Elon Musk Just Admitted Optimus Has No Supply Chain, But There Are Still Reasons to Be Optimistic

Tesla (TSLA) delivered its best quarter ever on paper and still lost investors. The company reported record second-quarter revenue of $28.24 billion, along with a record 480,126 deliveries. Vehicle demand outpaced supply during the quarter, with Tesla selling more vehicles than it produced. However, the stock still dropped more than 4% during the earnings call and is down over 13% in morning trading today. Investors were concerned about adjusted EPS of $0.33, which came in well short of the Wall Street consensus. Heavy capital spending also pushed free cash flow into negative territory for the first time in over two years. 

Elon Musk spent much of the call defending the spending. He said more customers are signing up for Full Self-Driving (FSD), with active subscriptions up 56%. The CEO said that the massive capex year would eventually deliver incredible returns for investors. On robotaxis, Tesla aims to keep scaling miles driven by more than 10% per week. The service went live in three Florida cities earlier this month. Musk also confirmed volume production of the Cybercab has started, without a steering wheel or pedals, though the delivery timing remains unclear. 

Optimus Production Remains an Open Question

Optimus took a large part of the call as well, with Musk calling it one of Tesla’s biggest projects. He admitted, though, that the ramp is the hardest manufacturing scale-up that the company has ever attempted. Because robot manufacturing is uncommon, Tesla has had to insource nearly every component that goes into the production. Previously, its EVs could still lean into available components for doors, windshields, and other auto parts, but the robots do not have that luxury, and the company is finding that out.

On a more positive note, Tesla confirmed that Gen 3 production had started at the Fremont facility, where the company modified pre-existing Model S/X production lines to manufacture robots. The CEO pointed out, though, that a quick scale-up won’t be possible, and that’s a realistic take from a man who has previously been criticized for extremely ambitious calls.

Just as I had mentioned before the earnings call, the numbers that matter here have nothing to do with cars. The market got its answers on autonomy. In the backdrop of the U.S. government easing regulations, perhaps more positive news was expected. For now, the market does not like the price attached to the company’s autonomy and robotics potential, and the selling pressure could continue in the coming days.

About Tesla Stock 

Tesla designs, develops, manufactures, and sells electric vehicles and generation and storage systems. The company also invests heavily in artificial intelligence, self-driving technology, battery development, and vehicle software. Moreover, the company provides services and repairs to its energy product customers, including under warranty and extended service plans. Founded in 2003, the company is headquartered in Austin, Texas.

Over the last 12 months, TSLA stock is down over 3%, significantly lagging the S&P 500 Index ($SPX), which saw a 16% gain in the same period. The underperformance is primarily due to rising competition from Chinese EV makers such as BYD (BYDDY). Tesla has also faced weaker vehicle demand, delivery misses, and pricing pressure.

Tesla’s valuation looks stretched by almost any measure. The forward GAAP P/E of 285.90x sits 89% above the company’s 5-year average of 151.49x. The forward price-to-sales ratio of 15x is also 30% above its 5-year average of 10.46x. The market is paying a steep premium for Tesla’s stock, which is notable for a company that has rarely traded cheaply. EPS growth trajectory is promising but may not fully justify the premium on its own. Earnings are expected to have a modest decline in 2026 before growing 53% in 2027 and accelerating to 123% by 2029. The slight dip this year lines up with the heavy capital spending that has pushed free cash flow negative. The recovery from 2027 reflects analyst expectations for growth in autonomy revenue. 

The company's balance sheet is a genuine strength. Tesla holds $44.74 billion in cash against just $15.89 billion in debt. The resulting net cash positive of nearly $29 billion means Tesla can continue spending during a negative cash-flow year without raising capital. Musk insists the company’s heavy spending will generate “incredible” returns. In the end, Tesla’s valuation will depend on whether investors are willing to pay today for returns that may not arrive for years.

Tesla Bets Bigger on Growth Despite Earnings Miss

Tesla reported its second-quarter fiscal 2026 earnings report yesterday on July 22. The company reported mixed results, with revenue rising to $28.24 billion, comfortably beating Wall Street consensus of $25.55 billion. However, the earnings per share came in at $0.33, which missed analyst estimates of $0.49. CFO Vaibhav Taneja reaffirmed that the company’s free cash flow ended up being negative for the quarter while capex doubled sequentially. Taneja also stated that automotive gross margin excluding regulatory credits declined to 16.3% from 19.2% in Q1. The company also highlighted that it did not benefit from tariff relief, unlike in Q1. 

Looking forward, management raised its full-year 2026 capital expenditure guidance to be more than $25 billion. CEO Elon Musk has confirmed that the company will continue to scale rapidly on robotaxis, with more than 10% a week in terms of miles driven. Management also raised its debt to aid $30 billion in those investments. In a question asked by a Barclays analyst about whether Tesla would slow its capital spending to improve efficiency and about future demand for its energy storage products, Musk responded that the company plans to invest heavily and that moving faster is sometimes more important than efficiency. He also said that the company sees high demand for its Megapack energy storage systems.

What Do Analysts Expect for TSLA Stock?

Analysts will start updating their financial models after the recent earnings report and come out with fresh price targets. TSLA stock’s valuation was already stretched, and it was trading at the Wall Street mean target price of $418 just three weeks ago. The market has since reacted negatively to the company’s progress, and the earnings report has confirmed why. I would expect some downward price revisions in the coming days as analysts try to figure out the cost of scaling Robotaxis and eventually Optimus. 

Both these developments will likely keep the stock price under pressure going forward. TSLA stock's 21 “Hold” ratings from 42 analysts already confirm that, and I don’t see that changing significantly anytime soon.