Bull v Bear: Buy Tesla stock ahead of Q2 earnings?

Tesla is expected to deliver its second quarter earnings release on Wednesday, 22 July with investors looking for signs of improvement in margins and earnings after bumper quarterly deliveries boosted hopes it can rebound from consecutive declines in annual auto sales.

Q2 revenues are seen at $26bn with earnings per share of $0.52, with net income seen slightly ahead of the same quarter a year ago at $1.24bn. 

The key for the earnings is about the outlook for sustainable sales growth after the strong delivery report in Q2 as Tesla faces ever-increasing competition from China. Margins are also a focus after a significant improvement in the last earnings update. As ever the usual risk warning applies – guidance for the rest of the year probably matters more than the last quarter's earnings.

As noted in our preview of the Q1 numbers, Tesla is at a crossroads as the bulls and bears are haggling over just how robust the AI, robotics and autonomous roadmap looks. I don't think a lot has changed since then and indeed the share price is hardly changed since the last quarterly earnings update on 22 April.

Tesla reported better-than-expected earnings for the first quarter, but revenue came in below expectations as the company’s core automotive business continued to struggle and the company raised its capex guidance for the year.

Revenue rose +16% in the quarter from $19.3 billion a year earlier, with auto revenues +16% to $16.2 billion from $14 billion a year ago. Tesla’s automotive gross margins, excluding environmental regulatory credits, jumped to 19.2%, helped by higher average selling price and “lower average cost per vehicle due to lower material costs".

However, offsetting the margin improvement was capex, which is expected to exceed $25 billion this year, about $5bn ahead of previous forecasts. Capex jumped 67% in the quarter to $2.49 billion from $1.49 billion in the same quarter of 2025.  Chief Financial Officer Vaibhav Taneja also warned the company expects negative free cash flow for the rest of the year as this investment phase ramps. 

In the energy business, which makes and sells solar installations and battery energy storage systems, revenues fell –12% to $2.41 billion. Energy storage is underappreciated. Investors will focus on things llike Megapack deployment growth, energy storage margins, whether energy returns to being a major profit contributor and the growth outlook versus the automotive division. Given auto growth remains cyclical and competitive, the energy business is one of the few areas where Tesla has demonstrated a clearer growth runway.

Deliveries strong

Total Q2 vehicle deliveries topped 480,000, easily beating expectations of around 406,600 deliveries. It marked a sharp improvement in fortunes after sustained declining auto sales, with the delivery number a 25% increase on the same period a year ago, and 34% increase versus the first quarter.

Tesla is part of a big European EV story benefiting as sales of the vehicles soaring across the continent. Europe's really driving this increase, with less of a boost from the US and China. 

Tesla has benefitted from expanded EV incentives in some European countries and increasing EV adoption across Europe – arguably supported by the energy security concerns and oil price rise in recent months. We should also note easier year-on-year comparisons, he refresh of the Model Y and improved financing offers.

There has also been an easing of the anti-Musk sentiment that was a big factor in a collapse in Tesla's European sales last year when Musk was posting support for right-wing parties in Europe and was backing Trump. That narrative has kind of gone off the agenda this year so Tesla is enjoying some slightly easier comps from last year at a time of EV industry tailwinds.

Investors will look for evidence that Tesla's delivery strength reflects genuine market share gains rather than temporary incentives and financing offers.

AI et al

Tesla’s valuation is increasingly built on AI and robots, not on core EV sales. As with the Q1 report, investor focus will be on initiatives such as FSD and robotaxis, humanoid robots and AI. 

I don't think a huge amount on this front has changed since Q1. As I said then before the earnings, Elon Musk’s job on the earnings call is to sell the future and bridge the gap between the headline-grabbing vision for Tesla versus the reality on the ground. 

Investors have questions over xAI / AI integration: Given Musk's ecosystem strategy, investors are askin ghow does Tesla benefit from xAI? What is the relationship between Grok and Tesla's AI stack? Is Tesla becoming an AI infrastructure company rather than simply an EV manufacturer?

On robotaxis, investors seem happy to see it go slow. The rollout seems painfully slow to many. On the last earnings call Musk was a bit vague but said he hoped to have unsupervised FSD or Robotaxi operating in "a dozen or so states by the end of this year", adding however the company is "taking a very cautious approach to the rollout". 

Terafab is another area but again 'one for the future'. On the last earnings call Musk said he's "working out the details of the Terafab deployment", but confirmed SpaceX is going to take care of the initial phase of the scaled-up facility. "SpaceX is doing the initial part of the large scale Terafab, and then we've got to figure out the rest," he said. Tesla in March unveiled its Terafab ambitions – to build a chip manufacturing base capable of delivering 1 terawatt of computing power annually. The costs of this build-out would be in the trillions of dollars not billions, specific numbers are difficult to ascertain but $5tn-$13tn is being talked about

SpaceX merger?

There has been speculation about a potential reverse merger between SpaceX and Tesla, which has intensified since the latter's IPO last month. Whilst the move makes sense strategically on paper it could be very complex. A merger would see Musk consolidate his ownership and enable vertical integration of AI, robots, energy, transport and space, all backed by the multi-trillion Terafab facility. Operational integration already exists between the companies, eg Terafab, and it could just be a matter of time. SpaceX President Gwynne Shotwell said it "might make Elon's life a little easier".

Polymarket implied odds for an imminent merger have lengthened with traders seeing a roughly 11% chance of a tie-up between Musk's two companies by the end of September, down from about 40%. 

Shares marked down

Shares have come off around 14% from the swing high in May and are down about 20% from the recent all-time highs near $500. Nevertheless, the stock trades about +17% above the April lows.