Tesla Reports Q3 Results as Special Committees Weigh SpaceX Merger Talks

Tesla reported better-than-expected third-quarter financial results after the closing bell on Wednesday, even as its core automotive revenue experienced a noticeable decline. Despite beating expectations on revenue and earnings, the electric vehicle maker’s stock slid more than 3% in extended trading following the announcement.

The financial release landed just a day after billionaire CEO Elon Musk told investors on a quarterly call for SpaceX that it would be a "good idea" for his two high-profile companies to merge. Musk revealed that the boards of directors at both Tesla and SpaceX have formed special committees to actively discuss a potential tie-up between the aerospace manufacturer and the automotive and clean energy giant.

Addressing the merger possibility on Wednesday’s Tesla earnings call, Musk offered a candid assessment of the situation while keeping further details under wraps. "I feel like I’m tap dancing through a minefield," Musk said, responding to an investor question about a potential combination. He touched upon the matter briefly during his opening remarks but declined to provide additional disclosures. "I think I said everything that should be said yesterday," he added.

According to the company’s official earnings deck, total revenue was slightly flat compared to the same period a year earlier, when Tesla generated sales of $28.24 billion. Looking closer at individual segments, revenue in Tesla’s core automotive business declined 3% year over year to $20.56 billion during the quarter. Meanwhile, energy revenue suffered a steeper drop, falling 16% to $2.88 billion.

These downward pressures were partially balanced out by robust gains in Tesla’s services and other revenue divisions. Sales within that category climbed 33% from the previous year, reaching $4.61 billion.

Company executives attributed the lackluster automotive revenue and diminished profits primarily to lower average selling prices for its passenger vehicles during the quarter. Additionally, Tesla pointed to ongoing difficulties in securing adequate battery supplies, which hampered its ability to manufacture enough vehicles to successfully fulfill its backlog of orders.

Net income attributable to common shareholders plummeted 29% to $787 million, or 22 cents a share, down significantly from $1.11 billion, or 32 cents a share, reported during the same period a year earlier.

The sharp drop in overall profitability directly reflects a massive surge in corporate spending directed toward the development of Optimus humanoid robots and a wide array of artificial intelligence initiatives. Capital expenditures more than doubled from the previous year, surging to $3.73 billion. Consequently, free cash flow plunged by 62% year over year to $1.53 billion, following a period in the second quarter when Tesla’s free cash flow had turned negative.

Despite these financial headwinds, the company highlighted growing consumer adoption of its advanced software offerings. Tesla reported that uptake of its Full Self-Driving (Supervised) system—a partially automated driving technology sold for $99 per month in the United States—grew by 20 percentage points from the second quarter. Furthermore, active FSD subscriptions increased by 67% from a year earlier, reaching a total of 1.74 million.

"We believe that FSD is driving demand in markets where it is available, and we continue to work with regulators to get it approved in other markets," the company stated in its investor presentation deck.

During the earnings call, Ashok Elluswamy, Tesla’s vice president of Autopilot, announced that the company plans to grant select customer vehicles access to its forthcoming FSD (Unsupervised) systems around the second quarter of next year.

Tesla is currently testing its Cybercab, a bronze two-seater vehicle specifically designed for use as a dedicated robotaxi, though the vehicle is not yet available for purchase by individual retail consumers. Musk noted during the call that "the vast majority of the Cybercab stuff will be essentially Tesla-owned and transport-as-a-service."

According to Chief Financial Officer Vaibhav Taneja, the company plans to expand the deployment of the Cybercab to cities beyond Austin, Texas, later this year, while carefully monitoring operating costs such as regular vehicle maintenance, charging infrastructure, and cleaning logistics.

Musk projected that the company’s driverless robotaxi fleet will begin making meaningful contributions to its corporate financials by 2027. State records from the Texas Department of Motor Vehicles show that the active fleet currently includes 362 Model Y robotaxis and 449 Cybercab vehicles authorized for fully driverless operations within the state.

"It’s not like going to move the needle this quarter," Musk acknowledged regarding the financial impact of the robotaxi initiative. "I think it starts to become noticeable in Q2 and then probably a big deal by Q3 or Q4 of next year."

Looking further ahead, barring any unforeseen regulatory intervention or rising protectionism, Musk predicted that Tesla "will end up doing a majority of all passenger miles on Earth in any country where it is allowed to operate freely."

Geographically, Tesla noted that its automotive sales in Canada, Japan, Taiwan, and Australia reached new record highs during the quarter. However, the manufacturer has struggled to achieve significant growth in its core domestic market recently. At the same time, Chinese electric vehicle manufacturers such as BYD and Xiaomi have continued to expand their popularity across Asia and Europe by offering affordable and innovative alternatives. Tesla’s domestic sales momentum was also impacted last year by the expiration of a major federal EV tax credit.

Earlier in the month, Tesla reported vehicle deliveries for the third quarter totaling 486,532 units, marking a roughly 2% decrease compared to the same period a year prior. While vehicle deliveries serve as the closest market approximation of sales reported by the company, they are not formally defined in standard shareholder communications.

The speculation surrounding a potential merger with SpaceX has been further fueled by existing operational overlaps between Musk’s enterprises. Among these is a major joint investment in a semiconductor manufacturing facility currently being built in Grimes County, Texas, in partnership with both SpaceX and Intel. Additional collaborative efforts, including development work on Tesla’s recently announced Roadster refresh, have intensified market talk that the companies are moving toward a historic transaction.

Addressing the development of the Optimus humanoid robot, Musk stated that Tesla is "making good progress" on the complex artificial intelligence systems required to control the machines. However, he cautioned that there is "still quite a lot of work to do with regard to the AI and the robot for it to be truly useful for open-ended tasks."

Musk added that he anticipates current engineering hurdles related to electromechanical design, long-term hardware reliability, usage duration, and artificial intelligence capabilities will be "solved around the end of next year."