Third-quarter revenue fell 0.2% to $28.0bn ($27.9bn expected), as growth in services and other revenue was offset by lower energy storage revenue and slightly weaker car sales.
Operating profit fell 55.8% to $0.7bn ($0.8bn expected), as higher spending on AI and other research projects more than offset improved gross margins.
Over the period, Tesla produced 464,391 vehicles and delivered 486,532. Full self-driving (FSD) subscriptions rose 67% to 1.74mn.
Free cash flow fell from $4.0bn to $1.5bn, as capital expenditure more than doubled to $4.7bn. Net cash, including leases, rose $2.0bn to $35.9bn at the end of the quarter.
Management now expects capex of around $20bn this year (previously more than $25bn), and for that to keep growing over the next few years.
The shares fell 5.1% in after hours trading.
Our view
Tesla's third quarter delivered plenty of eye-catching progress, from record self-driving take-up to a fast-growing Robotaxi fleet. But beneath the flashy launches and promises of transformative tech, the fundamentals of the business have weakened considerably over the past five years. That tension sits at the heart of the investment case.
Operating margins came in at just 2.6% this quarter and haven't consistently been in double digits since 2022. Gross margins did improve, but the gains were swallowed by fast-rising spending on AI and new products, and operating profit more than halved as a result. For a company valued as a tech leader, that's not something to overlook.
There are green shoots in the car business. More than 75% of new cars sold in North America came with paid Full Self-Driving (FSD), up from 55% last quarter, and the order backlog is the largest in four years. Battery supply is now the main brake on volumes, which is a better problem to have than weak demand.
Robotaxi is gathering pace. Unsupervised miles grew eightfold over the quarter, the Cybercab fleet in Austin has grown tenfold since launching a month ago, and Dallas, Las Vegas and Phoenix are among the next cities in line. Software remains the main constraint for now, and we still think FSD version 15 is needed to really accelerate expansion.
Energy storage remains promising, with record order rates and 2027 Megapack capacity close to sold out as data centres look for quick ways to add power. Optimus volume production has started, but first external deliveries aren't expected until late 2027, and we still see further delays as likely.
This year's capex guide was cut to around $20bn, from more than $25bn, but that looks more like a timing shift than a change in direction. Spending is set to keep climbing, with the planned chip factory alone needing tens of billions by 2028. The strong net cash position provides room, but we think meaningful financial benefits from autonomy are still at least two to three years out, with robotics closer to the end of the decade.
All in, we think Tesla is a strong candidate to commercialise real-world AI, and this quarter delivered some improving proof points. We see enough near-term catalysts to help support the valuation, from improvements to FSD, ramping autonomy, the dangling carrot of Optimus, and a potential SpaceX merger. But we think much of the potential success is already built in, and a valuation propped up by hope rather than earnings is inherently fragile.
Environmental, social and governance (ESG) risk
Most of the auto industry falls into the medium-risk category in terms of ESG. Product governance, particularly around safety, and carbon emissions from products and services are key risk drivers. Business ethics, labour relations and direct carbon emissions are also contributors to ESG risk.
According to Sustainalytics, Tesla's management of ESG risks is strong.
Elon Musk’s political and extracurricular activities are a risk to monitor. Tesla also has a high degree of key person risk: Elon Musk is core to the investment case, and the premium valuation, to some extent, relies on his continued leadership. Governance concerns also include Elon Musk's past social media posts, which impacted Tesla's share price. Other areas to watch include safety concerns around its autopilot technology and the management of its workforce.
Tesla key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.