Tesla reported a 56% drop in third-quarter operating income on Wednesday as a surge in research spending on autonomy, robotics and compute absorbed a stronger automotive margin, leaving revenue flat at $28.0 billion.
The bigger surprise was cash as free cash flow came in at $1.53 billion, against the negative $4.51 billion analysts had forecast, as capital expenditure of $4.73 billion ran well below the $7.77 billion estimate.
GAAP operating income was $718 million, down from $1.62 billion a year earlier, for an operating margin of 2.6%, against 5.8% in the third quarter of 2025.
Net income attributable to shareholders fell 43% to $787 million, or $0.22 per diluted share. On a non-GAAP basis, which strips out stock-based compensation and unrealized gains and losses on digital assets and the SpaceX stake, net income was $1.70 billion, or $0.48 per share, down 4%.
Total revenue of $28.05 billion compared with $28.10 billion a year earlier and $28.24 billion in the second quarter. Tesla said trailing twelve-month revenue exceeded $100 billion for the second consecutive quarter.
The company gave no volume guidance.
It said it is focused on “maximum capacity utilization” at its factories and that deliveries will depend on demand, supply chain readiness and “allocation decisions between sale to customers and use for our owned and operated fleet,” a reference to the robotaxi service that now runs Cybercabs in Austin.
Tesla shares rose 2.0% to $394.16 in after-hours trading as of 4:09 pm ET, after closing up 3.4% at $386.47 in the regular session.
Management will take questions on a webcast at 5:30 pm ET.
Spending Outpaces Gross Profit
Gross profit rose 9% to $5.49 billion and gross margin widened to 19.6% from 18.0%, helped by a better regional and product mix and higher ancillary sales from Full Self-Driving subscriptions.
Automotive gross margin excluding regulatory credits was 18.1%, up from 15.4% a year earlier and 16.3% in the second quarter.
Operating expenses, however, climbed 39% to $4.78 billion. Research and development spending rose 69% to $2.76 billion, the fourth consecutive quarterly increase in the periods Tesla disclosed, and selling, general and administrative costs rose 29% to $2.02 billion.
Tesla attributed the increase to what it now calls Super Intelligence and other R&D projects, stock-based compensation including the 2025 chief executive performance award, and general costs.
Regulatory credit revenue, long a cushion for Tesla’s profitability, fell 73% to $113 million, the lowest level in the five quarters the company disclosed. Credits contributed 0.4 percentage points of automotive margin, against 1.6 points a year earlier.
Adjusted EBITDA was $3.90 billion, down 8%, at a 13.9% margin.
Deliveries Slip, Other Models Halve
Tesla delivered 486,532 vehicles in the quarter, down 2% from a year earlier and up 1% from the second quarter. Model 3 and Model Y deliveries were 478,237, down 0.6%, while deliveries of other models, which include the Cybertruck, Model S and Model X, fell 48% to 8,295, the lowest in the series.
Production rose 4% to 464,391 vehicles. Deliveries exceeded output by about 22,100 units and global inventory fell to 11 days of supply from 15 at the end of June.
Tesla said battery availability remained the limiting factor on volume, that its passenger-vehicle backlog is the largest in four years, and that it achieved record deliveries in Canada, Australia, Japan and Taiwan and record output at Gigafactory Berlin, without giving figures.
Automotive revenue fell 3% to $20.56 billion.
The company said average selling prices excluding currency effects were lower year over year, including mix, and that a $300 million currency tailwind partly offset the decline.
Automotive revenue per vehicle delivered outside leases were about $41,900, little changed from a year earlier, while cost per vehicle fell to about $34,500 from about $35,700.
Energy Revenue Falls
Energy generation and storage revenue fell 16% to $2.88 billion, even as storage deployments rose 10% to 13.7 GWh. Tesla said the decline was partly due to tariff-related refunds to customers.
The segment’s gross margin was 33.1%, up from 31.4% a year earlier. The company said order rates and backlog for storage were the highest ever, driven by data center demand, and that Megafactory Texas began production with a planned capacity of 50 GWh. The first Megapacks built with Tesla’s own LFP cells shipped from Nevada.
Services and other revenue rose 33% to $4.61 billion. Gross profit in the segment reached a record $734 million at a 15.9% margin, driven by charging, insurance and parts.
FSD and Robotaxi
Active FSD subscriptions rose to 1.74 million, up 67% from a year earlier and 18% from the second quarter, a record for net new subscriptions.
Tesla said the attach rate on new deliveries in North America exceeded 75%, a sequential increase of nearly 20 percentage points, and that it believes FSD is driving demand where it is available.
In Europe, the system won approval in Slovakia as the ninth EU country after Croatia, Slovenia and the Czech Republic since the end of June. Tesla said more than 100,000 European customers have driven more than 160 million kilometers with the system.
Cybercab entered the Austin robotaxi fleet on September 3.
Cumulative unsupervised robotaxi miles reached nearly two million by quarter end, eight times the level at the end of June. Operating hours in Austin are now 6 a.m. to midnight.
Cash, Capex and Capacity
Operating cash flow was $6.26 billion, flat year over year. Capital expenditures more than doubled to $4.73 billion, after $5.79 billion in the second quarter, and free cash flow was $1.53 billion, down 62% from an unusually strong third quarter of 2025 and recovering from a negative $1.09 billion in the second quarter.
Trailing twelve-month capex reached $15.4 billion. Cash and investments ended the quarter at $45.4 billion, up $1.9 billion.
Tesla listed Cybercab capacity in Texas at more than 125,000 units a year with production status, Tesla Semi capacity in Nevada at 25,000, and said volume production of the Semi has begun.
The top variant is rated at 500 miles at a gross combination weight of 82,000 pounds, at 1.7 kWh per mile. Optimus production began on high-volume lines in Fremont, with a Texas line under construction.
The Roadster unveiled on October 15 appears in the capacity table in design development, with no location.
Training compute stood at more than 225 MW across the two Cortex clusters in Texas, with a target of 400 MW by year end, and the Austin semiconductor fab is under construction with equipment commissioning planned for 2027.
