Tesla's record quarter costs $71bn after Musk spending spree. Is there a silver lining?

Tesla Inc (NASDAQ:TSLA) managed the unusual feat of selling more cars than ever before and being punished for it, with shares falling 4% after hours and wiping roughly $71 billion from the electric carmaker's value.

Revenue of $28.24 billion was up 26% year-on-year and comfortably ahead of the $25.71 billion analysts had pencilled in. Deliveries of 480,126 vehicles were a second-quarter record and the first annual growth in two years, ending a slump driven by Chinese competition and a consumer backlash against Elon Musk's politics. The services division, which includes out-of-warranty repairs, grew revenue 50% to $4.58 billion at record margins, a reminder that the most boring part of the business is quietly among the healthiest. Subscriptions to Full Self-Driving , which despite the name still requires a human ready to grab the wheel, rose 56% to 1.48 million, generating $791 million of annual recurring revenue. Chief financial officer Vaibhav Taneja said the company left the quarter with its biggest order backlog since 2023.

Adjusted earnings of 33 cents a share came in barely two-thirds of the 51 cents Wall Street expected. Gross margin fell to 16.8%, against forecasts of 19.4%, as average selling prices dropped and revenue from selling regulatory credits to rival carmakers collapsed from $439 million to $146 million. That last line matters more than it looks, because those credits were nearly pure profit and are not coming back. Tesla is now selling cheaper Model 3 and Y variants after retiring the pricier Model S and X, which is a fine way to move metal and a poor ...