Tesla profits plunge as discounts on EV models weigh on results

Tesla’s profits dropped unexpectedly in the second quarter as Elon Musk’s group offered discounts to boost electric-vehicle sales and revenue from sales of regulatory credits to rivals dried up.

The surprise decline in profits came even as Tesla has benefited from a rebound in EV demand in Europe, as customers facing higher fuel prices overlooked Musk’s polarising political activism and returned to showrooms.

Sales in the US, however, remain depressed after the Trump administration scrapped EV incentives, forcing it to sell its cars at lower prices.

The Texas-based group reported adjusted net income, which excludes stock-based compensation and the change in value of its cryptocurrency holdings, down 17 per cent to $1.2bn, far below a Wall Street consensus collated by Visible Alpha of $1.95bn. Shares in Tesla fell more than 2 per cent in after-hours trading.

Tesla also reported its first quarterly cash burn in two years on Wednesday, as Musk accelerates the group’s pivot from electric vehicles to semiconductors, autonomous taxis and humanoid robots.

It recorded $1.1bn in negative free cash flow even after delivering a second-quarter record of 480,126 vehicles, as its capital expenditures more than doubled.

The electric-car maker’s first cash burn since early 2024 came despite strong sales that drove revenue up 26 per cent to $28.2bn.

The company suffered a sharp fall in sales last year when Musk’s high-profile role in slashing US government spending in the Trump administration alienated consumers.

But while sales have risen this year, disappointing margins reported by the company’s auto business on Wednesday suggested sales were driven in part by aggressive price cuts and financing deals. The company’s overall operating margin dropped to 1.4 per cent from 4.1 per cent a year ago.

Musk in April boosted Tesla’s spending plans for 2026 to more than $25bn, nearly triple the $8.5bn it invested last year, citing the huge AI investment plans of big tech groups. Capital expenditure rose 142 per cent from a year ago to $5.79bn in the quarter.

Tesla has increased spending as it breaks ground on a chips research facility that is part of its Terafab joint venture with SpaceX, and invests in the advanced semiconductors and power grid infrastructure for the Cortex 2 supercomputer cluster.

Tesla has also discontinued production of its premium Model S and Model X vehicles, converting sections of its EV plant in Fremont in California for early production of its Optimus Gen 3 humanoid robot.