Tesla’s revenues are bouncing back, but profits are still weak

After a dismal two years of weakening demand, falling sales, and damage to its brand by Elon Musk’s political activities, Tesla’s road to recovery continues apace. On the heels of an impressive delivery report, the company released its earnings for the second quarter of 2026 — giving us the latest glimpse at the EV company that Musk has said he wants to transform into a leader of AI and robotics.

Despite that mission, Tesla remains a car company. And in the second quarter, it sold an impressive 480,126 vehicles, about a 25 percent increase compared to the second quarter of 2025. (For a direct-to-consumer company like Tesla, deliveries are a proxy for sales.)

Tesla certainly did a good job shrinking its inventory, which is good for the balance sheet. But what about those numbers?

Tesla said it earned $1.11 billion in net income on $28.2 billion in revenue in the quarter that ended June 30th. That’s a 26 percent increase in revenue but a 5 percent increase in profits over the second quarter of 2025, when the company earned $1.17 billion in net income on $22.5 billion in revenue. Tesla exceeded revenue expectations from Wall Street, which assumed approximately $26.4 billion in revenue.

But there were still signs of trouble. The company reported negative free cash flow of $1.1 billion, a sign that Tesla’s operating revenues are insufficient to cover its capital expenditures. Basically, Tesla is spending more — on AI infrastructure, robotics, and manufacturing — than its earning on car sales and energy installations. Last year, some analysts predicted that negative free cash flow could trigger a steep drop in share price. (Tesla’s share price is down 14 percent so far this year.) The company said it had $43.5 billion in cash on hand.

In a shareholder deck, Tesla said it “generated over $100B in revenue on a trailing twelve-month basis for the first time.” It also touted Cybercab production at its Gigafactory in Texas, and said Tesla Semi production “remains on track” at its Nevada facility later this year. And it said it began construction for its Optimus humanoid robot production at the factory in Fremont after decommissioning the assembly line for the Model S and X.

“Tesla is in its largest and most exciting period of investment,” the company states. “From here, there remains much hard work as we aim to revolutionize transportation, energy and productivity through our leading real-world AI. Scaling will be non-linear, and we are focused on long-term value creation. We’ve never been more optimistic about the future.”

Automotive gross margins, which measures revenue minus the direct cost of manufacturing the vehicle, remains an important number for Tesla. They fund the company’s multi-billion dollar investments in AI, autonomous driving, and robotics, while also providing a buffer for Tesla to slash vehicle prices when demand slumps.

In the second quarter, Tesla said its automotive gross margins were 16.3 percent, minus revenue from the sale of regulatory credits (a revenue stream that will soon cease to exist, after the Trump administration’s elimination of penalties for automakers who exceed emission standards). That’s up over the 15 percent margins in Q2 2025, but down from 19.2 percent in Q1 of this year.

Tesla’s energy business remained a bright spot for the company. It reported $3.1 billion in energy generation and storage revenue, a 13 percent increase over the same period in 2025.

The earnings report is the latest evidence that Tesla was starting to turn the corner on a dismal two years of declining sales and falling profits. It also comes as the company faces tough questions about its slow progress in expanding its robotaxi operations. Tesla’s autonomous vehicle project has fallen far short of Musk’s prediction of covering 50 percent of the US population by the end of 2025. The company recently launched robotaxi operations in two Florida cities, Orlando and Tampa, but a crowdsourced tracker shows only a handful of cars were available.

Tesla rolled out a new update to Full Self-Driving (v14 Lite) for its vehicle owners, bringing personalized driving preference learning to individual Teslas. But the number of crashes involving Tesla drivers using Autopilot and FSD continues to grow at an alarming rate, with Electrek reporting 207 crashes in May 2026 alone.