‘Very volatile stock’: A caution to Tesla investors as Musk doubles down on AI

Financial analysts have warned not to expect much stability in Tesla’s share price after CEO Elon Musk defended billions of dollars of investment at the electric vehicle manufacturer, which has just seen one of its worst stock market falls in years.

This week, Tesla reported second-quarter profit of $US1.1 billion ($1.57 billion), down about 5 per cent from a year earlier, as lower vehicle prices and heavy investment in artificial intelligence weighed on the company’s earnings.

The result translated to 33 cents a share, well below analysts’ expectations of 53 cents, while revenue rose 26 per cent to $28.2 billion.

Although Tesla beat expectations for second-quarter vehicle deliveries earlier this month, the company said profitability was hit by lower vehicle selling prices, reduced revenue from regulatory credits and unspecified “energy warranty-related charges”.

Capital expenditure more than doubled to $5.8 billion ($8.3 billion) during the quarter as Tesla accelerated investment in AI and manufacturing.

Tesla is embarking on a massive construction spree that Musk characterised on a conference call as probably the United States’ “fastest industrial scale-up since World War Two”.

The company said production of its Cybercab had begun in Texas, the Tesla Semi remained on track for 2026, and subscriptions to its Full Self-Driving driver-assistance program continued to grow.

Asked about scaling Tesla’s robotaxi business, Musk said the company was focused on achieving near-perfect reliability.

“How many nines of reliability do you need to scale?” Musk said. “Ideally, you want 99.99999, you know, per cent reliable.”

AI investments are ‘very expensive’

Tesla’s spending has drawn scrutiny from investors concerned about returns on its AI investments.

CFRA Research analyst Garrett Nelson said uncertainty over the spending had weighed on Tesla shares.

“They just haven’t been very transparent with [Wall] Street on the expected return of the dollars that have been spent.”

Jai Mirchandani, chief executive of Elm Responsible Investments, said the spending reflected Tesla’s long-term strategy.

“The company and Musk is saying that it’s one of the best investment opportunities and that’s why they’re investing so heavily in AI and robotics primarily,” he told SBS News.

“As we’ve seen from companies like even Google and Microsoft and all the tech leaders, it’s very expensive, and it requires a lot of capital to build the AI infrastructure and technology.

“And if you want to succeed in this space, our view is that you have to be investing in AI and innovation.”

Mirchandani described AI as a revolutionary technology that needs “a lot of capital investment”.

Musk defends Tesla spending

Musk said Tesla’s capital expenditure (capex) was justified, saying the company “should be spending on capex as fast as we can spend … without it being too wasteful”.

“It’s OK to be a little less capital efficient if we get things done sooner.”

Tesla’s chief financial officer Vaibhav Taneja said research and development costs would “continue to grow in 2026 and beyond”.

Speculation has also grown about closer ties between Tesla and SpaceX following the rocket company’s stock market debut, although Musk declined to discuss any potential combination.

“There’s more and more overlap,” said Musk.

“Obviously, we can’t talk about combining companies and that kind of thing on an earnings call. It’s got to be done with the appropriate process.”

Mirchandani cautioned investors about Tesla’s share price movements.

“The reality is that Tesla is a very volatile stock. And so I’d sort of just be mindful of that.”

Watch and see

Stockbroker Richard Hemming said investors were increasingly rewarding companies that continued to innovate.

“I think the innovation part of it is more worrying for investors for companies that don’t innovate,” he told SBS News.

“I think that, in the next reporting season, it’s going to be interesting to see how companies … are going in the sales line. “

He said Australia’s upcoming corporate reporting season would provide an important test of company profitability.

“We are seeing sort of signs, especially in Australia, that productivity’s falling,” he said.

“Productivity in Australia has been under a lot of pressure versus the rest of the world because I guess we’re not seeing the kind of innovation that they’re seeing in the US.

“So definitely, the upcoming results are going to be very, very important. “

Additional reporting by Agence France-Presse.

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