Tesla's Q2: Mind the Margin Squeeze
Cost headwinds and removal of Q1 one-offs should cause margins to deteriorate; All eyes on Musk's robotaxi guidance.
SpaceX gains could inflate EPS: Tesla reports Q2 earnings results on Wednesday, July 22, and should see non-GAAP EPS of $0.41, which is 25% below consensus estimates of $0.55 (see Figure 6 below). My assumptions see a $1.25 billion gain on SpaceX shares at Q2-end being stripped out of non-GAAP EPS, as Ford did with its Rivian from January 2022. If Tesla chooses to keep its SpaceX gains in its non-GAAP EPS, my estimates would rise to $0.68. The Tesla-compiled consensus estimates don’t seem to be factoring in any SpaceX gains (more below).
Q2 fundamentals appear weak, despite 25% YoY delivery growth: It’s hard to get too excited about Tesla’s Q2 earnings, given huge headwinds from surging prices of memory chips, battery cells, logistics, and unfavorable forex conditions. However, the results are less important than what Musk guides for on Tesla’s floundering robotaxi rollout.
The earnings call could get heated this quarter: Investors' questions in the queue for Elon Musk on Say.com are unusually sharp this quarter. Two top-voted questions regarding failed robotaxi promises were pushed down the rankings by a large investor with nearly 5 million shares (questions rise or fall based on votes weighted by one's shareholding size), who instead boosted two softball questions for Musk about Optimus and robotaxi constraints (more details below).
Price action will be dictated by robotaxi outlook: Tesla shares have underperformed the Nasdaq by 30.2% year-to-date (Tesla is -18% vs the Nasdaq's +12%) due to Musk having hyped up the rollout of driverless robotaxis more than usual last year, only to have a few unsupervised cars driving around a small geofence for several hours a day. If he fails to come up with a good excuse or a new, believable timeline, the stock should sell off.
The sharp sequential delivery growth of 33% to 470,523 (ex-leases) in Q2 is similar to the 29% QoQ growth to 486,869 in Q3 2025, which was driven by a sales rush ahead of US EV subsidies expiring at the end of last September. Despite this spike in sales, however, the Auto gross margin (ex-credits) only rose from 15.0% in Q2 to 15.4% in Q3 2025, but in the Q2 just ended, Tesla should see a sequential decline in the Auto gross margin, from 19.3% in Q1 to 16.8% in Q2 due to various cost headwinds. This is due to the following reasons (refer to Figure 1):
US volume increases have low profitability: In Q3 last year, Tesla’s Auto gross margin (ex-credits) only rose by 40 bps to 15.4% despite a 29% QoQ increase in deliveries, as North America (mostly the US) grew by “28% sequentially”, according to Tesla’s CFO. The marginal profit is lower in the US, despite higher ASPs, due to a much higher fixed cost base. While Tesla doesn’t disclose its US registrations, one can deduce its quarterly sales by subtracting all reporting countries from reported quarterly deliveries. In Q2 2026, North America appears to have grown by 57% sequentially, while the overseas markets only rose by 23% QoQ.
Soaring memory and battery prices: While VW and BMW say they’re not impacted by higher memory chip prices, Mercedes-Benz, Ford, and Chinese EV makers are all warning of lower margins due to higher memory prices, with Chinese EV makers saying that higher lithium carbonate prices are also weighing on profits (see next section below).