Tesla Stock Tumbles After Big Earnings Miss

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Tesla earnings for the second quarter of 2026 missed Wall Street’s profit forecast even though revenue came in ahead of expectations, and the stock dropped sharply the next day. The selloff came from three connected problems: profit per share fell far short of estimates, gross margins narrowed, and the company spent more cash than it brought in because capital spending more than doubled.

What Tesla reported

Tesla released results Wednesday afternoon. The key figures:

• Earnings per share: 33 cents, against a Wall Street forecast of 55 cents. That is a 22-cent shortfall, or 40% below the consensus estimate, and an 18% decline from the same quarter a year earlier.
• Revenue: $28.2 billion, up 26% year over year and above analyst expectations.
• Gross margin: 16.9%, down more than 2 percentage points from the prior-year quarter.
• Free cash flow: negative for the first time since early 2024, with more than $1 billion burned during the quarter.
• Capital expenditures: nearly $6 billion, more than double the year-earlier level.

On Thursday the shares fell nearly 15% to around $320. That made Tesla the biggest decliner in the S&P 500 that day and left the stock at its lowest level in almost a year. It also brought the 2026 loss to 29%, the worst performance among the Magnificent Seven.

Why profit fell while revenue grew

A revenue beat paired with a profit miss means costs rose faster than sales. Tesla pointed to two pressures on gross margin.

Lower regulatory credit revenue. Tesla earns money by selling emissions credits to other automakers that need them to meet government rules. Because those sales carry almost no production cost, nearly all of the revenue reaches gross profit. When credit revenue shrinks, the margin falls by more than the dollar decline in sales alone would suggest.

Lower average selling prices. Tesla received less per car sold. If the cost to build each vehicle does not fall by the same amount, every sale contributes less profit. A company can grow revenue by selling more cars at lower prices and still report a thinner margin.

The cash burn and Tesla’s spending plan

Tesla’s swing to negative free cash flow was driven by heavier investment in three projects:

• Expanding its Robotaxi fleet
• Scaling production of Optimus, its humanoid robot
• Building its own semiconductor manufacturing facility

Chief financial officer Vaibhav Taneja confirmed that Tesla plans to spend more than $25 billion on capex in 2026, up from $8.5 billion in 2025, which is roughly three times as much. He also said capex is expected to keep rising in the coming years as these programs grow.

That guidance helps explain the size of the stock reaction. A single weak quarter can be put down to timing. A multiyear spending plan that keeps cash flow under pressure changes how investors value the company over several years.

How analysts responded

Morgan Stanley analysts described the higher capex as “a necessary investment to secure leadership in autonomy & robotics.” They still cut their price target to $400 from $417, citing rising capex and worsening cash burn through the end of the decade. The revised target sits about 25% above Thursday’s level of roughly $320, implying a recovery over a longer timeline and with more cash spent along the way.

What to watch in future reports

The results set up a clear test for upcoming quarters. Investors will look at whether gross margin stabilizes as regulatory credits decline, whether average selling prices hold, and how quickly Tesla’s spending on Robotaxi, Optimus and chips turns into revenue. Each quarter until then is likely to be judged on how much cash the company burns relative to its guidance.