Tesla Profit Plunges 57%, But Wall Street Sees 29% Upside
Tesla shares plunged 15% after record second-quarter revenue was swallowed by heavy AI spending, yet analysts maintain a consensus buy rating on faith in future robotaxi margins.
Tesla shares fell 15% on Thursday to close at $319.69, nearing a 52-week low, after the electric vehicle maker reported a severe second-quarter profitability squeeze. Despite the sell-off, the 44 analysts covering the stock have kept their consensus buy rating. The average price target remains near $412, implying roughly 29% upside.
The company generated its highest second-quarter revenue ever, reaching $28.2 billion, a 26% year-over-year increase driven by 480,126 deliveries. This pushed trailing-12-month revenue past $100 billion for the first time. However, operating income plummeted 57% to $398 million, shrinking the operating margin to just 1.4%.
The core automotive business remained stable, with the gross margin slipping only modestly to 16.9%. The profit destruction occurred entirely below that line. Heavy capital deployment into artificial intelligence, the robotaxi service, and the Optimus robot program absorbed nearly all margin.
Regulatory credit revenue also collapsed by 67% to $146 million, and stock-based compensation tied to CEO Elon Musk's 2025 pay award further weighed on results. For every dollar of record revenue, barely a penny reached operating profit. The spending surge pushed the company into negative free cash flow of $1.1 billion, marking its first cash-burning quarter in years.
Capital expenditures more than doubled to $5.8 billion, while adjusted earnings per share fell 18% to $0.33. This creates a fundamental tension for investors evaluating the stock. The 29% gap between Thursday's close and the average analyst target does not reflect a valuation discount on Tesla's current manufacturing operations.
Rather, it quantifies Wall Street's continued willingness to underwrite a future dominated by high-margin software and a scaled robotaxi network. For market professionals, the quarterly results expose the limitations of traditional auto manufacturing metrics when applied to Tesla. Whether the drop represents a buying opportunity depends entirely on an investor's tolerance for funding that AI transition out of current operating cash flows.
