Tesla’s core EV business continues to weaken — but the company (and investors) are all in on AI and robotaxis as its future
Dhiraj Singh/Bloomberg via Getty Images
Tesla $TSLA keeps chugging along — but in exactly the wrong direction. The company’s quarterly earnings report, released after the bell on Wednesday, had it all: disappointing revenue, crunched margins, and cratering income. The culprit? Fewer car sales, lower average selling prices, and rising expenses tied to CEO Elon Musk’s growing AI ambitions. And ambitions don’t pay the bills — at least not yet.
The numbers were almost exactly as bad as Wall Street’s already low expectations. The company posted the steepest drop in quarterly revenue in over a decade: $22.5 billion in revenue, slightly above Wall Street analysts’ consensus expectations of $22.3 billion but down from $25.5 billion a year earlier. Tesla’s earnings per share came in at $0.40, matching the anticipated $0.40. Net income fell about 16% year-over-year to around $1.17 billion, while operating margin narrowed to 4.1% from 6.3% a year earlier. Operating income cratered 42% to less than $1 billion. The company’s finances were helped by a $439 million sale in regulatory credits — credits that are expected to soon disappear.
The stock slid almost 5% in after-hours trading following the earnings call after originally rising around 1% after the shareholder deck was released. Shares are down over 12% this year as the second-quarter earnings came on the back of disappointing first-quarter earnings, too.
A muted Musk said on the post-release earnings call that he’s working on a new “master plan” for his company and mentioned that “teething pains” are expected as the world makes the transition to a post-autonomy world. Tesla has published so-called master plans in 2006, 2016, and 2023. Musk added that his company is in a “weird transition period” and could have “a few rough quarters.”
A major focus on the post-earnings call was Tesla’s robotaxis, which were finally launched in Austin, Texas, about a month ago. The autonomous hype is largely driving the company’s stock price (according to RBC, the robotaxis represent about 60% of Tesla’s long-term valuation model), and Tesla bull Dan Ives sees the EV-maker as “a transformational AI play disguised as an auto company.” Musk said on the earnings calls that the company is looking to expand its robotaxis into San Francisco, Florida, and Nevada. Ashok Elluswamy, the company’s vice president of AI, said the company is operating “a handful of vehicles” that have driven over 7,000 miles in Austin so far.
Musk is, of course, bullish about his company’s autonomous future. He said Tesla is “much better than Google $GOOGL” (and its autonomous offering, Waymo) at real-world AI. And Musk says a robotaxi fleet is coming soon — although investors have heard that before. “I think we’ll probably have autonomous ride-hailing in, like, half the population of the U.S. by the end of the year,” he said on the earnings call. “That’s at least our goal, subject to regulatory approvals.”
The CEO said people will be able to add their cars to Tesla’s robotaxi fleet starting “next year,” but he hasn’t “thought hard” about non-Tesla vehicles entering the network.
Still, Musk didn’t have much on the call to say about his company’s core business: car sales.
In the second-quarter shareholder deck, Tesla said it still plans to build a more affordable model, claiming that “first builds” happened in June and that the company expects “volume production” of the vehicle in the second half of the year. On the call, the company’s leadership played coy about the long-promised car. The lower-cost vehicle is supposed to be a sub-$30,000 EV built on a next-gen platform that is cheaper, faster to produce, and jammed with autonomy features — Musk confirmed on the call that it will look like the Model Y. At the moment, Tesla’s least-expensive EV is the Model 3 sedan, which starts at around $43,000.
Tesla also said that both the Tesla Semi and the Cybercab — still under development — are expected to enter volume production next year. But macroeconomic headwinds could affect any production; the company said its tariff costs increased to around $300 million.
“It is difficult to measure the impacts of shifting global trade and fiscal policies on the automotive and energy supply chains, our cost structure and demand for durable goods and related services,” Tesla said in the shareholder deck. “While we are making prudent investments that will set up both our vehicle and energy businesses for growth, the actual results will depend on a variety of factors, including the broader macroeconomic environment, the rate of acceleration of our autonomy efforts and production ramp at our factories.”
Tesla also posted a quarterly decline in its energy generation and storage business — 7% to $2.8 billion — but the company said in the shareholder deck that the “energy business is more critical than ever.” That’s partially because of the AI boom.
“The availability of clean, reliable energy is necessary for economic growth and an imperative for the development and commercialization of AI enabled products and services,” the company said. “As electricity demand grows, our Megapack product helps to increase utilization of existing generation and transmission capacity, resulting in a more efficient use of the electric grid.”
On the call, Musk said the energy business is “growing very well despite headwinds from tariffs and supply chain challenges.” He added that batteries are a “massive thing” and that they alone can help double the U.S.’ energy output — which is “a really big deal.”
Analysts had largely expected wild results amid a rocky quarter for the company. Tesla’s fundamentals — its core car business — are weakening. Deliveries, reported earlier this month, showed Tesla’s steepest quarterly decline on record and may have been blunted still by sales of the refreshed Model Y. Margins have taken a hit, too: Automotive gross margin slipped as overall operating income plunged ($923 million versus $1.23 billion expected), leaving margins dangerously thin. The company just saw its sales in California’s crucial EV market fall by over 20%. Top executives have left the company. And Musk has found himself in the headlines for all the wrong reasons, largely tied to his recent announcement that he’s starting a political party amid his feud with President Donald Trump.
Investors haven’t been happy.
Some have publicly called for Musk to be forced to devote more time to Tesla. Others have called Musk’s outside commitments a “soap opera.” (Musk’s response on X $TWTR? “Shut up.”) Musk said on the earnings call that the fact that he only has a 13% stake in the company is a “major concern” and said he’s worried about being ousted by activist investors. He hopes, he said, that his stake will be addressed at the November shareholder meeting.
“I think my control over Tesla should be enough to ensure that it goes in a good direction but not so much control that I can’t be thrown out if I go crazy,” Musk said.
UBS recently reiterated its “Sell” rating, calling Tesla “fundamentally overvalued” and warning that the company is leaning harder than ever on hype. Before the earnings, JPMorgan $JPM had a $115 price target — far below current trading levels of around $330 — and said it sees no near-term catalyst to justify the premium. Meanwhile, William Blair recently downgraded the stock to “Market Perform,” warning of concerns that “may be too much for investors to bear.”
Based on Wednesday’s earnings, those concerns are more than justified.
Tesla said in the earnings release, “Q2 2025 was a seminal point in Tesla’s history: the beginning of our transition from leading the electric vehicle and renewable energy industries to also becoming a leader in AI, robotics and related services.” That narrative isn’t yet showing up in the numbers, but that’s not dampening Musk’s enthusiasm about the future. “I think Tesla has a shot at being the most valuable company in the world,” he said on the call.
But for now, the company’s soft earnings seem to be further evidence that Tesla is running out of road.
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