Tesla Reports Flat Revenue as Rising R&D Expenses Drive Profit Decline

Tesla reported third-quarter financial results Wednesday that showed a decline in profit despite a rebound in gross margins, as the company's heavy investment in artificial intelligence and robotics weighed heavily on its bottom line. For the quarter ended September 30, 2026, the automaker posted revenue of $28.05 billion, which was flat compared to the same period a year ago and in line with Wall Street's expectations.

While revenue held steady, the company's profitability metrics moved in opposite directions. Total gross margin improved to 19.6%, a notable increase from the 16.8% posted in the previous quarter. However, operating income fell 56% to $718 million, resulting in an operating margin of 2.6%. This decline was driven by a sharp rise in operating expenses, which increased 39% year-over-year to $4.78 billion.

Research and development spending was a primary contributor to that expense growth, surging 69% to $2.76 billion. Tesla attributed this increase to ongoing projects involving what it terms 'Super Intelligence,' the Optimus humanoid robot program, and the Cybercab vehicle. Stock-based compensation also rose, reaching $1.17 billion compared to $663 million in the year-ago period.

On a GAAP basis, net income decreased 43% to $787 million, or $0.22 per share. Non-GAAP earnings per share stood at $0.48, surpassing analyst estimates of $0.45 but down 4% from $0.50 a year earlier. Free cash flow for the quarter was $1.53 billion, a significant improvement from a deficit of $1.09 billion in the second quarter, though it remained below the $3.99 billion generated a year prior.

Tesla's automotive gross margin excluding regulatory credits, a key metric for the company's core business, rose to 18.1% from 16.3% in the prior quarter. The company attributed this improvement to a better product and regional mix, as well as increased revenue from Full Self-Driving subscriptions. Revenue from regulatory credits, however, fell 73% to $113 million.

In terms of vehicle production and delivery, the company delivered 486,532 vehicles during the quarter, a 2.1% decrease year-over-year. Tesla stated that 'battery availability continued to be the limiting factor in increasing auto volumes in the quarter,' and that it ended the period with the largest passenger vehicle backlog in four years. Deliveries also exceeded production, reducing inventory to 11 days of supply.

The energy segment faced challenges, with revenue from energy generation and storage declining 16% to $2.88 billion, which the company partially attributed to tariff-related customer refunds. In contrast, the services and other segment saw revenue grow 33% to $4.61 billion, with the company reporting record gross profit in that area from charging, insurance, and parts sales.

Capital spending for the quarter was $4.73 billion, more than double the amount from a year ago. This brought total capital expenditures for the first nine months of 2026 to $13.01 billion. The company ended the quarter with $45.4 billion in cash and investments. Management is scheduled to discuss the results on an earnings call.