Tesla’s profits are falling even as car sales are rising

Tesla reported a drop in quarterly profit on Wednesday as the company sold more electric cars but made less money on each sale.

Net income in the second quarter was $1.1 billion, Tesla said, compared with $1.2 billion a year earlier. Revenue surged to $28.2 billion, compared with $22.5 billion. Analysts had expected revenue of $27.6 billion and profit of $1.3 billion, according to estimates compiled by the company.

Tesla also posted big jumps in operating costs and capital spending as it poured money into new technologies like self-driving taxis that have yet to generate significant revenue. Tesla is also investing in factories to make batteries, trailers and other products.

Very few automakers have shown much profit growth recently. Overall sales are growing slowly, partly because of tariffs and the war in Iran, and established manufacturers are struggling to compete with fast-growing Chinese companies such as BYD and Geely Auto, which are pushing into Europe, Latin America and many Asian countries.

General Motors said Tuesday that its second-quarter profit fell 30 percent from a year earlier to $1.3 billion, although the company said it made more per vehicle.

Tesla reported this month that car sales were stronger than analysts expected, largely because increases in Europe more than offset declines in the United States.

That should have been a good sign for profit. But the impact was muted as Tesla cut prices and offered cheaper versions of its Model Y and Model 3 vehicles, as well as car loans at discounted rates.

Car sales account for more than 70 percent of Tesla’s revenue, but investors are more focused on the company’s efforts to develop self-driving taxis and humanoid robots. Tesla’s $1.2 trillion stock market value, many times that of any other automaker, depends on the success of these products.

There are signs that investors are growing impatient after Tesla CEO Elon Musk failed to deliver on promises that its Robotaxi service will now be widely deployed. The company operates a relatively small number of taxis in Texas, California and Florida, and some of them are still driven by Tesla employees or contractors.

In California, Tesla is not licensed to offer fully autonomous, paid rides, according to the state Public Utilities Commission, which regulates ride-hailing services. In Texas, Tesla is authorized to operate 69 self-driving taxis, according to the Department of Motor Vehicles.

Waymo, a division of Google’s parent company Alphabet, offers a driverless taxi service in 11 US cities, including Atlanta, Houston and Los Angeles. Waymo has permits for 628 autonomous vehicles in Texas.

“The rhetoric gives the impression that they are the pioneers of this business,” Michael Lenox, interim dean of the Darden School of Business at the University of Virginia, said of Tesla. “But they are way behind Waymo.

Tesla shares are down 14 percent this year, even as the Nasdaq Composite is up 11 percent.

“People are definitely bothered” by the slow rollout of Robotaxi, said Tom Narayan, chief auto analyst at RBC Capital Markets.

But he added that many investors wanted Tesla to proceed with caution. If the company perfects the technology without the need for major hardware upgrades, the millions of Teslas already on the road will be able to function as autonomous taxis, allowing the company to quickly overtake competitors.

“Maybe it’s a slow initial rollout,” Mr. Narayan said. “But if successful, any Tesla could theoretically be a Robotaxi.”

During a conference call Wednesday to discuss the company’s financial results, Mr. Musk acknowledged that the accident would be a serious setback to his Robotaxi ambitions. “If we injure even one person, it will be global news,” he said.

Despite questions about the safety of Tesla’s self-driving technology, the number of Tesla owners paying for its assistance system has increased by more than 50 percent to 1.5 million. The software subscription costs $99 per month in the United States.

Tesla’s financial performance has also been overshadowed by expectations that Mr Musk will try to merge the carmaker with SpaceX, the rocket company he controls, which recently completed an initial public offering.

Mr Musk deflected a question on the subject. “We can’t talk about combining companies based on earnings,” he said, noting that Tesla and SpaceX already work together in areas such as artificial intelligence and satellite internet.