Tesla 10-Qquarter ended 2026-06-30
Mixed
AI spending and compensation squeezed operating profit despite recovering deliveries; a SpaceX valuation gain cushioned earnings.
Filed 2026-07-22 21:02 ET
Key figures · Q2 FY2026 · period ended 2026-06-30
- Revenue$28.2BYoY +25.5%QoQ +26.1%
- Operating income$398.0MYoY −56.9%QoQ −57.7%
- Net income$1.1BYoY −4.9%QoQ +133.5%
- Total assets$148.5BYoY +15.5%QoQ +3.3%
- Total debt$9.3B1YoY +29.4%QoQ +1.2%
How total debt adds up Current portion of debt and finance leases $1,418M + Debt and finance leases, net of current portion $7,924M Total debt $9,342M Lines as the filer presents them on its balance sheet.
- Shareholders' equity$86.9BYoY +12.3%QoQ +3.3%
- Tangible book value$86.9B2YoY +12.9%QoQ +3.3%
Notes (2)
- Total debt: Current and long-term debt combined with finance leases -- this filer's own balance-sheet lines, not a standard concept.
- Tangible book value: No goodwill is reported. No intangible assets are reported.
How this filing reads
- Health+0.5Cash and short-term investments were $43.5B against $9.34B of debt, with an undrawn $5B facility.
- Momentum−0.5Q2 revenue rose 26%, while operating income fell 57% and operating margin dropped to 1.4%.
- Outlook0.0FY2026 capital expenditures exceed $25B, while returns from AI and autonomy investments remain unestablished.
Executive Summary
Tesla’s Q2 revenue recovery did not translate into operating leverage: revenue rose 26%, but operating income fell 57% as AI investment, compensation and other expenses outpaced gross-profit growth. Reported earnings were cushioned by a $1.00B SpaceX valuation gain and a $274M tax benefit, making operating income a clearer indicator of underlying performance. Automotive deliveries and services drove growth, while energy storage’s higher sales came with sharply lower margins. Tesla has substantial liquidity, but planned FY2026 capital expenditures exceeding $25B make investment execution, cash conversion and shareholder dilution decisive investor considerations.
Key Financial Highlights
| Metric | Q2 2026 | H1 2026 / balance at 6/30/2026 | Investor interpretation |
|---|---|---|---|
| Revenue | $28.2B; +26% Y/Y | $50.6B; +21% Y/Y | Delivery recovery and services expansion drove growth. |
| Gross profit | $4.75B; +23% Y/Y | $9.47B; +35% Y/Y | Q2 gross margin slipped 40 bp despite stronger sales. |
| Operating income | $398M; −57% Y/Y | $1.34B; broadly flat Y/Y | Q2 operating margin fell to 1.4% from 4.1%. |
| GAAP net income | $1.11B; −4.9% Y/Y | $1.59B; broadly flat Y/Y | Non-operating items softened the operating-profit decline. |
| Diluted EPS | $0.32 vs $0.33 | $0.45; unchanged | Revenue growth did not improve per-share earnings. |
| Total assets | — | $149B | Infrastructure expansion increased capital intensity. |
| Stockholders’ equity | — | $86.9B | A substantial equity base supports investment capacity. |
- Cash conversion: H1 OCF $8.63B vs net income $1.59B; capital expenditures, excluding finance leases and net of sales, $8.28B → FCF $352M. OCF benefited from a $3.34B increase in accounts payable, accrued and other liabilities, while inventory absorbed $1.66B; working-capital funding explains part of the earnings-to-cash gap.
- Liquidity and funding: Cash and short-term investments $43.5B, broadly flat since year-end; debt and finance leases carrying value $9.34B vs $8.38B, plus an undrawn $5.0B revolving facility. Current liquidity provides flexibility, but rising investment requirements can exceed internally generated cash.
- Compensation and dilution: Stock-based compensation expense $1.15B in Q2 and $2.18B in H1, both +81% Y/Y; shares outstanding rose 5.3% to 3.95B from year-end. Compensation is a material operating cost and ownership-dilution exposure.
- Earnings adjustments: Q2’s $1.00B SpaceX fair-value gain contributed to other income, net of $590M, indicating substantial offsets elsewhere. Separately, a California tax-law change triggered a $274M valuation-allowance release; neither item represents operating improvement.
Business Developments
Automotive sales benefited from higher deliveries and an easier comparison against prior-year Model Y factory changeovers. Services and other revenue rose 50% in Q2, driven by used vehicles, repairs and paid Supercharging, diversifying revenue beyond new-vehicle sales; regulatory-credit revenue fell 67% to $146M.
Energy revenue increased 13% in Q2, but gross profit declined 24% as lower Megapack selling prices, higher costs and warranty adjustments compressed margins. Longer-term energy contracts carry $10.1B of remaining performance obligations, including $4.56B expected within 12 months, providing visibility but not guaranteeing profitability.
Management is prioritizing autonomy, Robotaxi, Cybercab, Optimus and AI infrastructure alongside vertical integration. Cybercab production began in H1; AI infrastructure assets increased to $10.8B from $6.82B at year-end. Tesla also invested $2.00B in SpaceX and acquired an AI hardware company using $1.95B in common stock and equity awards, most subject to service or performance conditions—expanding technology capabilities while increasing capital-allocation and compensation exposure.
Risk Assessment
- Investment execution: FY2026 capital expenditures exceeding $25B require a substantial spending acceleration, creating funding pressure if AI, autonomy and manufacturing investments fail to generate timely returns.
- Compensation variability: The CEO performance award has $9.82B of unrecognized compensation tied to a milestone deemed probable; additional milestone determinations could materially increase expense and dilution.
- Energy and supply-chain economics: Energy inventory rose to $4.12B from $2.71B; tariffs, battery-cell constraints and project timing can delay conversion into sales while worsening margins.
- Autonomy litigation and regulation: The Benavides jury awarded $129M compensatory and $200M punitive damages; Tesla appealed and recorded an immaterial accrual, leaving legal and deployment uncertainty.
- Currency and valuation volatility: An adverse 10% currency movement implies a $1.64B pre-tax earnings impact; largely unhedged currency exposure and investment revaluations can overwhelm operating-profit changes.
- Vehicle residual and warranty exposure: Maximum resale-value guarantees reached $4.07B, while warranty liabilities rose to $8.96B, increasing sensitivity to used-car values and product-service costs.
This 10-Q lists no risk factors of its own and refers to the annual report. The risks above come from the rest of this filing. Full list: FY2025 10-K.
Strategic Outlook and Investor Actionables
Tesla is allocating resources toward AI-enabled businesses before their returns are established. The investment thesis requires growth to produce sustainable operating profits and cash flow, not merely higher deliveries or valuation gains.
- Operating leverage: Monitor operating margin and expense growth; revenue growth exceeding expense growth would validate improving economics.
- Funding discipline: Track capital expenditures, FCF and liquidity as spending accelerates; sustained working-capital dependence would weaken cash-conversion quality.
- Commercial execution: Track energy margins and contract conversion alongside autonomy commercialization; growth with improving margins would support returns on expanded infrastructure.
Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.
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