TSLA bounced 4% this week but remains 24% lower YTD. Record Q2 deliveries masked a 57% operating income drop as capex surged 142% and Musk's pay package drove costs higher.
Tesla shares rose 4% this week to roughly $345, recovering from a recent 52-week low. The stock is still down 24% year to date and trades at 306 times trailing earnings.
Record Q2 deliveries of 480,126 units beat the 402,776 consensus. Morningstar analyst Seth Goldstein said a full-year decline would be "very hard to see." Adjusted EPS came in at $0.33 versus $0.51 expected. Operating margin compressed to 1.4%. Operating income fell 57%.
Capex hit $5.79 billion in the quarter, up 142% from a year earlier. Free cash flow flipped to negative $1.09 billion. Tesla's 2026 capex guidance is above $25 billion, compared with $8.5 billion last year. Elon Musk told analysts on the July earnings call that "it's okay to be a little less capital efficient if we get things done sooner."
Stock-based compensation tied to Musk's roughly $1 trillion pay package, passed in November 2025 over opposition from the New York State pension system, drove a 47% surge in operating expenses to $4.35 billion. Regulatory credit revenue collapsed to $146 million. Freedom Broker analyst Dmitriy Pozdnyakov estimated U.S. sales likely fell at least 10% in the quarter after the EV tax credit was removed.
Simultaneous bets – Optimus, Cybercab, robotaxi, FSD, Dojo, in-house chip fabrication, lithium refining, cathode production, a Texas solar plant – are funded out of the vehicle business. Robotaxi has scaled to seven U.S. markets with over 380,000 unsupervised miles and no reported incidents, growing more than 10% a week. FSD attach rates cleared 55% of new North American deliveries, with 1.48 million active subscriptions. None of that resolved the margin problem in Q2; it only justifies the spending if execution catches up with scale.
Analyst consensus calls for a target of $396.62. Crowd-sourced prediction markets price a $326.34 target, or roughly 5.8% downside. UBS recently raised its target to $442, citing Optimus, FSD, and Dojo. The more cautious view is that operating margin needs to recover toward double digits, free cash flow needs to turn positive while capex stays elevated, and the board needs a real governance signal – an independent chair, a capital allocation framework, or a succession plan – before the valuation compresses.
The Swedish IF Metall strike ended August 13 after nearly three years. The lineup is aging, with growth riding on the Model Y L six-seater refresh. The auto margin is funding the moonshots, and the moonshots have not yet paid for themselves.
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