Tesla's long-promised transition from car-making giant to AI-driven tech titan has suffered a setback, as returns on the firm’s core vehicle line-up continue to erode.

The company reported a sharp drop in profits for the second quarter this year, after the average selling price of its cars slumped. The operating margin dropped to just 1.4% for the quarter ending June, compared with 4.1% in the same period last year despite delivering more cars, at 451,758 – up 10%.

The average selling price, based on automotive revenue divided by deliveries, sank 27% to $42,730, down from $58,564 this time last year, as Tesla rolled out cheaper models and offered more attractive finance to fend off increasingly strong competition.

Tesla in the UK has been offering the Model 3 saloon for lease at £295 a month with £295 down, meaning customers were paying £7572 over two years for a car that costs £37,990.

Tesla’s push to offset falling US sales amid the end of EV incentives there has switched its focused to global markets, including Europe and China. The Model Y SUV looked to top European sales in the first six months of this year as the firm sought to reclaim its EV crown from BYD.

The Model Y and Model 3 were the two best-selling electric models in the UK in the first six months, according to figures from the SMMT. The Model 3, which is produced in Tesla’s plant in Shanghai, was the UK’s third best-selling Chinese-built car over the period, after the Jaecoo 7 and MG HS.

Tesla continues to rely heavily on the Model 3 and Model Y for the bulk of its revenue, building 442,936 in the three-month period. Its other models, including the Cybertruck, account for just 8822 vehicles produced.

The company is pivoting to robotaxis and robotics as it looks for new, more profitable revenue streams, but so far the Model Y robotaxis and purpose-built Cybercab haven’t progressed as expected.

CFO Vaibhav Taneja blamed “kinks” for the slow rollout, which began in Austin in June last year but has only expanded to a handful of cities, despite CEO Elon Musk promising that “millions of Teslas would operating fully autonomously in the second half of next year”.

Tesla’s stock price has fallen by 29% from the start of this year.