(Updates to add the recent stock movement in the headline and first paragraph.)
Tesla (TSLA) shares were down more than 10% in early Thursday trading after the company reported Q2 adjusted earnings late Wednesday of $0.33 per diluted share, down from $0.40 a year earlier.
Analysts polled by FactSet expected $0.53.
Revenue for the quarter was $28.24 billion, up from $22.50 billion a year earlier.
Analysts expected $26.42 billion.
Both gross and operating margins missed consensus considerably, and "more important aspects are an increase in capital investments and operating expenses related to the AI transition," according to a Truist Securities note said late Wednesday.
Free cash flow turned negative in Q2, with an outflow of $1.1 billion. FCF through the remainder of 2026 will also be negative as Tesla continues to invest at levels above its operating cash flow, per the Truist note.
"The company posted strong revenue, but elevated R&D and capex for AI projects (FSD, Robotaxi, Cybercab, Optimus, Cortrex, and Terafab) dragged meaningfully on P&L margins and cash flow metrics," the Truist note said. "We continue to believe these investments will pave the way for TSLA's AI transition, but they will weigh on margins and cash flow for a while."
Truist lowered its price target on Tesla's shares to $370 from $430, with a hold rating.
Price: $334.19, Change: $-39.82, Percent Change: -10.65%