By Akash Sriram and Abhirup Roy
July 2 (Reuters) – Tesla on Thursday posted record-setting second-quarter delivery numbers that smashed past Wall Street estimates, led by a rebound in Europe, feeding hopes that in 2026 the electric vehicle maker can end its two-year streak of annual declines.
Strong results from Tesla’s mainstay auto business offer a crucial cushion as CEO Elon Musk focuses on expensive ambitions in autonomous driving and artificial intelligence, the main drivers of the company’s roughly $1.6 trillion valuation.
Shares of the Austin, Texas-based company were down about 7% in midday trading. Analysts and investors said optimism had been priced in as the stock gained 12% earlier this week.
Tesla’s recovery in Europe was aided by a surge in fuel prices, government EV incentives, faster electrification of corporate fleets, and easing of the consumer backlash over CEO Elon Musk’s far-right politics last year.
“I think the huge growth in Europe is the key driver for Tesla right now. U.S. sales still appear to be down, albeit less than the broader U.S. EV decline, while China is seeing small growth,” said Seth Goldstein, senior equity analyst at Morningstar.
Goldstein, who had expected a third straight annual decline, said after the report: “I think it would be very hard to see a decline for the full year at this point.”
Tesla last year introduced stripped-down, lower-cost variants of its Model 3 compact sedans and Model Y SUVs and deployed attractive incentives and financing options.
“Their pricing and their products are helping the buyers overcome any issues they might have with Elon Musk personally,” said Sam Fiorani, vice president at research firm AutoForecast Solutions.
Demand in the U.S., Tesla’s biggest market, however, remained strained after removal of the EV tax credits late last year. “We’re cautiously optimistic for some growth this year,” Fiorani said.
Analysts said that the elimination of incentives for new EV purchases in the U.S. last year continues to weigh on sales, while some refreshes to the aging model lineup have led to stronger performance in the Chinese market.
“We believe Tesla’s U.S. sales likely declined by at least 10% in the quarter,” said Freedom Broker senior analyst Dmitriy Pozdnyakov.
Tesla launched its six-seater variant of the Model Y in the U.S. on Thursday. The three-row longer wheelbase EV – called Model Y L – helped drive Tesla deliveries in China and is expected to help revive demand in the U.S.
The company delivered 480,126 vehicles in the April-June period, a record for the second quarter and up about 25% from a year earlier, easily surpassing analysts’ average estimate of 402,776 vehicles, according to Visible Alpha data.
Tesla produced 451,758 vehicles during the quarter. The deliveries exceeded production by more than 28,000 vehicles, leading the company to draw down inventory that it built up during the first quarter.
The company’s China-made EV sales have risen this year, helped by production of the refreshed Model Y, despite intense competition from BYD and other domestic automakers.
The company said it will report quarterly results on July 22 after markets close.
Tesla’s focus has expanded far beyond making cars; it expects to spend more than $25 billion on capital expenditure in 2026, nearly triple the $8.5 billion last year, to expand AI infrastructure, battery production, Cybercab manufacturing and Optimus robots.
Tesla has continued to roll out its Full Self-Driving (FSD) advanced driver assistance software in Europe, although it is available in only a handful of countries. Analysts expect broader availability over the coming months to support demand.
The company expanded its robotaxi operations after launching a limited commercial service in Austin in June. Musk has said the company intends to rapidly expand the service through 2026.
“The stock price is still riding a bit of a rollercoaster. Investors are hyped about the bounce-back, but the big money is still waiting to see if Tesla can actually deliver on Elon Musk’s promises around AI, robotaxis, and self-driving tech,” said David Wagner, head of equity at Tesla shareholder Aptus Capital Advisors.
Production of the Cybercab, Tesla’s purpose-built autonomous vehicle without pedals or a steering wheel, is expected to ramp up later this year.
Also on Thursday, smaller rival Rivian raised its annual deliveries forecast and beat estimates for second-quarter deliveries.
(Reporting by Akash Sriram in Bengaluru and Abhirup Roy in San Francisco; Editing by Shinjini Ganguli and David Gregorio)