Tesla sold more cars in the second quarter, and the extra volume showed up in revenue. The problem for shareholders is the other side of the statement: Elon Musk’s company spent much more at the same time, leaving a thinner profit margin and negative free cash flow.
According to Tesla’s quarterly financial statement, total revenue rose 26 percent from a year earlier to $28.2 billion. Its automotive business generated $20.5 billion, up 23 percent year over year, after Tesla’s deliveries rose 25 percent in the quarter.
That would usually be the happy part of the spreadsheet. Tesla’s margin, however, has been compressed to 1.4 percent. The company reported $398 million in operating income, down 57 percent from the same quarter last year, while operating expenses rose 47 percent to $4.4 billion.
Tesla remained profitable, reporting $1.1 billion in net income for the quarter. That was still 5 percent below the comparable period last year.
Services helped, credits did not
Tesla’s regulatory credit revenue was no longer a major cushion. The company said automotive regulatory credits contributed $146 million in the quarter. Those credits had helped Tesla in weaker periods, but U.S. credits were abolished in 2025, a policy shift that Musk backed, according to prior reporting by Ars Technica.
Other Tesla businesses grew faster than cars. The company’s energy generation and storage unit brought in $3.1 billion, a 13 percent increase from a year earlier. Services revenue doubled to $4.6 billion.
One driver of that services line was Tesla’s move toward charging monthly fees for its Full Self-Driving system, the company’s partially automated driver-assistance software. Ars Technica has reported that Tesla discontinued Autopilot in favor of FSD subscriptions, creating recurring revenue tied to Musk’s compensation targets. The system remains controversial because it does not make the car autonomous, despite the name doing its usual marketing calisthenics.
Cash flow moved the wrong way
Tesla’s capital spending jumped 142 percent to $5.8 billion. Free cash flow fell to negative $1.1 billion, compared with more than $1.4 billion in the prior quarter. Tesla also recorded a $1.2 billion loss on investments.
The company’s stated spending priorities remain centered on artificial intelligence, humanoid robots and robotaxis, rather than a new mainstream vehicle line or the long-promised solar roof tiles. Tesla told investors it expects to begin production of its humanoid robots later this year.
Tesla also said robotaxi deployments are “in line in seven major metros.” The company acknowledged that at least one launch depends on approval from California regulators. That is a nontrivial caveat: California has been less permissive toward autonomous-vehicle rollouts than states such as Arizona, Florida, Nevada and Texas.
The Texas robotaxi effort has already drawn scrutiny. Brad Munchen has tracked 22 collisions involving Tesla robotaxis in Texas, and Electrek reported one Houston incident involving a remote operator and a tree stump.
The quarter leaves Tesla with a straightforward tension. Its car business is still the revenue engine, services are growing quickly, and energy is contributing. Musk is spending heavily on bets that are further from Tesla’s current profit pool, while the cost line is doing exactly what cost lines do when nobody restrains them.
This story draws on original reporting from Ars Technica.
