US Markets
Tesla Second-Quarter Earnings Unexpectedly Decline Amid Higher R&D, AI Costs
Tesla (TSLA) shares fell early Thursday after the electric vehicle manufacturer reported an unexpected year-over-year decline in its second-quarter earnings, weighed down by higher operating expenses related to research and development and artificial intelligence initiatives.The technology giant reported adjusted earnings of $0.33 per share for the June quarter, down from $0.40 the year before, it said late Wednesday. The consensus on FactSet was for non-GAAP EPS to increase to $0.55. The stock fell 5.2% in the most recent premarket activity.Operating expenses jumped 47% on a yearly basis to $4.35 billion and rose sequentially as well. "The increase came primarily from significant research and development-related activities, including pre-production ramp costs for new products like the Semi truck, Optimus, Cybercab, and other AI initiatives, as well as the appreciation for an additional compute that we brought online," Chief Financial Officer Vaibhav Taneja said during an earnings call, according to a FactSet transcript.Elevated research and development and capital expenditures for AI projects "dragged meaningfully" on profit and loss margins and cash flow metrics, Truist Securities said in an emailed client note. However, the brokerage believes these investments will "pave the way" for the EV maker's AI transition.Tesla anticipates its operating costs to continue to grow this year and beyond, mainly driven by research and development, as part of its ongoing investment cycle, Taneja said.The auto manufacturer ended the quarter with a negative free cash flow as capital expenditures "more than doubled" from the previous three-month period, Taneja said on the call. The company continues to expect its capital expenditures to be at over $25 billion this year, the CFO added.Tesla's free cash flow is expected to remain negative through the rest of 2026 as the company continues to invest at levels exceeding its operating cash flow, Truist said in its note."(Capital expenditures) will grow for the next two or three years as we expand our Robotaxi fleet, expand our production capacity for Optimus, make investments for semiconductor fab, install solar manufacturing capacity and AI compute infrastructure in addition to all the other expansions we'll do for other manufacturing for automotive," Taneja told analysts.Revenue advanced to $28.24 billion from $22.5 billion in the second quarter, topping the Street's view for $27.28 billion. Automotive revenue climbed 23% to $20.52 billion, while the energy generation and storage segment gained 13% to $3.14 billion. Services and other revenue jumped 50% to $4.58 billion.Earlier this month, Tesla said it delivered 480,126 vehicles in the second quarter, up 25% year over year. The company ended the quarter with its "largest order backlog" since 2023 and plans to increase production at all of its facilities to meet rising demand, Taneja said on the Wednesday call.
$TSLA
