Tesla Q2 2025 Preview: Possible Cash Burn

Costs for the refreshed Model Y likely rose more than prices & Megapack margins were likely squeezed by tariffs.

Q2 2025 is the most challenging quarter for estimating earnings at Tesla, given the number of large moving parts: US tariffs, the first full quarter of refreshed Model Y sales, and changes in cell procurement for Tesla’s Megapack production in the US.

• With generous estimates, Q2 2025 non-GAAP EPS should be $0.35 or 20% below consensus estimates of $0.44 (see details below and earnings estimates in Figure 5).

• Full quarter of refreshed Model Y sales likely led to higher prices: While Q1 saw downtime at all 4 of Tesla’s factories due to the retooling of lines for the Model Y refresh, Q2 saw its first full quarter of sales. This means that prices should be up sequentially in Q2, given that old Model Ys were being sold at steep discounts to clear inventories for the refreshed Model Y in Q2.

• Higher sales of the Model Y also should’ve led to higher costs: While the old Model Y was sold at bargain prices in Q1, its costs were also much lower than the new version, given how much of its equipment and tooling had been depreciated over the 5 years since its launch. This means costs are also up in Q2 versus Q1, given higher depreciation and start-up costs (see the correlation below in Figure 1).

• Energy business likely saw a big drop in profitability: Tesla’s Energy division makes the bulk of its profits from Megapacks, or large-scale energy storage units, which import LFP battery cells from China. Trump’s tariff on Chinese imports was 125% for the first half of Q2, but then dropped to 10% for the second half of the quarter. Unless Tesla had ample inventory of LFP cells from Q1 (inventory analysis shows it probably didn’t), Tesla’s Energy business likely saw a big margin squeeze in Q2. The Street is likely overlooking this point, and my Energy gross profit estimates drop by 22% QoQ and 17% YoY to $616 million in Q2.

• Free cash flow (FCF) could be negative: While Tesla’s operating cash flow is likely manipulated (see Figure 3 below), capex should be high in Q2, given the low level in Q1, and Tesla’s reiterated plan for “over $10 billion” in full-year capex plans. Due to higher inventories in Q2 and already stretched payables in Q1, Tesla could see negative FCF in Q2.

• Stock price may not soar again on bad numbers like it did in Q1: After reporting a 29% EPS miss in Q1 and its first operating loss (ex-credits) in 5 years, Tesla shares rallied by 52% over the next 5 weeks (see figure 4 below). This makes it difficult to be short the shares in size ahead of what could be equally or worse Q2 numbers. However, unlike Q1, there is no robataxi event to look forward to from here, and only the bad memories of how badly the Austin rollout went in June.

Auto Gross Margins Should Still Be Weak Despite Higher Prices

Q1’s average selling prices (ASPs) fell by 0.9% QoQ due to Tesla clearing out inventories of its old Model Y ahead of its February launch of the refreshed version. Costs/unit in Q1 rose by 0.7% QoQ due to 3 to 4 weeks of downtime at all 4 of Tesla’s factories worldwide in preparation for the refreshed Model Y launch.