Tesla reported a sharp decline in third-quarter profit on Wednesday, even as the electric vehicle maker generated more cash than analysts had anticipated. The mixed results come as Elon Musk confirmed that Tesla and SpaceX are exploring a possible merger, a move that would reshape the landscape of both the automotive and space industries.
The Austin-based company posted net income attributable to shareholders of $787 million (€701 million), or 22 cents per share, down 43% from the same period last year. Revenue was essentially flat at $28 billion (€24.9 billion), slightly missing the average analyst forecast of $28.3 billion compiled by the company. Excluding certain items, earnings per share of 48 cents beat Wall Street expectations by 3 cents.
One bright spot was free cash flow, which reached $1.5 billion (€1.3 billion) in the quarter. Given Tesla's heavy spending on artificial intelligence, robotics, and autonomous driving, many analysts had expected the company to burn through cash. Instead, it generated positive cash flow, though that figure was still down 62% from a year earlier.
“It seems Tesla is taking a more capital-efficient approach, delaying longer-term projects to be able to self-fund their AI growth,” said Seth Goldstein, an analyst at Morningstar, calling the unexpected cash flow the big surprise of the quarter.
Capital spending trimmed
Tesla's capital expenditures more than doubled year-on-year to $4.7 billion (€4.2 billion) in the quarter, but that was still below what analysts had expected. The company also cut its full-year 2026 capital spending forecast to about $20 billion (€17.8 billion), down from a previous projection of more than $25 billion (€22.3 billion). Chief financial officer Vaibhav Taneja said Tesla was managing spending efficiently and planned to fund it mainly through operating cash flow.
Beyond robotaxis and AI, Tesla is investing heavily in Musk's “Optimus” humanoid robots and developing Terafab, a chip manufacturing project in Austin, Texas, in collaboration with SpaceX.
On the demand side, Tesla reported strong uptake of its paid driver-assistance software, with more than 75% of new vehicles delivered in North America including a paid subscription. The feature, called Full Self-Driving (Supervised), still requires active driver supervision and does not make the vehicle fully autonomous.
Automotive gross margin, excluding regulatory credits, improved to 18.1% in the third quarter, up from 15.4% a year earlier. Tesla delivered 486,532 vehicles in the quarter, a slight rise from the previous three months but down 2% year-on-year. The modest increase in deliveries did not translate into higher net profit.
Musk said Tesla aims to produce about five million vehicles a year by around 2030, compared with roughly 1.65 million in 2025. “After many years of sort of grind and things being fairly flat, I think we're now headed for a lot of fun and significant growth,” he said.
The company has faced questions about the rollout of its robotaxi business, which has fallen short of Musk's earlier ambitions. In Texas, where Tesla has focused its robotaxi launch, more than 800 Tesla vehicles are registered for autonomous service, according to FSD Database.
Tesla shares fell 3.2% in after-hours trading after climbing 3.6% during the regular session.
SpaceX merger talks
The potential tie-up with SpaceX adds another layer of uncertainty. The two companies have a combined stock market value of about $3.5 trillion (€3.1 trillion). In a conference call after SpaceX reported earnings on Tuesday, Musk said both companies had formed special committees of independent directors to explore a possible merger. He stressed that no terms had been agreed and there was no guarantee of a deal.
Merger speculation and SpaceX's strong results helped lift shares in both companies on Wednesday. Forbes estimated Musk's wealth at $1.013 trillion (€902 billion) at 10:30 am New York time, briefly pushing him back above the trillion-dollar mark.
Musk argued that the two companies could benefit from working together on AI software, chip design, robotics, and satellite infrastructure, including space-based computing. Such a merger would create a vertically integrated giant spanning electric vehicles, space launch, satellite internet, and advanced AI—raising questions about competition and governance in both Europe and the United States.
For European observers, the potential merger could have significant implications for the continent's automotive and space sectors. European automakers already face intense competition from Tesla in the EV market, and a combined Tesla-SpaceX entity could accelerate technological advances that European firms must respond to. Meanwhile, European space agencies and companies, such as Arianespace and the European Space Agency, may find themselves competing against a more powerful SpaceX.
As Tesla navigates its next phase, the company's ability to balance innovation with profitability will be closely watched. The proposed merger, if it materializes, would mark one of the largest corporate combinations in history, with far-reaching consequences for industries and regulators on both sides of the Atlantic.
