Tesla shares fell in after-hours trading after reporting quarterly earnings that missed market expectations, despite higher car sales, as its massive capital expenditure plans raised investor questions about expected returns.

The company posted second-quarter profit of $1.1 billion, down nearly 5 percent from the same period last year, or 33 cents per share, well below the average analyst estimate of 53 cents per share.

In contrast, revenue rose 26 percent to $28.2 billion, boosted by improved electric vehicle sales, especially in European markets.

Tesla explained that the decline in profitability was due to lower vehicle selling prices, lower revenue from regulatory compliance credits, and costs related to energy business warranties.

Capital expenditure jumped to $5.8 billion in the second quarter, more than double the level a year ago, as part of a broad expansion in building factories and production centers.

CEO Elon Musk described the expansions as potentially 'the fastest industrial expansion the United States has seen since World War II.'

Tesla is partnering with Musk's companies SpaceX and xAI on the 'Terabab' project in Austin, Texas, worth $20 billion, aimed at building a massive chip manufacturing facility.

The company confirmed that expansion plans are on schedule, noting the start of production of the 'Cybercab' vehicle in Texas, while preparations continue to launch commercial production of the 'Tesla Semi' truck in 2026.

In software, Tesla announced an increase in subscribers to the Full Self-Driving (FSD) program, helping boost revenue.

Musk defended heavy spending on AI and autonomous vehicle projects, emphasizing that the company aims to achieve the highest reliability levels before expanding the 'Robotaxi' service.

He said: 'Ideally, reliability should reach 99.99999 percent before expansion.'

The company's massive spending plans have raised investor concerns, similar to those facing major tech companies like Google and Amazon, about whether these investments can generate attractive returns.

Garrett Nelson, analyst at CFRA Research, said the market still lacks a clear view of the expected return from these capital expenditures.

Meanwhile, CFO Vaibhav Taneja said operating expenses, particularly in research and development, will continue to rise through 2026 and beyond.

Musk stressed that speed of project execution is a priority, even at the expense of some capital efficiency, saying: 'We should spend on capital investment as fast as possible, as long as it does not involve significant waste.'

This is Tesla's first earnings release since the successful listing of SpaceX on the stock exchange in June, sparking speculation on Wall Street about a possible merger of the two companies in the future.

In response to these speculations, Musk acknowledged 'extensive cooperation' between Tesla and SpaceX, but stressed that any possibility of merging the two companies cannot be discussed during the earnings call.

Tesla shares fell about 4.1 percent in after-hours trading.

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