Tesla revenue rises as profit margin shrinks to 1.4%
Tesla reported a 26% revenue gain in the second quarter, but higher costs and AI-related spending cut into profits and cash flow.
By Maya Lindqvist · Senior Technology Correspondent
3 min read
Tesla reported stronger second-quarter sales and revenue, but its costs rose faster and its profit margin narrowed sharply. The results show a company still making money from cars, energy products and services while spending heavily on artificial intelligence, robots and robotaxi plans.
In its quarterly financial statement, Tesla said total revenue rose 26% from a year earlier to $28.2 billion. Ars Technica reported earlier in July that Tesla’s vehicle sales increased 25% year over year in the quarter.
The company said its automotive business generated $20.5 billion in revenue, up 23% from the same period last year. Tesla also reported $146 million from automotive regulatory credits, a revenue line that has helped support profits in some earlier quarters.
Ars Technica reported that those credits were abolished in the United States in 2025 with support from Tesla CEO Elon Musk. The latest results show Tesla relied far less on that category than it has during some weaker periods.
Tesla said its energy generation and storage division brought in $3.1 billion, a 13% year-over-year increase. Its services business grew much faster, doubling to $4.6 billion, according to the company.
Ars Technica linked part of that services growth to Tesla’s shift away from a one-time Autopilot purchase and toward a monthly subscription for its Full Self-Driving driver-assistance product. Ars Technica also reported that the product is tied to Musk’s compensation package.
Costs rose faster than revenue
The stronger revenue did not translate into stronger operating profit. Tesla said operating expenses climbed 47% from a year earlier to $4.4 billion, while operating income fell 57% to $398 million.
The company remained profitable for the quarter. Tesla reported $1.1 billion in profit, down 5% from the same three-month period last year. Its profit margin fell to 1.4%, according to Ars Technica’s account of the financial statement.
Capital spending rose even faster. Tesla said capital expenditures increased 142% to $5.8 billion, while free cash flow was negative $1.1 billion.
Ars Technica reported that free cash flow was more than $1.4 billion in the prior quarter. The latest figure was an 848% decline from the year-earlier quarter, though Ars Technica noted that the year-ago comparison was only slightly positive.
Tesla also reported a $1.2 billion loss from investments, according to Ars Technica.
Spending centers on AI, robots and robotaxis
Ars Technica reported that Tesla’s spending focus is not on a new vehicle line or on long-promised solar roof tiles. The company is putting money into artificial intelligence, humanoid robots and additional robotaxi deployments.
In its investor statement, Tesla said it expects to begin production of its humanoid robots later this year. The company also said robotaxi deployments are “in line in seven major metros.”
Tesla acknowledged that at least one of those deployments requires approval from California regulators, according to its investor statement. Ars Technica noted that California regulators have been less permissive than regulators in Arizona, Florida, Nevada or Texas.
The robotaxi push comes amid reported safety incidents in Texas. Ars Technica cited reports by Brad Munchen and Electrek of crashes involving Tesla robotaxis, including one case in Houston involving a teleoperator and a tree stump.
This story draws on original reporting from Ars Technica.