Adjusted earnings of $0.48 a share topped the LSEG estimate of $0.43, gross margin improved to 19.6% and free cash flow was $1.5 billion. Revenue was flat at $28.05 billion, energy storage revenue fell 16% and operating expenses rose 39%.
Tesla's third quarter had enough good news to beat estimates and enough bad news to explain why the stock fell anyway.
Adjusted earnings were $0.48 a share, above the LSEG consensus of $0.43, though down from $0.50 a year earlier. Revenue was $28.05 billion, essentially unchanged from $28.10 billion, and slightly above LSEG's $27.9 billion forecast. Gross margin improved to 19.6% from 18.0%, and free cash flow came in at about $1.5 billion.
Tesla also cut its 2026 capital spending forecast to about $20 billion, from more than $25 billion. Chief Financial Officer Vaibhav Taneja said on the call that spending would be funded primarily from operating cash flow.
The composition
The flat top line hides three different businesses. Automotive revenue fell 3% to $20.56 billion. Energy generation and storage revenue fell 16% to $2.88 billion, from $3.42 billion. Services and other revenue rose 33% to $4.61 billion.
Below gross profit, the picture weakens. Operating expenses rose 39% to $4.78 billion, and operating income fell 56% to $718 million, a 2.6% margin against 5.8% a year earlier. Generally accepted earnings were $0.22 a share, down from $0.39.
So the quarter's improvement sat almost entirely in gross margin. Each dollar of sales earned more, but the rise in operating expenses absorbed it.
The reaction
Tesla closed Wednesday at $386.47, up 3.4%. The stock was higher in the first minutes after the report, slid during the evening and was indicated at about $365.93 at 5:33 a.m. Eastern Thursday, down about 5.3%, in a premarket session where Nasdaq 100 futures were down nearly 2%.
Tesla said it would not take questions on a potential merger with SpaceX, the subject Elon Musk raised on SpaceX's call a day earlier.
Two readings
One reading treats the spending cut as discipline. A lower capital budget funded from operations, positive free cash flow and a rebound in gross margin are what investors worried about cash burn wanted to see.
The other reading treats it as a smaller ambition. A company selling itself on AI and robotics cut its investment plan by at least a fifth while its energy business shrank and operating profit fell by more than half. On that view, the cut reflects pressure, not choice.
What to watch
Fourth-quarter deliveries; whether energy storage revenue recovers; the capital spending figure in Tesla's written filings, including the quarterly report due by Nov. 9; and any filing from either company describing the SpaceX merger committees.