Tesla shares fall more than 3% despite rising profits and $1.5 billion in free cash flow

Shares of Tesla Inc. fell more than 3% in after-hours trading today after the electric car maker beat fiscal third-quarter profit expectations and revenue came in slightly below forecasts.

Early after-hours gains, which followed a 3.4% rise in the regular session, reversed as the earnings release began.

For the quarter ended Sept. 30, Tesla reported adjusted earnings of 48 cents per share, down from 50 cents a year earlier, on revenue of $28.05 billion, which was flat year over year. Analysts expected 45 cents per share on revenue of $28.34 billion, according to the consensus Tesla compiled from 23 seller analysts.

The same analysts estimate that Tesla burned through about $4.5 billion in free cash this quarter. The company earned $1.53 billion, largely because capital expenditures of $4.73 billion were about $3 billion below the consensus estimate. Cash and investments totaled $45.4 billion at the end of September.

Operating income fell 56% to $718 million, while operating expenses rose 39%. Most of the increase came from research and development, where spending reached $2.76 billion, up from $1.63 billion a year ago. The gross margin improved from 18% to 19.6%. On an unadjusted basis, net income attributable to common shareholders fell 43% to $787 million.

Automotive sales fell 3% to $20.56 billion, with regulatory credits contributing $113 million, down from $417 million a year ago. Deliveries Tesla announced on October 2 were 486,532 vehicles, down 2%.

Battery supplies still limited vehicle production, Tesla said in its shareholder update, and the quarter closed with the largest passenger vehicle backlog in four years. Chief Executive Elon Musk told analysts that demand “exceeds our production many times over.”

Energy storage deployment rose 10% to 13.7 gigawatt-hours in a quarter that also saw a new megafactory in Texas begin production, with a planned capacity of 50 gigawatt-hours per year. The segment’s revenue still fell 16% to $2.88 billion. Musk said Tesla’s Megapack grid-scale battery systems, which it sells to utilities and data center operators, are “almost sold out” for 2027.

Active subscriptions to Full Self-Driving (Supervised) reached 1.74 million, up 67% year-over-year, and more than three out of four new vehicles shipped in North America are now equipped with it. Tesla’s purpose-built Cybercab robotaxis have been transporting passengers in Austin since September 3rd. Musk said the fleet there has increased tenfold in that time, and Tesla plans to bring the robotaxi service to Dallas next month.

Production of the humanoid Optimus robots has begun on high-volume lines in Fremont, where Tesla announced in January that it would stop production of the Model S and Model X to make room for the robot. To reach 20,000 units per week, Musk said it will take “at least a year, maybe a little longer.” He expects to begin shipping Optimus to companies outside of Tesla late next year.

Tesla lowered its 2026 investment forecast from more than $25 billion to about $20 billion. Chief Financial Officer Vaibhav Taneja said the plan was to raise funding “primarily from our cash flow from operations.” Tesla also secured up to $30 billion in borrowing capacity during the quarter, he added.

The shareholder update did not include delivery guidance for the fourth quarter. Musk said on the call that the company is targeting about 5 million vehicles per year by around 2030.

Photo: Tesla