Tesla’s operating profit missed consensus estimates by 74% and my estimates by 48%, while Non-GAAP EPS of $0.33 missed Street estimates by 41% and my estimates by 20%. My preview of Tesla’s Q2 said “Mind the Margin Squeeze” in the title, but it was much worse than estimated: Despite annual growth of 25% for Q2 deliveries and 26% for Q2 revenues, Tesla’s operating profit dropped by 57% YoY to $398 million, which barely broke even at a 1.4% operating margin. Tesla is close to generating losses: On top of $1.1 billion cash burn in Q2, excluding the record-low regulatory credit sales of $146 million (which should gradually shrink henceforth), Tesla’s Q2 2026 operating margin was only 0.7% on vehicile sales that were only 2.9% below peak quarterly sales in Q3 2025 (see details in Figure 3). GAAP net profit of $1.1 billion was down 6% YoY, only because of a $1 billion unrealized gain on Tesla’s SpaceX holding, which if excluded, would reduce net profit to $0.35 billion, or 70% lower than Q2 2025. Figure 1: Tesla’s Plunging Operating Margins Source: Tesla. Auto gross margins flat with Q1 despite Q2’s surge in deliveries: What’s hair-raising is that, despite the 34% sequential surge in Q2 deliveries, Auto gross margins (ex-credits) of 16.3% were flat after adjusting for around $460 million of one-off warranty and tariff benefits booked in Q1 (see details in Figure 2). Tesla Energy gross margins saw their steepest deterioration in years, falling from 39.5% in Q1 to 20.4% in Q2, as prices came under pressure from (Chinese) competition, and higher US tariffs on LFP cells imported from China. Looking into the details paints a much starker outlook for Tesla Energy, which provided 22.2% of consolidated gross profits in 2025.