Tesla said Wednesday that its profits fell last quarter as the car company run by Elon Musk shoveled more money into research and development, cutting into profits from a sharp increase in vehicle sales.

The Austin, Texas, company reported second-quarter net income of $1.11 billion, or 32 cents per share. Excluding certain items, earnings were 33 cents per share, well short of the 53 cents per share forecast by Wall Street analysts, according to FactSet.

Revenue rose 26% to $28.24 billion, beating analysts’ forecast of $26.42 billion.

While the core car business had a solid quarter, Tesla is now focused on building out the infrastructure and AI software that underpins its robotaxis and robotics businesses, which Musk has said are the future of the company. And doing so requires a lot more spending.

Research and development spending surged about 49% from a year earlier to $2.37 billion - higher than it's been going back at least four quarters.

"We’re investing a lot in growing the core business and really preparing for the future,” Musk said during a conference call with Wall Street analysts, promising that the spending will yield "incredible returns.”

CFO Vaibhav Taneja told analysts that the company expects capital expenditures will increase further in the second half of this year, driving full-year spending to more than $25 billion.

Taneja also forecast that spending on capital expenditures will continue growing for the next "2 to 3 years,” as the company seeks to expand its fleet of robotaxis, add AI compute infrastructure and build more production capacity for its Optimus humanoid robot, among several other products.

Tesla shares fell 4.1% in after-hours trading shortly. The stock ended the regular trading session 1.3% lower and is down just under 17% this year.

Earlier this month, Tesla reported that it delivered 480,216 cars in the second quarter, a 25% increase from the same period last year and its second straight quarterly gain. The sales also exceeded analysts’ expectations, according to a FactSet survey.

Tesla’s improving sales this year mark a big turnaround from a year ago, when many Europeans refused to buy the company’s cars because of Musk’s embrace of far-right political candidates in elections there.

The vast majority of the company’s vehicle deliveries last quarter were comprised of its Model Y crossover SUV and Model 3 sedan. Tesla rolled out less expensive versions of both models last year in hopes of boosting sales. It also cut the cost of leasing and loans in Europe.

Sales were also helped by a surge of EV buying in general in Europe as gas and diesel prices have risen due to the Iran war.

Just a few months ago, Tesla reported sales had fallen in 2025 for a second year in a row and it had to yield its crown as the world’s largest EV maker to China’s BYD.

Tesla's EV sales accounted for most of the company’s overall revenue, but the company got a boost from its energy generation and battery storage business, which posted revenue of $3.14 billion, a 13% gain compared to the second quarter last year.

The company also benefited from increased subscriptions for its driver assistance feature, available in the U.S., called Full Self-Driving (Supervised). The number of FSD subscribers has now reached nearly 1.5 million globally.

Tesla said it has now rolled out its robotaxi service to seven major metro areas in the U.S., and that it it expects production on its Optimus humanoid robot to begin later this year.

The company has also been investing in building new battery factories and in the infrastructure needed to produce its Tesla Semi and Cybercab.

The company noted that it has begun production of the Cybercab at a factory in Texas, and that the Tesla Semi is on track for production this year at a factory in Nevada.

Tesla executives didn't offer more specifics on how many robotaxis or Cybercabs will be on the road, nor how soon.

Musk noted that the company needs more time to test the Cybercab chassis and doesn't want to rush the expansion of robotaxis, saying he prefers to take a cautious approach.

"We’re working on what we believe is the most ambitious buildout of advanced infrastructure manufacturing capacity ever in history,” he said. "Our goals are very ambitious for robotaxi, but we do need to be cautious about causing any accidents or causing any harm to anyone."