On July 24, Tesla released its Q2 earnings report. While the company managed to halt the steep decline seen in Q1, it still recorded a noticeable year-over-year downturn. Total revenue dropped to $22.5 billion (down 12% YoY), with automotive revenue falling to $16.67 billion (down 16% YoY). Due to increased investments in AI, free cash flow further declined from $660 million last quarter to $150 million.

Despite Elon Musk's return to leadership and the June launch of Robotaxi services in Austin, Tesla's sales continue to slide year-over-year. In the US, the Inflation Reduction Act poses additional challenges, while in China and Europe, domestic brands like Xiaomi and BYD are intensifying competition in the already cutthroat EV market.

During the earnings call, Musk acknowledged that Tesla faces "several difficult quarters ahead," citing three key pressure points:

1. Automotive: Prioritizing existing model deliveries in Q3 due to IRA impacts, delaying mass production of the anticipated "affordable model" to Q4.

Tesla's Q2 2025 Key Performance Metrics | Image: Tesla

2. Autonomous Driving: Regulatory hurdles for nationwide Robotaxi deployment require approvals across federal and state agencies.

3. Robotics: While Musk reiterated ambitions for producing 100,000 Optimus robots monthly within five years, the "truly correct design" Optimus 3 prototype won't enter mass production for another three months. Early-stage robotics margins will likely be negative.

Whether viewed as an automaker or Musk's envisioned AI company, the trillion-dollar giant faces another precarious moment.

Slumping Sales as Xiaomi and BYD Close In

Q2 saw Tesla deliver 384,000 vehicles globally—a modest recovery from Q1's 337,000 but still down 13.5% YoY. Automotive revenue (75% of total) fell 16% YoY to $16.67 billion, though gross margins improved to 17.2%.

The decline stems partly from shifting brand perceptions in Western markets. Once buoyed by Musk's tech visionary persona and the aging Model 3/Y lineup, Tesla now grapples with backlash against Musk's political ventures. In Europe, despite a 27.2% EV market growth in May, Tesla's sales have declined for six consecutive months.

Competitors are capitalizing: BYD has overtaken Tesla in European registrations despite facing 27.4% tariffs, while in China, Xiaomi's SU7 outsells the Model 3, and its newly launched YU7 (a Model Y rival) secured 240,000 pre-orders in just one day.

Tesla's counterstrategy involves two approaches: launching an extended-wheelbase Model YL (with a 3040mm wheelbase) in China this fall (expected ~$55,000), and accelerating its $25,000 "affordable model" for US production in Q4.

When Will Autonomous Tech and Robotics Turn Profitable?

Unlike traditional automakers, Tesla's valuation hinges on futuristic bets—particularly autonomous driving and robotics. While its Full Self-Driving technology leads in computational capability, commercialization remains uncertain.

June's Robotaxi pilot in Austin (using modified Model Ys at $6.90/ride) functions more as a tech showcase than a revenue generator, pending regulatory approvals across multiple states. Meanwhile, the anticipated FSD V14 + HW5.0 (2000+ TOPS) hardware upgrade received no updates during the call.

In robotics, Musk confirmed Optimus 3 prototypes are three months away, with negative margins expected initially. He remains confident in achieving 100,000 annual robot production within five years.

Much like SpaceX's 2008 turnaround, Tesla now bets its future on high-stakes, frontier technologies. The path ahead—fraught with challenges—could equally redefine mobility.

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