Tesla's profit fell more than expected in the second quarter as discounts used to stimulate vehicle demand and declining regulatory credit revenue pressured profitability.
The US electric vehicle maker reported Wednesday that net income declined 17% year-on-year to $1.2 billion in the three months through June, below analysts' expectations.
Revenue, however, increased 26% to $28.2 billion, exceeding market estimates, after the company delivered a record 480,126 vehicles during the quarter.
Tesla shares dropped around 4.1% in after-hours trading following the results.
The company lowered vehicle prices to support sales after demand weakened last year. Its automotive gross margin, excluding regulatory credits, stood at 16.3%, below market expectations of 18.7%.
Tesla's overall operating margin narrowed to 1.4% from 4.1% in the corresponding period last year.
Revenue from selling regulatory credits to other automakers declined to $146 million from $439 million, partly reflecting changes to US policies supporting electric vehicle production and purchases.
The company's capital expenditure jumped 142% year-on-year to $5.79 billion as it increased investment in artificial intelligence, autonomous vehicles, humanoid robots, advanced semiconductors and computing infrastructure.
Higher spending contributed to negative free cash flow of $1.1 billion, marking Tesla's first quarterly cash burn in two years.
Tesla expects to invest more than $25 billion during 2026, compared with $8.5 billion last year. The company also secured debt facilities allowing it to borrow as much as $30 billion to support its investment program.
Net income calculated under generally accepted accounting principles declined 5% to $1.1 billion.
Tesla has been gradually expanding its robotaxi operations in Texas and Florida and began producing its fully autonomous Cybercab electric vehicle in February. The company does not expect the robotaxi business to generate significant revenue before next year.
