Tesla's Q2 net profit fell short of expectations, and gross margin further declined, with free cash flow turning negative. The stock price dropped over 4% in after-hours trading

According to Zhitong Finance APP, Tesla (TSLA.US) announced its second-quarter results for 2026. Despite revenue exceeding market expectations, net profit, earnings per share, and gross margin all fell short of Wall Street's expectations, and free cash flow turned negative, reflecting the profit pressure brought by the company's continued investment in artificial intelligence (AI) and robotics. As a result of the performance, Tesla's stock price fell more than 4% in after-hours trading on Wednesday.

The financial report shows that Tesla's adjusted earnings per share (EPS) for the second quarter was $0.33, lower than the market expectation of $0.51; revenue was $28.24 billion, exceeding the market expectation of $25.71 billion, a year-on-year increase of 26%.

However, the company's profitability continues to be under pressure. Net profit for the second quarter decreased by 5% year-on-year to $1.11 billion, below expectations, with earnings per share of $0.32, compared to $1.17 billion and $0.33 per share in the same period last year.

By business segment, automotive revenue grew by 23% year-on-year to $20.52 billion; energy business (including solar and energy storage systems) revenue increased by 13% year-on-year to $3.14 billion; and service and other business revenue surged by 50% year-on-year to $4.58 billion.

Although automotive revenue performed better than expected, Tesla's gross margin further declined due to a decrease in average selling price per vehicle and reduced regulatory credit income. The gross margin for the second quarter fell from 17.2% in the same period last year to 16.8%, below the market expectation of 19.4%.

The financial report indicates that the company discontinued the higher-priced Model S and Model X models this quarter and began selling lower-priced versions of the Model 3 and Model Y, which has negatively impacted overall profitability.

At the same time, the company's operating expenses increased by 47% year-on-year to $4.35 billion, significantly outpacing revenue growth, primarily due to continued increases in AI and R&D investments, leading to a sharp decline in operating profit margin from 4.1% in the same period last year to 1.4%.

In terms of cash flow, Tesla's free cash flow turned negative at $1.1 billion in the second quarter, compared to a positive $146 million in the same period last year, and reached $1.44 billion in the first quarter of this year.

However, the company stated that it will continue to maintain a robust balance sheet and sufficient liquidity to support funding for future product roadmaps and long-term capacity expansion plans (including further promotion of vertical integration) At the same time, capital expenditures soared 142% year-on-year to $5.79 billion. Tesla's Chief Financial Officer Vaibhav Taneja previously stated that the company's total capital expenditures for 2026 are expected to exceed $25 billion.

Tesla announced that several multi-year infrastructure projects involving AI computing power, solar energy, battery materials, and semiconductor manufacturing have already been initiated.

In recent years, as companies like BYD, Nio (NIO.US), and Xiaomi continue to launch cost-effective smart electric vehicles, Tesla's vehicle delivery numbers have declined for several consecutive years. Additionally, Musk's political statements and his collaboration with the Trump administration have led to some consumer boycotts of the Tesla brand.

However, the conflict between the U.S. and Iran has led to rising gasoline prices, which has somewhat stimulated electric vehicle demand in the first half of this year, resulting in improved sales in the European market.

Currently, Tesla is gradually shifting its strategic focus from automobile sales to artificial intelligence and autonomous driving businesses. Musk is accelerating the advancement of the Robotaxi self-driving taxi service, the mass production plan for Cybercab self-driving cars, and is modifying the production line at the Fremont factory in California to prepare for the production of the Optimus humanoid robot.

The company stated in its financial report that the first-generation production line for Optimus has begun installation and will soon start production. The first batch of robots will primarily be used for training data collection and function development, rather than direct delivery to customers.

At the same time, Tesla's Full Self-Driving (FSD) subscription business continues to grow. The company reported that the number of active FSD subscription users in the second quarter increased by 56% year-on-year, with a total of 1.48 million subscribers