Tesla shares plunge 13.5% as AI spending drags down tech
Tesla suffered its worst trading day in years after weak earnings sparked a broader $767bn selloff in tech megacaps, raising questions about heavy artificial intelligence investments despite strong European car sales.
Tesla shares fell 13.5% on Thursday in one of the largest single-day drops in the company’s history. The steep decline followed second-quarter earnings that badly missed profitability targets. The immediate selloff dragged down the broader US technology sector.
The automaker reported earnings of 31 cents per share, falling well short of the 51 cents expected by Wall Street analysts. While Tesla beat revenue predictions, investors focused heavily on the company's massive capital expenditures. The carmaker spent $5.8bn in the second quarter, pushing its free cashflow into negative territory at $1.1bn for the first time in over two years.
This heavy spending on robotics and autonomous vehicles overshadowed what was otherwise a strong quarter for actual car sales. Tesla’s electric vehicle sales surged, driven largely by European buyers and rising fuel costs. However, the market is currently punishing the company for shifting its focus and capital away from this reliable automotive revenue toward unproven AI projects.
During Wednesday's earnings call, Elon Musk faced persistent questions about the delayed Robotaxi service and Optimus humanoid robot. He claimed that Optimus will eventually be Tesla’s biggest product, but cautioned there are "numerous hurdles" ahead. He attributed the slow Robotaxi rollout to an "abundance of concern for safety and worry that deadly accidents would result in negative media attention and a regulatory crackdown."
The fallout leaves Tesla as the poorest-performing stock among the so-called "Magnificent Seven" megacaps. The group, which includes Alphabet, Amazon, Meta, Nvidia, Apple, and Microsoft, has seen Tesla lose about 27% of its market value this year. Across the board on Thursday, the seven companies saw a combined $767bn wiped from their market valuations.
As the first of the megacaps to report this season, Tesla and Alphabet both failed to impress investors. Their results revived deep-seated concerns about the sheer scale of AI spending across the industry without immediate returns. Soaring oil prices further amplified inflation worries and pushed up bond yields.
The overall market reaction was severe. The Nasdaq fell more than 2%, touching its lowest level since early May. The S&P 500 and the Dow exchanges both dropped more than 1%.
