Tesla shares slide after Musk defends costly expansion plans

Tesla shares dropped in after-hours trading after the electric vehicle maker reported weaker-than-expected second-quarter profits and Chief Executive Elon Musk defended large capital spending on expansion and technology projects.

Key earnings figures

Tesla reported second-quarter profits of $1.1 billion, down about 5% from the year-ago level. That translated into 33 cents per share, compared with analyst estimates of 53 cents per share. Revenues rose 26% to $28.2 billion.

Profit drivers and costs

The earnings release cited several factors that dented profitability: lower vehicle sales prices, lower revenue from regulatory credits and unspecified “energy warranty-related charges”. Capital expenditures more than doubled to $5.8 billion for the quarter compared with the year-ago period.

Musk defends rapid expansion

On the conference call, Musk characterised Tesla’s construction push as probably the United States’ “fastest industrial scale up since World War Two.” He framed spending as a priority, saying:

“We should be spending on capex as fast as we can spend… without it being too wasteful. It’s OK to be a little less capital efficient if we get things done sooner.”

Ambitious projects

Tesla is participating with Musk’s other ventures, SpaceX and xAI, in Terabab, described in the report as a $20 billion project in Austin billed as “the most epic chip-building effort ever.” The company said expansion progress was in line with plans and highlighted production developments, including the start of Cybercab production in Texas and that production of the Tesla Semi truck “remains on track” for 2026.

Technology bets and metrics

The company reported gains in subscribers to its FSD driver-assistance program, which boosted revenues. Musk faced analyst questions about scaling Tesla’s robotaxi venture and reliability benchmarks, replying:

“How many nines of reliability do you need to scale? Ideally, you want 99.99999, you know, percent reliable.”

Market reaction and scrutiny

Analysts and investors raised questions about the return on the heavy spending. CFRA Research analyst Garrett Nelson said concerns about the spending were a drag on Tesla shares and that the company “just haven’t been very transparent with the Street on the expected return of the dollars that have been spent.” Tesla’s Chief Financial Officer Vaibhav Taneja said the company expects operating expenses driven by research and development to “continue to grow in 2026 and beyond.”

The report came after Musk successfully took SpaceX public in June$1 trillion when SpaceX shares soared in their initial sessions. The report noted SpaceX’s valuation at around $1.5 trillion and said that the possibility of transactions between SpaceX and Tesla has generated significant speculation among investors. Musk said there were “many collaborations” between Tesla and SpaceX but that combining companies “has got to be done with the appropriate process.”

Share movement

Following the earnings report and the conference call, Tesla shares dropped 4.1% in after-hours trading.