Last week a Roadster did a barrel roll over a Tesla Semi. Tonight the numbers that matter came in, and they beat.
Chart 1: Profit beat while revenue stayed flat. Revenue was $28.05B, flat year over year and slightly below the ~$28.1B consensus. Adjusted EPS came in at $0.48, ahead of the $0.45 expected. Tesla says battery supply, not demand, is what’s holding car volumes back.
Chart 2: Margins bounced. Gross margin was 19.6%. The Street had modelled about 17.9%, and Q2 was 16.8%. Operating margin recovered to 2.6% from 1.4% in Q2. That came even as regulatory credits fell 73% to just $113M, which makes it a cleaner beat.
Chart 3: Tesla generated cash instead of burning it. Free cash flow was +$1.53B. Wall Street expected about −$4.5B. Capex came in at $4.73B, well below the ~$7.8B analysts had pencilled in. Cash and investments now stand at $45.4B.
Chart 4: the Roadster still doesn’t matter for earnings. At an expected price above $250,000, even 10,000 cars a year would add only ~2% to revenue, and production isn’t due before 2028. Morningstar expects fewer than 2,000 units a year. Deepwater’s Gene Munster called it an “engineering flex.” It’s fun to watch, but it’s not where the profit comes from.
What does matter:
Robotaxi passed nearly 2M cumulative unsupervised miles, and Cybercab joined the Austin fleet in September. Optimus production has started at Fremont. FSD subscriptions rose to ~1.74M, against ~1.57M expected.
My verdict: cautiously bullish. Last time I said I’d turn bullish if margins beat and cash flow improved. Both happened. Shares closed up 3.4% at $386.47 and added about 2% after hours.
What keeps me cautious:
Operating income still fell 56% year over year, and GAAP net income fell 43%. Tesla is still guiding to more than $25B in capex for 2026, so the spending will hit cash flow eventually. Energy storage deployments missed estimates. NHTSA has sent 21 questions about how Tesla certified the Cybercab, which has no steering wheel. Answers are due October 30.
Flying cars get the clicks. A 19.6% gross margin pays the bills.
Not financial advice. Do your own research.
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