Tesla misses on revenue but beats on profit as auto margins jump

Tesla's margin beat caught investors off-guard. Despite competition intensifying across EVs globally, the automaker managed to expand gross margins in automotive to 17%, driven by price discipline and factory efficiency. Production held steady despite earlier slowdown fears. But revenue missed consensus, signalling demand is softer than hoped.

Musk's announcement that Tesla will spend $32 billion on AI and robotics through 2031 spooked the market. The disclosure underscores capital intensity of his Optimus humanoid ambitions and FSD improvements. Guidance for these expenditures implies margin pressure ahead if revenue doesn't accelerate—a risk given EV market saturation and rising competition from BYD, legacy automakers, and startups.

Trump's tariffs on Chinese EVs and auto parts shield Tesla's US margins, but also risk triggering retaliation. The automaker's China exposure (about 20% of revenue) is vulnerable to Beijing trade response. Investors are wrestling with Tesla's dual narrative: profitable quarter masking soft demand and rising capital needs. Near-term, cash flow will matter more than earnings.