Tesla Reports Third-Quarter Earnings Beat Despite Declining Profits

Tesla reported third-quarter financial results that surpassed Wall Street estimates for revenue and adjusted earnings per share, even as overall profitability experienced a significant downturn. The company posted adjusted earnings of $0.48 per share on revenue of $28.05 billion, edging out consensus forecasts from analysts. Following the report, Tesla stock rose slightly in extended trading.

Despite the revenue beat, net income attributable to common shareholders dropped sharply compared to the previous year. GAAP net income fell to $787 million, or 22 cents a share, reflecting a 29% to 43% decrease depending on the specific metric compared against the prior-year period. Operating income also saw a steep decline, dropping 56% to $718 million, which brought the operating margin down to 2.6%.

The squeeze on profitability was driven by a massive surge in spending on artificial intelligence and robotics initiatives. Research and development expenditures rose significantly as the company funneled capital into its Optimus humanoid robot, Cybercab, and Super Intelligence developments. Capital expenditures increased compared to the previous year, while free cash flow dropped to $1.53 billion. Tesla ended the quarter with $45.4 billion in total cash and investments, and notably maintained its Bitcoin holdings without selling any of its cryptocurrency assets.

Tesla's core automotive business faced headwinds, with revenue declining 3% year-over-year to $20.56 billion. The company delivered 486,532 vehicles during the quarter, representing a 2% drop from a year ago. Tesla pointed to battery availability as a limiting factor in increasing auto volumes, noting that it ended the quarter with a substantial backlog. In the United States, sales felt the ongoing impact of the expiration of the federal electric vehicle tax credit, though international markets such as Canada, Japan, Taiwan, and Australia set new delivery records.

Energy generation and storage revenue also slipped, falling 16% to $2.88 billion due partly to tariff-related customer refunds, despite energy storage deployments rising to 13.7 GWh. Conversely, Tesla's services and other sector emerged as a bright spot, growing 33% to $4.61 billion on the back of record gross profit from charging, insurance, and parts sales. Additionally, active subscriptions for Tesla's Full Self-Driving system climbed 67% year-over-year to 1.74 million.

Operational milestones accompanied the financial release, including the start of production for the Optimus robot at the Fremont factory and the launch of Cybercab robotaxi rides in Austin. Meanwhile, CEO Elon Musk recently addressed shareholder questions regarding a potential tie-up between Tesla and SpaceX, revealing that both companies have formed independent special committees to discuss the idea. Musk noted that while he considers it a good idea, a merger is not a certainty and would ultimately require robust support from shareholders.