Tesla Q3 Profit Falls 43% as Batteries Cap Sales

Tesla has a new explanation for flat car sales: it could not get enough batteries. The company’s third-quarter update, published on Wednesday, says “battery availability continued to be the limiting factor in increasing auto volumes in the quarter”, even as it ended September with “the largest backlog for our passenger vehicles in four years”. Revenue was flat at $28.05bn and GAAP net income fell 43% to $787m.

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The headline numbers point two ways. Gross margin improved to 19.6%, from 18.0% a year earlier and 16.8% in the second quarter. But operating income fell 56% to $718m, an operating margin of 2.6%, because spending rose much faster than sales. Operating expenses climbed 39% to $4.78bn, and research and development alone rose 69% to $2.76bn, which Tesla attributes to what it calls Super Intelligence (SI) and other R&D projects. Stock-based compensation, which includes Elon Musk’s 2025 performance award, was $1.17bn, against $663m a year earlier.

On an adjusted basis, Tesla earned 48 cents a share, down from 50 cents. That was ahead of forecasts, though which forecast depends on who is counting: Electrek cites a FactSet consensus of 45 cents, while CNBC cites 43 cents from analysts polled by LSEG.

Car revenue slipped while services grew

Automotive revenue fell 3% to $20.56bn. Deliveries, already published earlier this month, were down 2% at 486,532, while production rose 4% to 464,391. Deliveries of models other than the Model 3 and Model Y fell 48%. Tesla delivered 22,141 more cars than it built, and says it has now produced and delivered its 10 millionth vehicle. Regulatory credit revenue shrank to $113m from $417m.

Services and other revenue rose 33% to $4.61bn, and Tesla says that segment’s gross profit reached a record $734m, driven by charging, insurance and parts sales. Active FSD subscriptions, a count that includes upfront purchases under the terms of Musk’s pay award, rose 67% to 1.74 million. Tesla says FSD (Supervised) is now attached to more than 75% of new vehicle deliveries in North America.

Energy was weaker. Generation and storage revenue fell 16% to $2.88bn, though storage deployments rose to 13.7 GWh from 12.5 GWh. Tesla says the business had its “highest-ever order rate and backlog”, and that its Megafactory in Texas has started production with planned capacity of 50 GWh.

Spending doubled, and the SpaceX stake swung

Capital expenditure was $4.73bn, up 110% on a year earlier, though down from $5.79bn in the second quarter. Free cash flow came in at $1.53bn after a negative second quarter, and cash and investments rose $1.9bn to $45.4bn.

Below the operating line, Tesla booked a $288m unrealised gain on digital assets and a $142m unrealised loss on its SpaceX equity investment, which had produced a $1bn gain in the previous quarter. The two companies have since set up committees to consider a merger, Musk has told investors.

The update also lists progress on Tesla’s longer-term projects. Robotaxi rides using Cybercabs started in Austin on 3 September, and the service had covered nearly two million cumulative unsupervised miles by the end of the quarter. Production of the Tesla Semi has begun in Nevada and of Optimus robots in Fremont. Cybercab passengers can also use Grok, with access to Grok Bot. Looking ahead, Tesla repeats that it expects hardware profits “to be accompanied by an acceleration of SI, software and fleet-based profits”, without numbers.

Tesla’s management takes analysts’ questions on a webcast at 22:30 BST, after this report was written. On the constraint it blames for flat sales, the written update goes only so far: Tesla says it has made “additional progress in securing future supply”, as it works toward “maximum utilization of our factories”, but gives no date for when batteries will stop limiting output.