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Tesla shares drop after margins fall and free cash flow turns negative

Despite record deliveries and 26% year-over-year revenue growth, Tesla reported an earnings miss, automotive margin contraction, operating margin at 1.4%, and negative free cash flow tied to sharply higher CapEx and additional debt plans.

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Tesla Inc. reported record deliveries and rising revenue, but the stock sold off sharply after investors focused on profitability and cash flow, according to MarketBeat Ratings.

Revenue rose 26% year-over-year to more than $100 billion in trailing 12-month sales, while deliveries reached 480,126 vehicles, a record. Management said it exited the quarter with its largest order backlog since 2023, yet Tesla shares gapped down and fell as much as 15% on July 23, wiping out prior gains.

The selloff centered on results that missed expectations and deteriorated margins. Tesla came in roughly 35% below analysts’ estimates, with automotive gross margins contracting and operating income dropping 57%, pulling operating margin to 1.4% of sales from 4.1% a year earlier.

MarketBeat Ratings also pointed to spending as a key driver. Tesla’s capital expenditures more than doubled sequentially, turning free cash flow negative for the first time in more than two years, and the company maintained full-year CapEx guidance above $25 billion, with spending expected to increase further in the second half. Tesla also disclosed it is pursuing up to $30 billion in additional debt capacity to fund an expansion tied to AI compute, Robotaxi, and Optimus production.

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