Tesla Reports Record Revenue, Profit Misses Amid Rising Costs and Fading Credits

Tesla achieved record third-quarter revenue, surpassing Wall Street estimates, driven by its highest quarterly electric vehicle sales. This was partly due to U.S. buyers securing a key tax credit before its expiry. However, the company's profit fell short of analysts' expectations.

Credit: TESLA

Profit was impacted by tariff and research costs, alongside a decrease in income from regulatory credits. These credits are projected to diminish further due to recent legislation under the Trump administration.

Credit: TESLA

Tesla's USD 1.45 trillion valuation largely reflects investor confidence in Chief Executive Officer Elon Musk's strategic shift to robotics and artificial intelligence. Vehicle sales remain crucial for the company's financial stability during the development of these new products. Shares for the Austin, Texas-based company decreased by 4% in extended trading.

Demand for Tesla's vehicles, and those from competitors, is anticipated to decline without the tax credits. These credits previously served as a significant driver for electric vehicle sales.

Beyond the absence of tax credits and diminishing sales of regulatory credits, Tesla faces tariffs imposed by the Trump administration on auto-parts imports. Chief Financial Officer Vaibhav Taneja stated these tariffs cost Tesla more than USD 400 million during the quarter.

The electric vehicle maker also reported a 50% increase in operating expenses. This rise was driven by artificial intelligence and other research and development projects, alongside an increase in stock-based compensation. During an earnings conference call, Taneja indicated that capital expenditures would substantially increase in 2026.

"Tesla dished out just the right amount of good and bad news to both appease its fans while also providing enough evidence for its critics,," Camelthorn Investments adviser Shawn Campbell told Reuters. Campbell added, "This earnings report is not going to change anyone's mind on Tesla."

To counteract a potential demand decline, Tesla introduced lower-cost "Standard" variants of its Model Y and Model 3 vehicles. These versions omit several premium and basic features, reducing prices by approximately USD 5,000 to USD 5,500.

While Tesla anticipates these cheaper variants will boost sales volumes, analysts caution that the strategy may compress profit margins. Thousands of USD in cost reductions per vehicle might not fully offset the lower selling prices.

Tesla confirmed it is on schedule to commence volume production of its Cybercab robotaxi, Semi truck, and Megapack 3 battery in 2026. The company's energy business demonstrated strength, with an 81% increase in storage deployment during the quarter. Its robot plans are also progressing, with humanoid bot Optimus production expected to begin around the end of 2026, according to Musk.

The electric vehicle manufacturer reported total revenue of USD 28.1 billion for the third quarter, which ended Sept. 30. This compares to analysts' average estimate of USD 26.37 billion, based on LSEG data.

Profit per share for the third quarter stood at USD 0.50, falling below analysts' estimates of USD 0.55. Automotive regulatory credits, historically a significant profit contributor, decreased to USD 417 million during the quarter. This is down from USD 739 million in a comparable period a year prior, and USD 435 million in the preceding quarter.

Tesla reported a gross margin of 18%, compared with estimates of 17.5%. Its automotive gross margin, excluding regulatory credits, was 15.4%, against an average estimate of 15.6% from 19 analysts polled by Visible Alpha.

Tesla did not offer a full-year production forecast. However, Musk stated the company could expand production, citing his confidence in self-driving software. When questioned about increasing production possibly requiring incentives and compressing profit margins, Musk predicted "nutty" demand for the self-driving Cybercab, affirming that margins would not be sacrificed.

Tesla commenced a limited rollout of its self-driving "robotaxi" service in Austin, Texas earlier this year. Musk also expressed expectations for robotaxis to operate without safety drivers in significant portions of Austin this year. He further indicated robotaxis would be active in eight to ten metropolitan areas by the end of the year. Previously, he had projected Tesla robotaxis would serve approximately half the U.S. population by year end.

Wall Street anticipates an 8.5% decline in Tesla's deliveries in 2025. This forecast attributes the drop to the expiry of the tax credit, dependence on older models, and increasing competition. Additionally, Chief Executive Officer Musk's embrace of right-wing politics has alienated some prospective buyers.

Despite these challenges, many investors retain deep confidence in Musk. Nancy Tengler, Chief Executive Officer and chief investment officer of Tesla shareholder Laffer Tengler Investments, expressed bullish sentiment for the upcoming three to five years. Tengler stated, "I am less concerned about the next quarter." She added, ""It's messy, it's hard, it's trial-and-error, it's try again. But this is a CEO who is determined. And I think what we've seen historically is that he will get it done"

---

• Tesla reported record third-quarter revenue of USD 28.1 billion, exceeding Wall Street estimates.

• Profit per share was USD 0.50, missing analysts' expectations of USD 0.55, due to higher costs and declining regulatory credits.

• Operating expenses rose 50%, attributed to AI and research projects, plus increased stock-based compensation.

Source: REUTERS