Tesla Q3 Profit Drops as Spending Soars
The electric car maker posted flat revenue and lower net income while investing heavily in AI and new vehicles.
By Christopher Reed ·
Tesla reported third-quarter financial results after the market closed on October 21. The company posted $28.05 billion in revenue. This figure matches Wall Street expectations. However, non-GAAP earnings per share fell to $0.48. This represents a 4% decrease from the same period last year. Management will discuss these figures on an earnings call scheduled for 5:30 p.m. ET.
Profitability remains a challenge despite some recovery. Operating income dropped 56% year-over-year to $718 million. This decline occurred as spending on AI and the Optimus robot grew faster than gross profit. GAAP net income fell 43% to $787 million. The operating margin stood at 2.6%. This is an improvement from 1.4% in the second quarter but lower than the 5.8% seen a year ago.
Operating expenses rose 39% to $4.78 billion. Research and development costs jumped 69% to $2.76 billion. Tesla is spending heavily on its Super Intelligence, Optimus, and Cybercab projects. Stock-based compensation also increased significantly to $1.17 billion. Capital spending reached $4.73 billion, more than double the amount from the previous year. Free cash flow was $1.53 billion, down from $3.99 billion a year ago.
Automotive gross margin excluding credits improved to 18.1%. This is up from 16.3% in the second quarter. Tesla attributes this improvement to a better regional mix and higher FSD subscription revenue. Regulatory credits generated $113 million, a 73% drop from last year. Energy storage revenue fell 16% to $2.88 billion due to tariff-related refunds. Services and other revenue grew 33% to $4.61 billion, marking a record for gross profit in that segment.
Tesla states that battery availability limited vehicle production. The company ended the quarter with a four-year high in passenger vehicle backlog. Despite this, deliveries fell 2% year-over-year. Average selling prices continued to decline. Active FSD subscriptions reached 1.74 million, a 67% increase. Robotaxi service accumulated nearly 2 million unsupervised miles. The company has pushed full unsupervised FSD to the second quarter of 2027.
Capital spending for the first nine months of 2026 totals $13.01 billion. This is roughly half of the company’s annual guidance. Tesla would need to spend approximately $12 billion in the fourth quarter to meet its target. The Q3 letter did not update this guidance. Capex actually decreased from the previous quarter, suggesting the 2026 plan may slip into 2027.
Source: Electrek
