Best or Worst? Tesla 26Q2: Record Sales, Weaker Profits

Key Takeaways

• Revenue rose 26% YoY to US$28.24B.

• Deliveries hit 480,126 units, up 25% YoY.

• Automotive gross margin ex-credits fell to 16.3%.

• Operating margin dropped to 1.4%.

• CapEx reached US$5.79B, causing negative FCF of US$1.09B.

• 2026 CapEx will exceed US$25B.

• FSD paid users reached 1.48M.

• Robotaxi passed 380,000 unsupervised miles with no notable incidents.

• SpaceX gains added about US$1B to Tesla’s net income.

• TSLA fell around 4% after hours as investors focused on margins and cash flow.

Tesla reported strong Q2 2026 revenue and record deliveries, but profit quality was much weaker.

Revenue reached US$28.24B, up 26% YoY and above market estimates. Adjusted EPS came in at US$0.33, below the expected US$0.49.

The result was clear: Tesla sold more cars, but earned less from each dollar of revenue.

Deliveries recovered

Tesla delivered 480,126 vehicles in Q2, up 25% YoY and 34% QoQ.

Production reached 451,758 units. Deliveries were 28,368 units higher than production, helping reduce inventory.

Global inventory days fell from 27 days in Q1 to 15 days in Q2. Tesla also ended the quarter with its largest vehicle order backlog since 2023.

Demand has improved. FSD also appears to be helping vehicle sales.

In North America, around 55% of new deliveries had FSD enabled at delivery. Tesla now has nearly 1.48M paid FSD users, up 56% YoY. Around 45% are subscribers, while 55% bought the service upfront.

Revenue grew faster than profit

Automotive revenue rose 23% YoY to US$20.52B. Deliveries grew 25%, so average revenue per vehicle likely declined.

Automotive gross margin excluding regulatory credits fell from 19.2% in Q1 to 16.3% in Q2.

Total gross margin dropped from 21.1% to 16.8%. Operating profit fell 57% YoY to US$398M, while operating margin declined to only 1.4%.

The margin drop was partly linked to lower prices, product mix, tariffs and the absence of some Q1 warranty benefits.

Regulatory credit revenue also fell to US$146M from US$439M a year earlier.

These numbers explain why the market reacted poorly despite strong revenue and deliveries.

Energy volume was strong, margin was weaker

Tesla deployed 13.5GWh of energy storage, up 53% QoQ and 41% YoY.

Energy revenue reached US$3.14B, up only 13% YoY. Deployment growth was much faster than revenue growth, showing weaker pricing.

Energy gross margin fell from 39.5% in Q1 to 20.4%.

This included a US$240M warranty adjustment linked to older battery-cell issues. Q1 tariff benefits also did not repeat.

Management expects long-term energy gross margin to stay around 20% to 25%.

Demand remains strong, especially for grid balancing and data centres. Still, investors will watch pricing and margin closely.

CapEx caused negative cash flow

Tesla generated US$4.70B of operating cash flow in Q2.

CapEx reached US$5.79B, up 142% YoY and more than double Q1. This pushed free cash flow to negative US$1.09B, the first negative quarter in more than two years.

Tesla ended Q2 with US$43.52B in cash and investments, so liquidity is still strong.

The key issue is the size of future spending.

Management said 2026 CapEx will exceed US$25B and rise further in the second half. Spending will support:

• Robotaxi and Cybercab

• Optimus

• AI computing

• AI chips and Terafab

• Tesla Semi

• Energy storage

• Battery and solar production

Tesla is also preparing debt facilities that may provide up to US$30B of borrowing capacity.

Elon Musk said Tesla should spend on CapEx as fast as possible without becoming too wasteful. He is willing to accept lower capital efficiency if projects can be completed faster.

For investors, the question is how soon this spending can generate profit and cash flow.

Musk focused on autonomy and robotics

Musk said Cybercab has started production. It will operate without a steering wheel or pedals, though delivery timing remains unclear.

Tesla’s Robotaxi service has completed more than 380,000 unsupervised miles across several US cities, with no notable incidents.

Management expects miles driven to grow by more than 10% per week.

Musk also warned that Tesla must scale carefully. A serious accident could create global headlines and trigger tighter regulation.

Optimus will start production soon, but Musk described it as Tesla’s hardest manufacturing ramp.

Most parts, electronics and supply chains are new. Early production may stay low for some time before scaling faster.

Tesla plans up to 1M Optimus units per year at Fremont and has an aspirational target of 10M units per year for a future Austin line.

How SPCX affects Tesla

SpaceX is becoming more important to Tesla after the SPCX listing.

Tesla recorded about US$1B in mark-to-market gains from its SpaceX holdings during Q2. This supported GAAP net income of US$1.11B.

Tesla’s operating profit was only US$398M, so the SpaceX gain had a major impact on reported earnings.

Future SPCX share-price moves may create more volatility in Tesla’s quarterly net income.

The two companies are also working more closely in several areas:

• Terafab

• AI chip development

• Starlink connectivity

• Digital Optimus

• Grok integration

• Robotaxi communications

Musk said a new Terafab location will be announced soon. Equipment has already been ordered for a development fab in Austin.

Tesla wants faster chip design cycles and better control over logic, memory and packaging. This could improve long-term chip supply for FSD, Robotaxi and Optimus.

The risks are higher CapEx, complex related-party deals and possible conflicts between Tesla and SPCX shareholders.

Why TSLA fell after hours

TSLA closed regular trading at US$374.05, down 1.3%. During the earnings call, the stock fell close to US$355, a drop of almost 5%.

The market had already seen the strong delivery numbers.

Investors focused instead on:

• The large EPS miss

• Automotive margin falling to 16.3%

• Operating margin falling to 1.4%

• Negative free cash flow

• CapEx above US$25B

• Unclear timing for Robotaxi and Optimus profits

Tesla showed stronger demand and more AI operating data. It also entered a much heavier investment cycle while its core automotive margin weakened.

The next few quarters will depend on three numbers: automotive margin, free cash flow and revenue from Robotaxi, FSD and Optimus.

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