Tesla margins rise, profits still drop

Tesla reported its third-quarter financial results today after the stock market closed. The company posted figures that showed a mixed performance for the period ending in September 2026.

Revenue stood at $28.05 billion, a figure that remained essentially flat compared to the same quarter last year. This result aligned closely with Wall Street expectations of $28.06 billion. Non-GAAP earnings per share reached $0.48, beating the consensus estimate of $0.45. However, this amount was still 4% lower than the $0.50 recorded a year ago. GAAP net income fell 43% to $787 million, or $0.22 per share.

Management attributed the financial shifts to significant increases in spending. Operating expenses rose 39% year-over-year to $4.78 billion. Research and development costs jumped 69% to $2.76 billion, driven by investments in the Optimus robot, Cybercab, and what the company now calls Super Intelligence. Stock-based compensation also increased sharply to $1.17 billion, up from $663 million in the prior year.

Capital spending reached $4.73 billion, more than double the $2.25 billion spent in the same quarter of 2025. Despite this high expenditure, free cash flow remained positive at $1.53 billion, a stark contrast to the negative $1.09 billion seen in the second quarter. Tesla ended the period with $45.4 billion in cash and investments.

Automotive gross margin excluding regulatory credits improved to 18.1%. This was up from 16.3% in the previous quarter and 15.4% a year earlier. The company credited a better product mix and increased FSD subscription revenue for the improvement. Meanwhile, the energy segment saw revenue drop 16% to $2.88 billion due to tariff-related customer refunds, even as deployments rose to 13.7 GWh.

The stakes for the company center on its ability to manage rapid spending while maintaining profitability. Tesla stated that battery availability continued to limit vehicle production volumes. The company also reported a backlog for passenger vehicles that it described as the largest in four years. With active FSD subscriptions reaching 1.74 million, Tesla is pushing forward with its autonomy plans despite the financial pressure from rising costs.

The next step involves monitoring the fourth quarter. Tesla has guided for more than $25 billion in capital spending for 2026. To meet that target, the company would need to spend roughly $12 billion in the final quarter alone. This would require spending more than double its highest previous quarter.