Tesla, Inc. (TSLA.US) shares plummeted more than 13% after earnings, Wall Street says AI investments dragged down profits and cash flow, Siasun Robot & Automation business becomes key to valuation.

After Tesla, Inc. (TSLA.US) announced its second quarter performance, the market was concerned despite record high revenue and car deliveries, as profit margins decreased, free cash flow turned negative, and capital expenditures significantly increased. As of the time of writing, the company's stock price plummeted over 13%. Several Wall Street institutions believe that Tesla, Inc. is entering a stage of massive investment in artificial intelligence (AI) and Siasun Robot & Automation business, with short-term profitability under pressure. However, Robotaxi and Optimus humanoid Siasun Robot & Automation remain core factors determining the company's long-term valuation. Morgan Stanley analyst Rajat Gupta stated that as investments in AI and other areas continue to increase, the market has been lowering its future profit expectations for Tesla, Inc., and expects the stock price to remain in a range of fluctuations in the short term. Nevertheless, with the gradual expansion of Robotaxi, increased production speed of Cybercab, and renewed acceleration in car sales, the company still has potential for a turning point in earnings per share (EPS) and revaluation of sum-of-the-parts (SOTP) valuation. Morgan Stanley analyst Andrew Percoco believes that Tesla, Inc. is accelerating its capital expenditures to solidify its leading position in the autonomous driving and Siasun Robot & Automation fields. While these investments are necessary, they are causing further deterioration in free cash flow, leading the market to pay more attention to whether the Robotaxi and Optimus projects can make substantial progress as planned. Due to rising cash consumption pressures, the institution has lowered Tesla, Inc.'s target price to $400. Needham analyst Chris Pierce stated that Tesla, Inc.'s long-term autonomous driving logic is further strengthened, with continued growth in FSD (Full Self-Driving) users and confirmation of Cybercab and Optimus production plans. However, the company's automotive business profit margins are lower than market expectations, and with Rivian (RIVN.US) set to launch the R2 model, Model Y will face direct competition for the first time. In addition, the energy business's performance was also below expectations. With continued increases in capital expenditures in the background of uncertainty surrounding AI project returns, the company's traditional business faces greater pressures. Seeking Alpha analyst Sandeep G. Rao pointed out that although Tesla, Inc. delivered 480,100 cars in the second quarter, a 25% year-on-year increase, sales were mainly driven by significant price reductions and consumer incentives, resulting in a decrease in the car gross margin rate to 16.3% after excluding regulatory credits. He also noted that adjustments to U.S. tax policy have weakened the economic advantage of buying electric vehicles over gasoline ones, and Tesla, Inc. is entering what Musk has referred to as "the largest investment cycle in history." The company's second quarter capital expenditures more than doubled year-on-year to $5.79 billion, and annual capital expenditures are expected to exceed $25 billion in 2026. Currently, Tesla, Inc. is massively expanding the Cortex 2 AI supercomputer cluster, expanding its Terafab chip development project in collaboration with SpaceX (SPCX.US), and accelerating the construction of Robotaxi and Optimus production lines. Rao believes that Tesla, Inc. is gradually transitioning from a car manufacturer to a technology conglomerate with AI at its core and car business as part of it. The market is currently cautious about the long-term return on investment in AI, similar to the recent market performance of companies in the AI industry chain such as ASML Holding NV ADR (ASML.US) and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR (TSM.US). With core automotive business profit margins continued to be under pressure and the returns on AI investments still needing several years to materialize, Tesla, Inc.'s valuation may continue to be suppressed in the coming trading days. Dhierin Bechai, the head of The Aerospace Forum investment portfolio, stated that Tesla, Inc.'s various business revenues achieved steady growth in the second quarter, but a decrease in average selling prices, a decline in gross margins, and a significant increase in operating expenses led to a 4% year-on-year decrease in adjusted EBITDA, as revenue growth did not effectively profit growth. He pointed out that the company has nearly 1.5 million FSD subscription users, and regulatory approvals in the European market have made positive progress. At the same time, the construction of production lines for Optimus humanoid Siasun Robot & Automation has begun at the Fremont factory, but there is still a long way to go before mass production and commercialization. Bechai also noted that it is worth noting that Tesla, Inc. did not attribute the decline in profits primarily to macroeconomic weakness this time, but rather reflected more on the impact of product price cuts and continued high-intensity AI investments on profits. Overall, the company still sees AI, semiconductors, and Optimus Siasun Robot & Automation as key areas for future development, which also means that Tesla, Inc. is increasingly positioning itself as a technology company rather than a traditional car manufacturer.