Not only did the decline stop, revenue delivery also hit a new high. But after the release of such a beautiful financial report, Musk still didn't want to talk about electric vehicles. He urged investors to look further and pay more attention to the two future businesses of autonomous driving and humanoid robots, because this is Tesla's future.
Revenue delivery hits new high
The good news is that Tesla finally stopped its decline and hit record highs in revenue and deliveries last quarter. The bad news is that Tesla is unlikely to continue this overdraft of future growth, and its profits have plummeted by nearly 40%.
Tesla released its third-quarter earnings after the market closed yesterday. As expected by the market, Tesla stopped the decline in revenue and deliveries in the past few quarters and even delivered a better-than-expected financial report.
Revenue for the quarter increased 12% year-on-year to $28.1 billion, exceeding analysts’ expectations of $26.4 billion. Deliveries in the quarter increased by 7.4% year-on-year to 497,000 vehicles, a year-on-year increase of 7.4%. Among them, Model 3 and Y sales reached 481,000 units, accounting for 98%.
At the same time, Tesla’s operating cash flow in the third quarter was US$6.2 billion, and free cash flow was nearly US$4 billion, also a record high. Cash and cash equivalents at the end of the quarter reached $41.6 billion, demonstrating strong financial resilience.
However, such a beautiful financial report did not continue to push up Tesla's stock price, which fell 3.2% after the market closed. This is because Tesla’s third-quarter financial report, in addition to hitting new highs in revenue and delivery, also included many worrying factors.
The impressive revenue figures cannot hide the sharp decline in profits. Operating profit in the third quarter plummeted 37% year-on-year to US$1.6 billion, and the operating profit margin was only 5.8%, much lower than the same period last year. Adjusted earnings per share were $0.50, below analysts' expectations of $0.54.
Tesla's profits have fallen sharply, and the most important drag factor is the shrinking emissions credits revenue. The financial report shows that Tesla’s revenue from automobile regulatory points this quarter was US$417 million, a year-on-year decrease of 44%, and US$739 million in the same period last year. This is revenue without cost.
After the Trump administration introduced the "Big Beauty Act", the emission points system for new energy vehicles in the United States no longer exists. Tesla will also lose billions of dollars in annual revenue as a result. This revenue was originally a key driver for Tesla to maintain profitability. They could have sold emission credits at no cost to traditional car companies that have not actively promoted new energy transformation and made pure profits.
Price war is the second largest reason for the continued decline in profits. In order to boost sales of aging models and cope with intensifying market competition, Tesla has continued to lower prices over the past two years. In addition, Tesla incurred $400 million in additional costs in the third quarter due to the impact of tariffs, further eroding profit margins.
Overdraw future sales in advance
More importantly, Tesla's sales surge in the third quarter did not come from organic growth, but was driven by multiple external factors. Tesla did not announce the specific delivery volume of each market segment, but the rapid growth of the US market is obvious.
The third quarter is a quarter where sales of the US electric vehicle market have exploded, but it is not a good thing. Specifically, after the Trump administration introduced the "Big Beauty Act", the US$7,500 federal tax credit for electric vehicle purchases expired on September 30, prompting a large number of potential consumers to purchase cars intensively in the third quarter. In the past two months, Tesla USA has sent promotional emails almost every few days, reminding potential car owners that if they do not place an order, they will face a "price increase" of US$7,500 in the future.
U.S. market research company Cox Automotive estimates that the total sales of electric vehicles in the United States surged 30% year-on-year in the third quarter, reaching 438,000 units, a record high. The penetration rate of electric vehicles exceeded 10% for the first time, an increase of more than three percentage points from the 7.4% in the second quarter.
Cox expects Tesla to deliver 180,000 vehicles in the quarter, an increase of 8% year-on-year. This is in sharp contrast to Tesla's 15% year-on-year decline in U.S. deliveries in the second quarter. However, as the sales of other electric vehicles also increased significantly in the third quarter, and Ford electric vehicles even increased by 30% year-on-year, Tesla's market share in the United States continued to decline from 46% to 41%.
However, this “Indian Summer” boom was unsustainable. Analysts generally believe that this is a one-time burst of demand rather than sustainable growth. This "overdraft demand" effect directly led to a surge in deliveries in the third quarter, but it also laid the foundation for a demand vacuum in the fourth quarter.
Without federal incentives, the actual cost of purchasing an electric vehicle in the United States is now $7,500 higher, and is unlikely to change for at least the next three or four years. Analysts generally believe that the U.S. electric vehicle market will enter a stage of self-destruction. As the demand for electric vehicles weakens, traditional car companies will also make adjustments and shift more focus to hybrid and fuel models that are more popular in the market.
Cox predicts that the penetration rate of electric vehicles in the United States will fall to about 6% in the fourth quarter. Based on early data from Motor Intelligence, U.S. electric vehicle registrations have dropped by about 15-20% month-on-month in early October. Tesla's U.S. market deliveries in the fourth quarter will inevitably see a significant decline, possibly by 10%, and the market share fell below 40% for the first time.
Sales will be difficult in the future
Although last year when Musk announced his support for Trump's candidacy for president, he said that he did not care about canceling subsidies because Tesla is the only company in the U.S. electric vehicle industry that can achieve profitability. However, when President Trump introduced the "Great Beauty Act" this year and really canceled all incentives for electric vehicles and new energy, Musk seemed to be belatedly angry and even exchanged words with President Trump on social networking sites.
Of course, this is because Tesla's financial report this year has been too bleak, with both revenue and deliveries falling sharply. In the second quarter of this year, Tesla's global deliveries fell by 14%, and its automotive revenue fell by 16%. This is partly because competition in the electric vehicle market has intensified, and partly because Musk's political stance has offended a large number of liberal consumers in Europe and the United States, who are Tesla's core consumers.
Although Musk quickly expressed regret to Trump and recently reconciled with the president, his angry fight did not change anything. As a leader in electric vehicles and new energy, Tesla will certainly be the biggest impact from the sharp shift in U.S. industry policy risks. The cancellation of emissions credit revenue is the most direct impact.
After the federal electric vehicle tax rebate policy ends, how will Tesla stimulate sales in the U.S. market? Musk’s choice is to cut prices.
Earlier this month, Tesla launched cheaper versions of Model Y and Model 3, which have shorter range, fewer speakers and require manual adjustment of the steering wheel. The current minimum price of the beggar's version of Model 3 in the US market is US$36,990 (equivalent to RMB 265,000). Musk is finally close to his original promise of pricing Model 3 at US$35,000.
However, the strategy of simple distribution and price reduction has not been recognized by market analysts. Bloomberg columnist Liam Denning criticized this as a "flawed cost-cutting strategy" and believed that "these models exude the atmosphere of a company focused on retreat rather than advancement."
The compact car market in which the Model 3 exists is shrinking. CFRA Research analyst Garrett Nelson said the bigger problem with the Model 3 and Model Y is their aging design. "The product line can't be this old," he said. "They're going to pay the price."
John Murphy, an analyst at Haig Partners, believes that Tesla's third-quarter earnings growth is "borrowed prosperity" that overdraws future market demand in advance. He pointed out that Tesla’s installed base (referring to existing users and ecosystem) is already very large, with more than 6 million vehicles in the world, but the Tesla brand has hit the “ceiling” and the market is close to saturation.
He mentioned the many challenges Tesla will face in the future: the potential consumer groups have been basically covered, or have been dissuaded by Musk's political stance; mainstream consumers in the market are still waiting and watching, and they still have doubts about the electric vehicle charging infrastructure; and in the low-end market, traditional car companies such as Ford Motor offer lower prices.
No longer a tram company
However, Musk’s focus is obviously no longer on how to drive sales growth. Since abandoning the launch of cheaper models last year, Musk has lost interest in stimulating Tesla sales by launching new models, turning his attention almost entirely to self-driving technology and humanoid robots.
When Tesla sales fell sharply in the first two quarters of this year, Musk said almost nothing on analyst calls about how to stimulate sales. At the same time, Tesla's stock price continues to rise despite weak performance. Its current market value is close to US$1.5 trillion, which is almost the total market value of other traditional car companies.
The current astonishing price-to-earnings ratio of 269 times shows that investors no longer regard Tesla as a car company, and will not pay too much attention to Tesla's sales changes. They believe Musk's prediction that 80% of Tesla's future market value will come from autonomous driving and humanoid robots. This is Tesla's future.
Musk continued to express his optimistic expectations for Robotaxi on the third-quarter earnings call: He expects to remove human safety drivers from Robotaxi in Austin by the end of 2025 and achieve truly driverless operations. The specially designed self-driving taxi CyberCab is expected to be put into production in 2026, but the specific launch time of this radical model that eliminates the steering wheel and pedals is still uncertain.
Another story Musk can tell investors is that Tesla's fleet of self-driving taxis is being rapidly deployed in the United States. By the end of the year, Tesla Robotaxi services will be expanded to 8-10 metropolitan areas, including the San Francisco Bay Area (already on the road), Los Angeles and Miami.
In fact, the expansion of Tesla's fleet is a "hidden trick." Tesla has not obtained a driverless taxi operating license like Google Waymo. They only have a TCP (Commercial Rental Car) license in California, so they cannot promote "unmanned vehicles" to the outside world. In regulatory documents, Tesla also admitted that its vehicles are Level 2 systems, and there must be a human driver in the driving position, but the FSD mode is turned on during driving.
Some Wall Street analysts remain cautious about Musk's optimism. "I think the market has been overly enthusiastic about Robotaxi," Morgan Stanley analyst Seth Goldstein said on CNBC. "The product is still in early testing and is still a few years away from commercialization."
But investors value future growth space rather than current specific progress. This is the main factor supporting Tesla's high stock price. Wedbush analyst Dan Ives represents the optimist's view: If Tesla's autonomous driving obtains regulatory approval and successfully expands to major cities across the United States, it may add at least $1 trillion to Tesla's market value in the next few years.
The robot army needs a leader
Humanoid robots are obviously the bright future that Musk would most like to describe. In his words, this is "probably a more important product than Tesla's automotive business." In order to demonstrate the flexibility of Tesla's robots, Tesla opened a burger restaurant in downtown Los Angeles, with robots acting as waiters, attracting a large number of technology enthusiasts to dine there.
Musk’s grand blueprint for robots is mind-boggling: Annual production of Optimus will reach 1 million units by 2030, and the long-term market size may reach trillions of dollars. He even claimed that Optimus could "end world poverty" and make Tesla's market value reach $25 trillion; by 2040, the number of humanoid robots will exceed humans.
The future is extremely bright, but progress is still difficult at the moment. There is a huge gap between the actual production progress of Optimus and Musk's grand vision: Tesla's original plan was to produce 5,000 Optimus robots this year, equivalent to a Roman legion. But according to reports in July, Tesla had only produced a few hundred Optimus units, falling far behind its target.
During the third-quarter earnings call, Musk acknowledged that Tesla would have a "production prototype" ready by February or March next year, with full production of the Optimus set to begin by the end of next year. However, he still believes in the original plan. Tesla will produce 50,000 robots next year and increase the number to 1 million robots by 2030. According to Musk's usual style of skipping votes, it would not be surprising if the production target continues to be postponed next year.
If Musk's plan is really implemented, based on a calculation of US$20,000-30,000 per robot, hardware sales alone may bring in annual revenue of US$30 billion in 2030. Coupled with services and software subscriptions, the robotics business can completely replace Tesla's shrinking electric vehicle market.
Musk did not introduce Optimus's sales prospects in detail during the analyst call, but instead described the future in broad strokes. Tesla's robot "will create a world where there is no poverty and everyone has access to top-notch medical care," he said. Optimus "will be an amazing surgeon. Imagine if everyone had access to such a surgeon."
After talking about autonomous driving and humanoid robots, Musk finally got to the point: He needs a trillion-dollar compensation package, and he needs more voting rights. The plan still needs to be voted on at Tesla's upcoming shareholder meeting.
That's according to the new compensation plan awarded to him by Tesla's board of directors. If Tesla reaches a series of financial and operational milestones, Musk will receive huge options and his stake in Tesla will increase to up to 29%, worth approximately US$1 trillion.
Musk emphasized on the conference call that without enough control, he would not have enough motivation to build Tesla's "robot army." "If we build this robot army, can I at least have strong influence over this robot army? Not control, but strong influence... If I don't have strong influence, I'm not comfortable building this robot army."