Tesla's stock price plummeted over 13% after earnings, with Wall Street citing AI investments as a drag on profits and cash flow, while the robotics business becomes a key factor in valuation

According to Zhitong Finance APP, after Tesla (TSLA.US) announced its second-quarter results, despite record high revenue and vehicle deliveries, concerns arose in the market due to declining profit margins, negative free cash flow, and a significant increase in capital expenditures. As of the time of writing, the company's stock price has plummeted over 13%. Several Wall Street institutions believe that Tesla is entering a phase of large-scale investment in artificial intelligence (AI) and robotics, which will pressure short-term profits, but Robotaxi and the Optimus humanoid robot remain core factors determining the company's long-term valuation.

JP Morgan analyst Rajat Gupta stated that as investments in areas like AI continue to increase, market expectations for Tesla's future profitability are still being revised downward, and the stock price is expected to remain in a range-bound fluctuation in the short term. However, with the gradual rollout of Robotaxi, accelerated production of Cybercab, and a renewed growth in vehicle sales, there remains potential for a turning point in the company's earnings per share (EPS) and a reassessment of its sum-of-the-parts (SOTP) valuation.

Morgan Stanley analyst Andrew Percoco believes that Tesla is accelerating capital expenditures to consolidate its leading position in autonomous driving and robotics. While these investments are necessary, they have also led to further deterioration in free cash flow, making the market more focused on whether the Robotaxi and Optimus projects can achieve substantial progress as planned. Due to rising cash consumption pressures, the firm has lowered Tesla's target price to $400.

Needham analyst Chris Pierce stated that Tesla's long-term logic for autonomous driving has been further strengthened, with continued growth in Full Self-Driving (FSD) users, and the production plans for Cybercab and Optimus have been reaffirmed. However, the company's automotive business profit margins are below market expectations, and with Rivian (RIVN.US) set to launch its R2 model, the Model Y will face its first real direct competition. Additionally, the energy business has also underperformed expectations, and in the context of continued increases in capital expenditures and uncertainties regarding AI project returns, the company's traditional business faces greater pressure.

Seeking Alpha analyst Sandeep G. Rao pointed out that although Tesla delivered 480,100 vehicles in the second quarter, a year-on-year increase of 25%, this was mainly driven by significant price cuts and consumer incentives, resulting in a decline in automotive gross margin to 16.3% after excluding regulatory credits.

He also noted that adjustments to U.S. tax policies have weakened the economic advantages of purchasing electric vehicles compared to gasoline vehicles, while Tesla is entering what Musk calls "the largest investment cycle in history." The company's capital expenditures in the second quarter increased more than double year-on-year to $5.79 billion, and total capital expenditures for 2026 are expected to exceed $25 billion.

Currently, Tesla is aggressively expanding its Cortex 2 AI supercomputer cluster, enhancing its collaboration with SpaceX (SPCX.US) on the Terafab chip development project, and accelerating the construction of Robotaxi and Optimus production lines Rao believes that Tesla is gradually transforming from an automobile manufacturer into a technology group "centered on AI, with automotive business as a component." The market currently remains cautious about the long-term investment returns of AI, similar to the recent market performance of AI supply chain companies like ASML (ASML.US) and TSMC (TSM.US). As the profit margins of its core automotive business continue to be under pressure and the returns on AI investments will take years to materialize, Tesla's valuation may still be further suppressed in the coming trading days.

Dhierin Bechai, head of the investment portfolio at The Aerospace Forum, stated that Tesla's revenue across all business segments achieved steady growth in the second quarter. However, the decline in average selling prices, a drop in gross margins, and a significant increase in operating expenses led to a 4% year-on-year decrease in adjusted EBITDA, indicating that revenue growth has not effectively translated into profit growth.

He pointed out that the number of FSD subscription users is nearing 1.5 million, and there has been positive progress in regulatory approvals in the European market. Meanwhile, the Optimus humanoid robot has begun constructing production lines at the Fremont factory, but there is still a long way to go before mass production and commercialization.

Bechai also noted that it is worth mentioning that Tesla did not cite the weak macroeconomic environment as the main reason for the profit decline, but rather reflects the impact of product price reductions and ongoing high-intensity AI investments on profits. Overall, the company continues to prioritize AI, semiconductors, and the Optimus robot as key areas for future development, which also means that Tesla is increasingly positioning itself as a technology company rather than a traditional automobile manufacturer