Tesla margins rise as profits slide

Tesla has released its third-quarter financial results, revealing a complex picture of stabilizing margins against a backdrop of declining profits. While the automaker managed to keep top-line revenue steady, the bottom line suffered as investment in future technologies outpaced immediate earnings.

The core claim from the report is that Tesla has begun to recover its profitability structure, even as absolute earnings drop. Revenue landed at $28.05 billion, a figure that was essentially flat compared to the same period in 2025 and aligned closely with the $28.06 billion consensus expected by Wall Street. Non-GAAP earnings per share came in at $0.48, beating the $0.45 analyst estimate, though it remains 4% lower than the $0.50 reported a year ago. This marks an improvement over the second quarter, when operating margin dipped to 1.4% and earnings missed expectations by a significant margin.

The improvement in margins is evident in the automotive segment. Excluding regulatory credits, auto gross margin rose to 18.1%, up from 16.3% in the previous quarter and 15.4% from a year ago. This increase is attributed to a better regional and product mix, as well as higher revenue from Full Self-Driving subscriptions. However, the company’s operating income fell 56% year-over-year to $718 million. This decline is driven by a 39% jump in operating expenses to $4.78 billion, fueled by aggressive spending on artificial intelligence, the Optimus robot, and the Cybercab.

A major caveat in the financials is the significant increase in capital expenditure, which reached $4.73 billion in the quarter. This is more than double the $2.25 billion spent in the same period last year. Despite this, free cash flow remained positive at $1.53 billion, aided by lower inventory levels. However, with $13.01 billion spent in the first nine months, Tesla is only halfway toward its guided goal of exceeding $25 billion for the year. To meet that target, the company would need to spend approximately $12 billion in the fourth quarter alone, a pace that would require doubling its current spending rate.

The energy segment presented mixed results. Revenue fell 16% to $2.88 billion, partly due to tariff-related customer refunds, even though energy storage deployments rose 10% to 13.7 GWh. While the segment’s gross margin improved to 33%, total gross profit still declined compared to last year. In contrast, the services and other segment was a bright spot, with revenue growing 33% to $4.61 billion. Gross profit in this area hit a record $734 million, driven by strong performance in charging, insurance, and parts sales.

Tesla attributed its flat vehicle deliveries to battery availability rather than weak demand. The company delivered 486,532 vehicles, a 2.1% decrease year-over-year, but this volume was well ahead of analyst expectations. Management noted that the company ended the quarter with its largest passenger vehicle backlog in four years. Despite this supply constraint, average selling prices continued to fall, a trend that typically suggests price competition rather than scarcity. Inventory levels dropped to 11 days of supply from 15 in the previous quarter.

On the technology front, active Full Self-Driving subscriptions reached 1.74 million, a 67% increase. This metric includes upfront purchases, a counting method that aligns with the definition used in the CEO’s 2025 pay package. The robotaxi service also continued its expansion, reaching nearly 2 million cumulative unsupervised miles by the end of the quarter. This milestone came one month after the Cybercab was added to the fleet in Austin, Texas.

GAAP net income dropped 43% to $787 million, or $0.22 per share. This figure includes a $288 million unrealized gain on Bitcoin holdings, which was partially offset by a $142 million unrealized loss on the company’s investment in SpaceX. Tesla ended the quarter with $45.4 billion in cash and investments, providing a strong liquidity position as it continues to fund its ambitious expansion plans.

The company will discuss these results further on an earnings call scheduled for 5:30 p.m. ET. Management will likely address the gap between current capital spending and annual guidance, as well as the outlook for battery supply and the rollout of unsupervised driving features. The full shareholder deck is available on the company’s investor relations website for detailed analysis.