at our Fremont Factory for Optimus began after we decommissioned the Model S & X lines, with anticipated production later this year.
Tesla is in its largest and most exciting period of investment. From here, there remains much hard work as we aim to revolutionize transportation, energy and productivity through our leading real-world AI. Scaling will be non-linear, and we are focused on long-term value creation. We’ve never been more optimistic about the future.
Free cash flow wasn’t great at Tesla during the second quarter due to elevated spending. Though cash flow from operations increased 85% in the period, to $4.7 billion, capital spending of $5.8 billion in the quarter (up 142% year-over-year) drove free cash flow into negative territory, resulting in a free cash flow burn of $1.1 billion. At the end of the quarter, cash and cash equivalents stood at $43.5 billion versus non-recourse debt of $9.1 billion.
Management noted that it expects capital spending of more than $25 billion in 2026, and for it to grow for the next two to three years, as it expands its robotaxi fleet, expands production capacity for Optimus, makes investments for semiconductor fab, and installs solar manufacturing capacity and AI compute infrastructure. As with its Magnificent 7 peers, Tesla is investing heavily, and we think this will weigh on the stock. We’re not interested in adding Tesla to any newsletter portfolio at this time.
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Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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