For investors, Tesla’s earnings update for the second quarter was always going to be a case of avoiding discussions about weak auto sales and focusing the positives - but what were they?

Musk was unusually candid about the situation for core auto sales, warning that the company could face “a few rough quarters”.

He said: “We probably could have a few rough quarters. I’m not saying we will, but we could – you know, Q4, Q1, maybe Q2, but once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I think I’d be surprised if Tesla’s economics are not very compelling.”

Q2 numbers were a bit of a wreck but this had been well discounted already because we have seen the decline in deliveries ahead of the results. Earlier this month Tesla reported a 14% decline in vehicle deliveries for the second quarter. This morning official figures showed Tesla sales in the EU down by a third. Model 3/Y production rose 3% but other models were down 45% - the lack of a clear roadmap for new models should be a concern given declining market share and increased competition. EV sales are surging globally but Tesla is missing out.

And Tesla is basically giving up on guidance for vehicle sales and lost confidence in returning to growth. After Q1 deliveries fell sharply Tesla said it would update guidance with the Q2 numbers but has not done so and apparently abandoned language referring to being between two growth waves for vehicle sales. It also flagged tariff and supply chain issues affecting deliveries in the second half.

The company said in its Q2 report: “It is difficult to measure the impacts of shifting global trade and fiscal policies on the automotive and energy supply chains, our cost structure and demand for durable goods and related services. While we are making prudent investments that will set up both our vehicle and energy businesses for growth, the actual results will depend on a variety of factors, including the broader macroeconomic environment, the rate of acceleration of our autonomy efforts and production ramp at our factories.”

Total revenue decreased 12% year on year to $22.5 billion.Operating income decreased 42% to $900mn, resulting in a 4.1% operating margin. EPS at $0.40 missed expectations for around $0.42. Gross margin held up a touch better than expected at 17.2% vs estimated 16.5%, a decline from 18% a year before.

Auto revenues declined 16% to $16.7 billion in the second quarter. Of that, revenue from sales of auto regulatory credits declined to $439 million from $890 million a year earlier. 

The stock was flat in the after-hours session following the initial release of the earnings, but then fell after finance chief Vaibhav Taneja started talking about the hit to the business from the passing of the “big beautiful tax bill”, which ends a $7,500 Federal EV credit. 

But I guess, who cares about EV credits when Tesla is going to be a leader in AI and robotics? The bull case is increasingly predicated on this assumption. 

Because auto sales are contracting so sharply, Tesla wants to convince us it’s an AI and robotics company. Tesla said Q2 marked a seminal moment as it transitions from an “EV leader to AI and robotics leader”. 

Is it? 

Influential analyst and long-term Tesla cheerleader Dan Ives called Elon Musk a "wartime CEO", adding that Tesla's autonomous and robotics vision is starting "to take shape."  He reiterated his bullish call on the stock and added that “Tesla and Nvidia remain our 2 best physical AI plays over the next few years”.

Ives reckons AI and robotics will be worth $1 trillion to the value of Tesla - which is about its market cap as of today. 

Musk said Tesla Robotaxi will cover half of US population by end of the year - given the tentative rollout in Austin is all we have so far, the claim does not really stack up. That would mean rolling out full FSD robotaxis in every major US city in the next 5 months. Autonomy has been touted for years and still has not been delivered - the current service in Texas requires a Tesla employee in the car still. Alphabet’s Waymo looks light years ahead.

Energy generation and other services

These were some rare bright spots on the report. Gross profit from the energy generation and storage business increased sequentially and year-over-year, reaching a record $846 million, albeit revenues from this bit of the business were actually down 7% year-on-year due to a decline in average selling prices. Services and other gross profit grew 64% sequentially, and 17% year-on-year, partly due to improved Supercharging gross profit generation from increased volume as Tesla grew its network 18% year-over-year.