Tesla shares fall more than 3% despite earnings beat and $1.5B in free cash flow

Tesla shares fall more than 3% despite earnings beat and $1.5B in free cash flow

Shares of Tesla Inc. fell more than 3% in after-hours trading today after the electric car maker beat earnings expectations for its fiscal third quarter on revenue that came in a little under forecasts.

Early after-hours gains, which followed a 3.4% rise in the regular session, reversed once the earnings call got underway.

For the quarter ended on Sept. 30, Tesla reported adjusted earnings of 48 cents per share, down from 50 cents a year earlier, on revenue of $28.05 billion, flat year-over-year. Analysts were expecting 45 cents per share on revenue of $28.34 billion, according to the consensus Tesla compiled from 23 sell-side analysts.

Those same analysts had Tesla burning through about $4.5 billion of free cash in the quarter. The company generated $1.53 billion, largely because capital spending of $4.73 billion came in some $3 billion below the consensus estimate. Cash and investments ended September at $45.4 billion.

Operating income fell 56%, to $718 million, as operating expenses rose 39%. Most of the increase came from research and development, where spending reached $2.76 billion against $1.63 billion a year earlier. Gross margin improved to 19.6% from 18%. On an unadjusted basis, net income attributable to common stockholders dropped 43% to $787 million.

Automotive revenue slipped 3%, to $20.56 billion, with regulatory credits contributing $113 million against $417 million a year ago. Deliveries, which Tesla disclosed on Oct. 2, came to 486,532 vehicles, down 2%.

Battery supply was still capping vehicle output, Tesla said in its shareholder update, and the quarter closed with the largest passenger vehicle backlog in four years. Chief Executive Elon Musk told analysts that demand is “exceeding our production by a significant margin.”

Energy storage deployments rose 10%, to 13.7 gigawatt-hours, in a quarter that also saw a new Megafactory in Texas begin production, with planned capacity of 50 gigawatt-hours a year. Revenue from the segment still fell 16%, to $2.88 billion. Musk said Tesla’s Megapack grid-scale battery systems, which it sells to utilities and data center operators, are “almost sold out” for 2027.

Active subscriptions to Full Self-Driving (Supervised) reached 1.74 million, up 67% from a year earlier, and more than three in four new vehicles delivered in North America now come with it. Tesla’s purpose-built Cybercab robotaxis have been carrying passengers in Austin since Sept. 3. Musk said the fleet there has grown tenfold in that time, and Tesla plans to take the robotaxi service to Dallas next month.

Production of Optimus humanoid robots has started on high-volume lines in Fremont, where Tesla said in January it would end Model S and Model X production to make room for the robot. Getting to 20,000 units a week will take “at least a year, maybe a little longer,” according to Musk. He expects to start delivering Optimus to companies outside Tesla around the end of next year.

Tesla cut its capital spending forecast for 2026 to about $20 billion, from more than $25 billion. Chief Financial Officer Vaibhav Taneja said the plan is to fund it “primarily from our cash flows from operations.” Tesla also secured up to $30 billion in borrowing capacity during the quarter, he added.

The shareholder update carried no delivery forecast for the fourth quarter. Musk said on the call that the company is aiming for about 5 million vehicles a year by about 2030.

Photo: Tesla