Tesla gave Wall Street better earnings than expected on Wednesday, but the numbers came with a pretty big catch: profits are shrinking.
Elon Musk’s company made just $787 million for common shareholders in the third quarter, down 29% from $1.11 billion a year earlier.
Even with the earnings beat, investors sent the stock down more than 3% after hours. Selling cars is getting tougher, and the company’s ambitious AI plans aren’t getting any cheaper.
Tesla car prices fall while Elon pours billions into AI
The quarterly results looked healthier at first glance:
- Adjusted earnings: 48 cents per share, against the 43 cents Wall Street expected.
- Total revenue: $28.05 billion, ahead of the $27.9 billion estimate.
Revenue for automotive went down by 3%, to $20.56 billion. In addition to the fact that customers started paying less per car, the problems with battery production prevented Tesla from building enough vehicles to meet the demand.
Unfortunately, its revenue from energy did not help much – that figure decreased by 16%, to $2.88 billion. On a brighter note, it was services and other revenue that earned the company $4.61 billion (+33%).
As usual, in accordance with the accounting standards, earnings per share decreased from 32 cents to 22 cents.
In addition to it, capital expenditure nearly doubled and reached $3.73 billion due to the investments that ranged from artificial intelligence solutions to its own Optimus humanoid robot. Free cash flow went down by 62% to $1.53 billion, which was at least positive.
The car business faces pressure well beyond its factories. Third-quarter deliveries came to 486,532 vehicles, roughly 2% fewer than last year. Tesla recorded new sales highs in Canada, Japan, Taiwan and Australia, but those wins haven’t made up for sluggish growth in its biggest business.
Chinese rivals BYD and Xiaomi are winning attention in Asia and Europe with competitively priced electric vehicles. The loss of a US federal EV tax credit last year also hurt demand.
Active FSD (Supervised) subscriptions totaled 1.74 million, representing a year-over-year increase of 67%. Adoption increased by 20 percentage points from Q2, according to Tesla. This partially automated system is priced at $99 per month in the U.S., but requires supervision.
“We believe that FSD is driving demand in markets where it is available, and we continue to work with regulators to get it approved in other markets,” the company said.
Robotaxis, Optimus and a SpaceX deal raise bigger questions
Ashok Elluswamy, Tesla’s vice president of Autopilot, said some customer vehicles could receive the company’s upcoming FSD (Unsupervised) around the second quarter of 2027.
Elon also wants to push the Cybercab beyond Austin this year. The bronze two-seat vehicle is undergoing tests, but ordinary customers cannot buy one. Instead, the company expects to own most of the fleet and charge people for rides. Chief financial officer Vaibhav Taneja said that expansion means watching expenses such as charging, repairs and cleaning.
“The vast majority of the Cybercab stuff will be essentially Tesla-owned and transport-as-a-service,” Elon said.
Texas motor vehicle records list 362 Model Y robotaxis and 449 Cybercabs authorized for driverless operations. Elon expects the service to start showing up meaningfully in Tesla’s finances during 2027, particularly later in the year.
“It’s not like going to move the needle this quarter,” Elon said. “I think it starts to become noticeable in Q2 and then probably a big deal by Q3 or Q4 of next year.”
He went further, predicting Tesla could eventually account for most passenger miles worldwide in countries without regulatory restrictions or protectionist barriers.
There’s also the question of whether Tesla and SpaceX might merge. A day earlier, Elon told SpaceX investors that combining his two companies could make sense. Both boards have established special committees to consider the idea.
“I feel like I’m tap dancing through a minefield,” Elon said. “I think I said everything that should be said yesterday.”
The companies already overlap on a planned semiconductor factory in Grimes County, Texas, involving Intel, as well as work on Tesla’s refreshed Roadster. Those connections have fueled talk of a historic deal, although Elon provided no new merger details.
As for Optimus, Elon said its AI systems are improving, but the robots still struggle with open-ended tasks. Engineers must resolve mechanical design, reliability and operating-time issues alongside the software challenges. He expects those problems to be addressed by the end of 2027.
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