Tesla’s sales impress. Its profits don’t. - Liam Denning

Key points:Tesla misses profit targets despite record EV sales and revenue boost.EV margins slide, costs rise, and operating profit falls 40%.CEO Musk’s trillion-dollar pay linked to AI future, not current results..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Liam Denning.Tesla Inc.’s get-out-the-vote bandwagon just hit a bump. November’s all-important shareholder meeting will feature proposals to award Chief Executive Officer Elon Musk a new trillion-dollar pay package and also to funnel some of the company’s capital into his artificial intelligence business. Positive news has flowed freely ahead of that, with Musk buying stock, Chair Robyn Denholm giving a relatively rare interview to make the case, and Tesla reporting a jump in electric vehicle sales. Now Tesla has reported third-quarter results and they are less than inspiring.Maybe that’s the point?First, the results themselves. Tesla missed the consensus earnings forecast, which had broken its long decline and edged up after those blowout third-quarter EV sales came out. Therein lies the problem: Those sales boosted revenue to a record but not enough trickled down to profits. One big reason is that demand was artificially enhanced by the expiration of federal tax-credits for EV buyers. This boosted EV sales for virtually everyone — Tesla still lost share in its home market, including in California — meaning it didn’t come with pricing power. Tesla’s average selling price was virtually unchanged from the prior quarter and down slightly from a year before..Read more:.Tesla’s stock plunges 12% after profit miss and robotaxi delay.Meanwhile, Tesla has built too many EV assembly lines, with capacity utilization running at a weak 69% through the first nine months of the year, raising fixed cost per unit. Tariffs also took a bite. Hence, automotive gross profit margin adjusted for sales of regulatory credits — a closely watched metric — was down by almost two percentage points compared with a year ago. Meanwhile, research and development, sales and restructuring costs jumped by half, year over year. The result: Tesla sold 7% more vehicles, but its operating profit slumped by 40%..There were bright spots, if qualified. Tesla managed to do something it hasn’t pulled off since a year ago: Generate most of its pre-tax profit from actual operations, rather than from selling regulatory credits, interest on its cash balance and other non-operating gains. Even so, that gets the operations’ share up to just 36% for the first nine months as a whole.Tesla’s energy business, centered on grid and home batteries, racked up its first billion-dollar gross profit in a quarter, although that wasn’t enough to offset the drop in the far bigger EV business. Meanwhile, having used the EV spending spree to clear half a year’s worth of excess production, Tesla enjoyed a massive $2 billion working capital tailwind, roughly half its record free cash flow figure. But that’s a one-off. .Overall, if this is what Tesla reports on the back of record unit sales in its main business, then the outlook is pretty grim.The consensus estimate for its full-year EV sales has risen by just 1% since the third-quarter blowout was announced, pointing to the post-subsidy hangover. The current quarter’s results will lack that artificial prop, and regulatory credit sales could drop precipitously in 2026 as legacy automakers are freed from having to buy them. In contrast to General Motors Co., which gave specific, numerical guidance on Tuesday despite contending with President Donald Trump’s wayward trade war, Tesla offered: “It is difficult to measure the impacts of shifting global trade and fiscal policies on the automotive and energy supply chains, our cost structure and demand for durable goods and related services.”In a normal world, rewarding that with a trillion dollar pay package and maybe also a capital injection for the CEO’s side-gig wouldn’t even be a question. With Tesla, however, the stagnation of its main business, in EVs, can be reframed as a mere transition, the sloughing of an old skin, revealing the dazzling humanoid robot beneath.Musk, of course, led with boasts about Tesla’s AI and robotaxi capabilities, along with the Optimus robot. Indeed, my favourite moment in the entire call was when the moderator skipped a question about future products, saying the earnings call wasn’t the “appropriate venue” and then segued, with not a shred of irony, to a question regarding Optimus, which Musk says has the potential to be “the biggest product of all time,” but which you also cannot buy as of this moment..Read more:.Tesla surges back into the trillion-dollar club amid trade war optimism.With the financial results not offering adequate support for the pay proposal, it is instead pitched as a means to keep Musk on board so that these future, lucrative opportunities can be seized. Remarkably, the relatively humdrum call ended with Tesla’s Chief Financial Officer making a final appeal to shareholders to vote for Musk’s trillion-dollar award, downplaying its monetary value and re-pitching it as a way for Musk to secure a greater level of control. It was an odd coda that smacked a little of desperation, especially when Musk interrupted to denounce the proxy advisory firms opposing the proposal.And yet, given Tesla’s history and its 200-plus earnings multiple, Musk probably has little to worry about. Similarly, that giant $42 billion cash pile on Tesla’s balance sheet looks positively primed for a major injection into xAI. Onward and upward, as they say, even as Tesla’s EV business stalls and tips downward..© 2025 Bloomberg L.P.

Tesla’s sales impress. Its profits don’t. - Liam Denning

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