Tesla's profits drop as spending spikes
Margins improved in the third quarter, but heavy investment in AI and new models cut operating income by more than half.
By Anna Nowak ·
Tesla is spending money faster than it is making it. The electric vehicle maker released its third-quarter financial results after the market closed on Tuesday. While sales held steady, the company’s bottom line took a hit. Operating income fell significantly year over year. This follows a rough second quarter where margins bottomed out.
The company has struggled recently to balance growth with profitability. In the previous quarter, operating margin dropped to 1.4 percent. Earnings per share missed analyst expectations by a wide margin. Investors were watching closely to see if the trend would reverse. The third-quarter numbers show a partial recovery, but the long-term picture remains tense.
Revenue came in at $28.05 billion. This was flat compared to the same period last year. It also matched the consensus estimate from Wall Street. Non-GAAP earnings per share reached $0.48. This beat the expected $0.45. However, it is still down 4 percent from a year ago. On a GAAP basis, net income dropped 43 percent to $787 million.
The drop in profit is driven by increased spending. Operating expenses rose 39 percent year over year. Research and development costs jumped 69 percent to $2.76 billion. Tesla is investing heavily in its AI efforts, the Optimus robot, and the Cybercab. Stock-based compensation also increased significantly. It reached $1.17 billion, up from $663 million last year.
Capital spending hit $4.73 billion. This is more than double the amount spent a year ago. Free cash flow was $1.53 billion, down from $3.99 billion. The company ended the quarter with $45.4 billion in cash. It also recorded a $288 million unrealized gain on its bitcoin holdings. This was partly offset by a loss on its SpaceX investment.
Automotive gross margin excluding credits improved to 18.1 percent. This is up from 16.3 percent in the second quarter. Tesla cites better product mix and more FSD subscription revenue. Average selling prices still fell. The energy segment saw revenue drop 16 percent to $2.88 billion. This was due to tariff-related refunds, even though deployment volume increased.
Tesla blames battery availability for its flat sales volume. The company says it has the largest passenger vehicle backlog in four years. Deliveries were down 2.1 percent year over year. However, they beat the consensus estimate. Active FSD subscriptions reached 1.74 million. The Robotaxi service has now logged nearly 2 million unsupervised miles.
Management will discuss these results on a conference call at 5:30 p.m. ET. The company has guided for more than $25 billion in capital spending for the year. It has only spent about half of that so far. To meet that target, Tesla would need to spend roughly $12 billion in the final quarter. This is more than double its biggest quarter to date. The gap suggests the spending plan may shift into next year.
Source: Electrek
