Tesla's profit drops as it explores a possible merger with Musk's other public company, SpaceX
Tesla reported a decline in third-quarter profit, but generated more cash than analysts expected, leaving investors with a mixed picture as it explores a possible merger with Elon Musk's other big company, SpaceX.
Tesla reported lower third-quarter profits on Wednesday as Elon Musk's electric vehicle maker ramped up spending on artificial intelligence, robotics and autonomous transport.
The electric vehicle maker reported third-quarter net income attributable to shareholders of $787 million (€701 million), or 22 cents per share, down 43% from the year-earlier period. Besides marginally lower car sales, Tesla saw a drop in revenues from regulatory credits and energy generation and storage.
Revenue was essentially flat at $28 billion (€24.9 billion), falling slightly short of the company-compiled average analyst forecast of $28.3 billion.
Excluding certain items, though, earnings per share of 48 cents beat Wall Street analyst expectations by 3 cents.
One standout for the quarter was Tesla's $1.5 billion (€1.3 billion) in free cash flow, a measure of cash generated after subtracting investments needed to keep the business running.
Given heavy spending on artificial intelligence, analysts had expected Tesla would report it had burned through cash, not generated it. However, free cash flow was still down 62% from a year earlier.
"It seems Tesla is taking a more capital-efficient approach, delaying longer-term projects to be able to self-fund their AI growth," said Morningstar analyst Seth Goldstein, calling the unexpected positive cash flow the big surprise of the quarter.
Tesla is rolling back its annual spending forecast
The company also reported more than doubling capital spending from a year earlier to $4.7 billion (€4.2 billion) for the quarter, but analysts had expected a far bigger increase.
Tesla cut its full-year 2026 capital spending forecast to about $20 billion (€17.8 billion), from more than $25 billion (€22.3 billion). Chief financial officer Vaibhav Taneja said the company was managing its spending efficiently and planned to fund it mainly through operating cash flow.
Besides robotaxis and AI, Tesla is investing heavily in Musk's "Optimus" humanoid robots as well as developing Terafab, a chip manufacturing project in Austin, with SpaceX.
On the positive side, Tesla reported strong demand for its paid driver-assistance software, with more than 75% of new vehicles delivered in North America including a paid subscription sign-up.
The company calls the feature Full Self-Driving (Supervised) in North America. Despite its name, the software requires active driver supervision and does not make the vehicle autonomous.
Tesla's automotive gross margin, excluding regulatory credits, also improved. For the three months through September, it reached 18.1%, up from 15.4% a year earlier.
Tesla had previously reported delivering 486,532 vehicles last quarter, a rise from 480,126 in the prior three months, but down 2% from a year earlier.
The modest rise in deliveries from the previous quarter did not translate into higher net profit.
Musk said Tesla was aiming to produce about five million vehicles a year by around 2030, compared with approximately 1.65 million produced in 2025.
"After many years of sort of grind and things being fairly flat, I think we're now headed for a lot of fun and significant growth," Musk said.
The company has faced questions about the rollout of its robotaxi business, which has fallen short of Musk's earlier ambitions.
In Texas, where Tesla has focused its robotaxi launch, more than 800 Tesla vehicles are registered for autonomous service, according to FSD Database.
Tesla shares were down 3.2% in after-hours trading after climbing 3.6% during the regular trading session.
SpaceX merger talks add to questions over Tesla's future
Questions about Tesla's future loomed larger with talk of the potential SpaceX tie-up. The companies have a combined stock market value of about $3.5 trillion (€3.1 trillion).
In a SpaceX conference call after that company reported earnings on Tuesday, Musk said both companies had formed special committees of independent directors to explore a possible merger. He said no terms had been agreed and there was no guarantee of a deal.
Merger speculation and SpaceX's strong results helped lift shares in both companies on Wednesday. Forbes estimated Musk's wealth at $1.013 trillion (€902 billion) at 10.30am New York time, putting him briefly back above the trillion-dollar mark.
Musk said the two companies could gain from working together on AI software, chip design, robotics and satellite infrastructure, including space-based computing.
Musk declined to discuss the possible merger further on Tesla's conference call.
