Tesla Reports Stable Revenue as Profit Margins Recover

Tesla released its financial results and shareholder letter for the third quarter after the market closed on Tuesday, reporting $28.05 billion in revenue. The figure was essentially unchanged from the same period in 2025 and aligned closely with Wall Street expectations. Non-GAAP earnings came in at $0.48 per share, slightly beating the consensus forecast of $0.45, although this represents a 4% decline from the $0.50 reported a year ago.

The quarter marked a partial recovery from the previous period, when operating margins had contracted sharply. Automotive gross margins, excluding regulatory credits, rose to 18.1%, up from 16.3% in the second quarter and 15.4% a year earlier. This improvement was attributed to a more favorable product mix and increased subscription revenue for its Full Self-Driving software, which partly offset lower average selling prices.

Despite the margin recovery, the company’s bottom line continued to slide. Operating income fell 56% year-over-year to $718 million, resulting in an operating margin of 2.6%. On a GAAP basis, net income dropped 43% to $787 million, or $0.22 per share. This decline was driven by significant increases in spending, with operating expenses rising 39% to $4.78 billion.

Research and development costs surged 69% to $2.76 billion as the company invested in its "Super Intelligence" initiative, the Optimus robot, and the Cybercab. Capital spending also more than doubled to $4.73 billion, compared to $2.25 billion in the same quarter last year. This heavy investment led to free cash flow of $1.53 billion, a significant drop from the $3.99 billion reported a year prior, though it was a positive result compared to the negative $1.09 billion in the second quarter.

Tesla delivered 486,532 vehicles in the quarter, a 2.1% decrease year-over-year but a figure that exceeded analyst consensus. The company stated that battery availability remained the primary limiting factor for production, noting that it ended the period with the largest passenger vehicle backlog in four years. Energy storage deployments rose 10% to 13.7 GWh, though revenue for that segment fell 16% to $2.88 billion due to tariff-related refunds.

Looking ahead, management has guided for over $25 billion in capital spending for 2026. With $13.01 billion spent through the first nine months, Tesla would need to deploy approximately $12 billion in the fourth quarter to meet that target. This would require spending more than double what it invested in any previous quarter this year. The company did not update its guidance in the shareholder letter, leaving open the possibility that the 2026 spending plan may extend into 2027.

The earnings call with management was scheduled for 5:30 p.m. ET, where executives were expected to discuss the financial details and the company's strategic direction, including its autonomy and energy initiatives.