Tesla Set to Report Q2 Earnings — Sell the Reality or Buy the Future Narrative?

TradingKey - Tesla (TSLA) will release its Q2 2025 earnings after the market close on Wednesday, July 23, becoming the first of the Magnificent Seven tech giants to report this season. With weak fundamentals on one side and Elon Musk’s bold vision on AI, Full Self-Driving (FSD), and robotics on the other, even top Wall Street analysts remain divided.

According to LSEG data, expectations are low:

• Q2 revenue is expected to decline 11% YoY, marking the second consecutive quarterly drop
• This follows a 14% year-over-year decline in vehicle deliveries
• Adjusted EPS is projected to fall into the $0.43 range — a double-digit percentage drop and the third straight quarter of declining profits

The Divergence: Reality vs. Narrative

Wall Street’s focus will be split between:

• Near-term headwinds: Weak auto demand, Trump’s rollback of EV incentives, and Musk’s controversial political profile
• Long-term vision: Expansion of the Robotaxi network, AI development, and humanoid robotics

Barclays highlighted that the biggest near-term negative is the end of the U.S. EV tax credit, set to expire on September 30, 2025. Barclays estimates that about 20% of Tesla’s global deliveries benefit from this subsidy.

The firm warned this could trigger a pull-forward effect, with strong demand in Q3 followed by even weaker demand in Q4. 

Regulatory Credits: A Shrinking Profit Pillar

Another major concern is the reduction in regulatory credit income, which was a key profit driver in Q1. In fact, without credit sales, Tesla would have reported a loss in Q1.

William Blair analysts noted that about 75% of Tesla’s regulatory credit revenue comes from the CAFE (Corporate Average Fuel Economy) standards, which are being scaled back.

The firm has cut its estimates:

• 2025 credit income: down 40% to $1.5 billion
• 2026: $595 million
• 2027: zero, as the program phases out

William Blair said that the elimination of CAFE penalties requires a complete reset of Tesla’s earnings expectations. 

The Future: Robotaxi and AI to the Rescue?

With auto sales under pressure, Elon Musk is pushing investors to focus on the future — particularly the Robotaxi network and Optimus humanoid robot — as the next drivers of Tesla’s valuation.

The New York Times noted that Wall Street has largely embraced this narrative: Tesla’s stock has rebounded nearly 50% since early April, despite weak fundamentals.

Barclays acknowledged that while the near-term outlook is challenging, investors will likely remain excited by the Robotaxi story.

An investment manager at Integrity Asset Management added, “If Musk can give confidence to the market that he is re-focused on robotaxi and the brand, the stock can work.”