- Tesla's revenue was down 12% year-over-year in the second quarter of 2025. Operating income was down 42%.
- The drops are due to a mix of factors: declining sales, discounted prices and fewer energy regulatory credits among them.
- Can an affordable new model, supposedly coming the second half of this year, turn the tide?
What went right for Tesla in the second quarter of 2025? According to its latest earnings report, not a whole lot.
Ahead of its quarterly call with investors today, the Texas-based electric automaker tallied up the ramifications of a double-digit decline in global sales and other challenges. Those include its revenue being down 12% year-over-year, operating income being down 42% year-over-year and a big drop in the regulatory credits that usually generate billions of dollars and may well be going away soon.
"Our priorities remain the same: delivering affordable and compelling autonomy-capable models that maximize our global fleet of vehicles as our autonomy software continues to rapidly progress, growing the Energy business and advancing our robotics efforts," the automaker said in its statement.
Unfortunately, that plan hinges on selling cars, and Tesla is running into real trouble there.
In July, the carmaker said it delivered some 384,000 cars globally in the second quarter, a 13.5% year-over-year drop. That followed a similar slip in Q1 and an essentially flat year of sales in 2024. In Q2, Tesla said its automotive revenues fell by 16% to $16.7 billion. The company has lathered on incentives like free subscriptions to Full Self-Driving (Supervised), free Supercharging and low APR financing deals to help move cars.
Adding insult to injury, Tesla noted that is average selling price per model slid in the most recent quarter. Revenue from its energy storage business fell, too.
And critical sales of regulatory credits fell by around half to $439 million, making up a large chunk of Tesla's $900 million operating income for the quarter. That regulatory credit business is expected to mostly dry up imminently; the Trump administration and Congress are working to neuter the federal tailpipe emissions rules that push auto companies to buy credits from Tesla and other EV makers.
To be sure, Tesla said that revenues from service, lower vehicle costs and better profitability in its energy storage and generation division were a boon to profits.
So, what's going on here? This year has not been a walk in the park for any automaker. And in its Q2 earnings deck, Tesla noted "a sustained uncertain macroeconomic environment resulting from shifting tariffs, unclear impacts from changes to fiscal policy and political sentiment." (That last part may be a veiled reference to Tesla CEO Elon Musk's political activity and how it's alienating a core demographic of Tesla buyers—definitely a trend that's not to be underestimated.)
Plus, Tesla's lineup just hasn't kept up with the times—or the competition. The Cybertruck has proved to be a dud, and the company can't grow indefinitely on the backs of the Model 3 and Model Y. Chinese competition is only getting stronger, cheaper and higher-tech.
There is one piece of news buried in Tesla's report that could help change the tide: Tesla said it completed the "first builds" of a more affordable model in June. It expects that mysterious car to go into mass production in the second half of 2025.
That long-awaited and delayed model is widely seen as key to Tesla's future growth. And Q2's dismal numbers prove that Tesla needs it now more than ever.
Additional reporting from Tim Levin.
Contact the author: patrick.george@insideevs.com.
