Key Points
A difficult year for Tesla’s (NASDAQ: TSLA) stock got even worse after the stock fell more than 15% on July 23 in the aftermath of its second-quarter earnings report. The stock is now down more than 30% year to date.
Shares of the electric vehicle (EV) maker fell after the company badly missed adjusted EPS estimates, talked of increasing capital expenditures (capex), and dramatically changed its tone about its robotaxi rollout.
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Heavy investments and lack of progress spook investors
Increased capex spending has become a Wall Street bugaboo, and Tesla said that it is in the midst of a massive investment cycle. It plans to spend $25 billion in capex this year, with it growing over the next two to three years as the company increases its Optimus robot production capacity, expands its robotaxi fleet, builds out AI computing infrastructure, and invests in its TeraFab project.
At the same time, the company toned down robotaxi expectations. While it said its robotaxi efforts were going “extremely well,” and touted its safety record and technology, it was a far cry from a year ago when Elon Musk predicted that its robotaxis would be accessible to half the U.S. population by the end of 2025. They weren’t, and supervised and unsupervised Robotaxi rides are still only available in two states. According to Tech Crunch, the number of robotaxi miles carrying paying customers also fell 36% sequentially in Q2. That’s a bad sign for a stock whose valuation is largely tied to future bets.
Meanwhile, for its Optimus robot, CEO Elon Musk once again said he thought it would become Tesla’s biggest product ever. However, he admitted that there are major technical hurdles still to overcome, including with the “electromechanical design of the robot to achieve sufficient dexterity.” He also noted that Tesla was having difficulty ramping up production due to newness of parts and the lack of an existing supply chain.
Getting parts for Optimus also ties into Tesla wanting to build its own fab that would have logic, memory, and advanced packaging all done in the same facility. Its an ambitious project that even Nvidia’s CEO said will be difficult to pull off.
As for its actual results, Tesla’s automobile deliveries in Q2 climbed 25%. That was a big jump from the 6% increase it saw in Q1 and a reversal from the declines it saw throughout much of 2025. Its total production, meanwhile, increased by 10%.
The increase in deliveries helped Tesla’s auto revenue rise by 23% to $20.5 billion in the quarter. The revenue was also helped by a 54% jump in active FSD (full-self driving) subscriptions (which includes monthly subscriptions and upfront purchases) to 1.48 million users. However, the company’s high gross margin regulatory credit revenue plunged by 67% to $146 million. That’s a big reason why the company’s adjusted EPS fell well short of expectations, along with a 47% jump in operating expenses.
Overall, Tesla’s revenue climbed 26% year over year to $28.2 billion. Its energy generation and storage revenue rose by 13% to $3.1 billion, while its service revenue surged 50% to nearly $4.6 billion. Adjusted earnings per share (EPS) sank 18% to $0.33, missing the analyst consensus of $0.51, as compiled by LSEG.
Tesla’s operating cash flow climbed 85% in the quarter to $4.7 billion, but it spent $5.8 billion in capex, leading to negative free cash flow of $1.1 billion.
Is the stock a buy on the dip?
The removal of civil penalties for autos not meeting Corporate Average Fuel Economy (CAFE) standards and the loosening of emission restrictions in Europe have taken a huge bite out of Tesla’s high-margin regulatory credit revenue. This has been a major source of profits for the company that has now considerably declined, pressuring its core EV business. Meanwhile, its robotaxi and robotics businesses remain unproven and thus far have underwhelmed.
The potential of Tesla being eventually acquired by Musk’s other company, SpaceX, could help provide a floor for the stock. However, that’s provided that SpaceX can stop its own free fall. With a struggling core business and a valuation (170x forward P/E) based solely on speculative bets, I’d stay away from Tesla stock.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
