Tesla Sank 15% on Its Q2 Miss. Wall Street's Average Price Target Now Implies 29% Upside.
Key Points
Tesla shares fell about 15% Thursday after the company reported a 57% drop in second-quarter operating income.
The average analyst price target sits near $412, about 29% above where the stock closed.
The consensus rating on the stock is still a buy.
- These 10 stocks could mint the next wave of millionaires ›
Tesla (NASDAQ: TSLA) shareholders had a rough Thursday. Shares of the electric car maker sank about 15% following the company's second-quarter report, closing at $319.69 -- near the bottom of a 52-week range that runs from $297.82 to $498.83.
But Wall Street barely budged. The average analyst price target on the stock sits near $412 as of this writing, about 29% above Thursday's close. And across the 44 analysts covering the company, the consensus rating is still a buy.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
That's quite a gap. So is the drop a buying opportunity, or is Wall Street just slow to mark down a story it has believed in for years?
Image source: Tesla.
The quarter behind the drop
Tesla's revenue rose 26% year over year to $28.2 billion in the second quarter of 2026, helped by 480,126 vehicle deliveries -- the company's best second quarter ever. That marked an acceleration from 16% growth in Q1, and it pushed the company past $100 billion in trailing-12-month revenue for the first time. After revenue shrank last year, the top line is moving again.
The profit side is another matter. Operating income fell 57% year over year to $398 million, squeezing Tesla's operating margin to 1.4% from 4.1% a year earlier. Adjusted earnings per share came in at $0.33, down 18% from a year earlier. For every dollar of record revenue, barely a penny reached operating profit.
Notably, the problem wasn't the economics of selling cars. Tesla's automotive gross margin slipped only modestly, to 16.9%.
The damage came from everything below that line, as the company spends heavily on AI (artificial intelligence), its robotaxi service, and its Optimus robot program, plus stock-based compensation tied to CEO Elon Musk's 2025 pay award. Regulatory credit revenue, a high-margin helper in past quarters, also collapsed 67% to $146 million.
And for the first time in years, the quarter burned cash. Capital expenditures more than doubled to $5.8 billion, pushing free cash flow to negative $1.1 billion.
In short, Tesla delivered record second-quarter volume and record revenue, and almost none of it reached operating profit. That's the quarter the market repriced on Thursday.
What the 29% of upside is made of
Now back to that $412 average price target.
A price target is a model's output. And the analysts behind those models are, on average, still crediting Tesla for a future of high-margin software, a scaled robotaxi network, and strong returns on all of this AI spending. The 29% gap between the target and Thursday's close arguably measures faith in that future more than it measures a discount on the business Tesla runs today.
After all, even at $319.69, the stock trades at about 300 times earnings. A company earning $0.33 a share in its best revenue quarter ever doesn't support a price like that on its own. So much future success is already priced in that the shares can fall 15% and still not look cheap on any near-term measure.
To be fair, the report offered evidence the newer businesses are moving. Services and other revenue rose 50% year over year, and energy storage deployments climbed 41% to 13.5 gigawatt-hours. But those lines remain small next to the car business that still pays Tesla's bills, and neither is yet big enough to carry the company's margin on its own.
So I don't treat the gap between the price and the target as an opportunity in itself. Targets get updated on a delay after a move this size.
The average could keep drifting down toward the price instead of the price rising to meet it.
Could the models be right? Sure.
If Tesla's robotaxi and AI bets pay off on anything like the timeline the bulls expect, today's price may well look cheap in hindsight. That has happened with this company before. I just don't think investors should pay about 300 times earnings for that outcome while the operating margin sits at 1.4% and the spending is still accelerating.
I'm not buying the drop, and the 29% of upside on paper doesn't change that. What would get my attention is profit growth showing up alongside the revenue growth.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $537,140!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $63,471!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $377,990!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, available when you join Stock Advisor, and there may not be another chance like this anytime soon.
See the 3 stocks »
*Stock Advisor returns as of July 25, 2026.
Daniel Sparks has clients with positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
Recommended Articles
