Tesla to make affordable EVs as Q2 income plummets 16%
What's the story
Tesla has reported its second-quarter financial results, revealing a major drop in revenue and profits. The company posted a net income of $1.17 billion on $22.5 billion in revenue during Q2 2025. While the revenue was above Wall Street's expectations of $22.3 billion, it still marked a 12% year-on-year decline from the $25.5 billion revenue recorded in Q2 2024.
Financial downturn
Automotive revenue falls by 16.6% year-on-year
Tesla's automotive revenue, which is the money it makes from selling cars, also witnessed a major dip. The figure fell by 16.6% year-on-year, from $19.9 billion in Q2 2024 to $16.6 billion in the latest quarter. The company's profit for the second quarter also saw a sharp decline of 16% year-on-year, further highlighting the financial challenges faced by Tesla during this period.
Sales slump
Tesla also saw a dip in vehicle deliveries
In addition to the financial downturn, Tesla also witnessed a decline in vehicle deliveries. The company delivered a total of 384,122 vehicles in Q2 2025, marking a 14% drop compared to Q2 2024. Furthermore, Tesla's operating income fell by a whopping 42% year-on-year to less than $1 billion for the quarter under review. Almost half of this amount ($439M) came from regulatory credits sold to other automakers. These credits are expected to dry up soon amid policy changes by Trump.
Financial strain
Cash reserves dip by $200 million
Tesla's financial strain was further highlighted by a $200 million dip in its cash reserves, bringing the total to $36.8 billion. The company's free cash flow, which is the amount of money it has generated after accounting for day-to-day operating expenses and capital expenditures, stood at just $100 million during Q2 2025. Analysts predict that Tesla's free-cash flow could turn negative later this year, potentially triggering a steep drop in share price.
Production update
Tesla announces production of more affordable models
Despite the financial challenges, Tesla has made some progress in its production plans. The company announced that it had completed "first builds of a more affordable model in June, with volume production planned for the second half of 2025." These models are expected to be stripped-down versions of the Model 3 and Model Y, rather than a new vehicle program altogether.
Market strategy
Tesla has started offering discounts across all its models
In response to the demand crisis, Tesla has resorted to a strategy of discounts and financing incentives across all its models. This comes as part of an effort to make the most of what could be its last best chance at a successful sales quarter this fall. However, with rising competition in China and Europe, as well as federal incentives for EVs set to expire by September-end due to Trump's bill, Tesla may face further sales challenges in the US.