Tesla Inc. Delivers Record Volumes but Margin Pressures Mount, SELL Rating Maintained with US$220 Target July 31, 2026

Company Overview

Tesla Inc. operates as a leading electric vehicle manufacturer and clean energy company, designing, developing, manufacturing and selling electric vehicles, energy generation and storage systems globally. The company has established itself as a dominant player in the electric vehicle market while expanding into energy storage and autonomous driving technologies.

Strong Operational Performance Amid Financial Headwinds

Tesla’s second quarter 2026 results presented a mixed picture, with record operational achievements overshadowed by mounting financial pressures. The company delivered 480,000 vehicles, marking a 25% year-on-year increase and setting a new second-quarter record. This strong delivery performance was complemented by record energy storage deployments of 13.5 GWh, representing 41% year-on-year growth and the second-highest quarterly deployment in company history.

Revenue performance remained robust, with the company achieving 26% year-on-year growth and surpassing US$100 billion on a trailing twelve-month basis for the first time. The Services and Other segment particularly excelled, generating US$4.6 billion in revenue with 50% year-on-year growth and achieving record gross profit of US$648 million at a 14.1% margin.

Margin Compression Concerns

Despite operational successes, Tesla faced significant margin pressures during the quarter. Adjusted profit after tax and minority interests fell 17% year-on-year to US$1.2 billion, primarily due to a 47% surge in operating expenses, reduced regulatory credits, and a substantial US$240 million energy warranty charge. Free cash flow turned negative at US$1.1 billion as capital expenditure more than doubled to US$5.8 billion.

Full Self-Driving Progress

Tesla’s Full Self-Driving technology showed encouraging momentum with active supervised FSD subscribers reaching 1.48 million by quarter-end, representing 56% year-on-year growth. In North America, 55% of deliveries included FSD subscriptions at delivery, marking a record attachment rate. The Robotaxi service expanded to seven US metropolitan areas following launches in Miami, Orlando, and Tampa in July.

Investment Recommendation

Phillip Securities Research maintains its SELL recommendation with an unchanged DCF target price of US$220. The firm remains cautious, citing margin compression from rising operating expenses and fading regulatory credits, alongside substantial capital expenditure requirements exceeding US$25 billion in FY26e. With meaningful revenue from FSD, Robotaxi, and Optimus still expected to be more than five years away, the current valuation of 216x PE FY26e already incorporates much of this future upside potential.

Frequently Asked Questions

Q: What were Tesla's key operational achievements in Q2 2026?

A: Tesla delivered a record 480,000 vehicles in Q2 2026, representing 25% year-on-year growth. The company also achieved record energy storage deployments of 13.5 GWh and crossed US$100 billion in trailing twelve-month revenue for the first time.

Q: Why did Tesla's profits decline despite record deliveries?

A: Adjusted profit fell 17% year-on-year to US$1.2 billion due to a 47% surge in operating expenses, lower regulatory credits, and a US$240 million energy warranty charge that offset the benefits of record deliveries and revenue growth.

Q: How is Tesla's Full Self-Driving technology performing?

A: Active supervised FSD subscribers grew 56% year-on-year to 1.48 million, with 55% of North American deliveries including FSD subscriptions at delivery—a record attachment rate. Robotaxi service is now live in seven US metropolitan areas.

Q: What is Phillip Securities Research's investment recommendation for Tesla?

A: Phillip Securities Research maintains a SELL recommendation with a DCF target price of US$220, citing margin compression, rising operating expenses, and substantial capital expenditure requirements.

Q: What are the main financial concerns highlighted in the report?

A: Key concerns include margin compression from rising operating expenses and fading regulatory credits, negative free cash flow of US$1.1 billion, and capital expenditure exceeding US$25 billion in FY26e, which may require up to US$30 billion in new debt facilities.

Q: When does the research firm expect meaningful revenue from Tesla's future technologies?

A: Meaningful revenue from Full Self-Driving, Robotaxi, and Optimus technologies is expected to be more than five years away, according to Phillip Securities Research.

Q: How did Tesla's Services and Other segment perform?

A: The Services and Other segment delivered exceptional performance with US$4.6 billion in revenue (50% year-on-year growth) and achieved record gross profit of US$648 million at a 14.1% margin, representing an all-time high.

Tesla Inc. Delivers Record Volumes but Margin Pressures Mount, SELL Rating Maintained with US$220 Target

This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.

Disclaimer

These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products.

Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance.

Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

About the author

Glenn Thum

Glenn covers the Banking and Finance sector. He has had 3 years of experience as a Credit Analyst in a Bank, where he prepared credit proposals by conducting consistent critical analysis on the business, market, country and financial information. Glenn graduated with a Bachelor of Business Management from the University of Queensland with a double major in International Business and Human Resources.

Alphabet Inc. Achieves Record Cloud Growth Despite Free Cash Flow Pressure, Upgraded to BUY with $425 Target Price