The expiration of tax credits stimulated a significant rebound in Tesla's Q3 revenue, but profits unexpectedly plummeted by 31%, with tariff impacts exceeding 400 million | Earnings Report Insights

Thanks to American consumers rushing to purchase electric vehicles before the expiration of the government's tax credit policy, Tesla's revenue in the third quarter rebounded sharply beyond expectations, but profit pressures have not eased.

Tesla's third-quarter revenue reversed the double-digit decline of the previous quarter, showing a double-digit year-on-year increase, while the year-on-year decline in earnings per share (EPS) widened to over 30%, worse than Wall Street's expected drop, reflecting the impact of the Trump administration's increased tariffs, Tesla's launch of new models, and increased R&D investments in artificial intelligence (AI) projects.

Like the second-quarter financial report, Tesla did not disclose any performance guidance regarding production or sales in this report, reiterating that it is difficult to measure the impact of tariffs and other trade policies on the supply chain, costs, and demand. Tesla stated that the exclusive product for the autonomous taxi Robotaxi, the Cybercab, the Semi truck, and the newly released Megapack 3 energy storage system are all planned to begin mass production next year.

Tesla's Chief Financial Officer (CFO) Vaibhav Taneja stated during the earnings call that the total impact of tariffs in the third quarter exceeded $400 million, and Tesla incurred legal fees related to certain lawsuits, as well as "incremental costs incurred in preparation for the shareholder meeting." He mentioned that tariffs and market competition are the two major challenges Tesla currently faces.

Tesla CEO Elon Musk mentioned during the call that the humanoid robot Optimus has the potential to become the "biggest" project ever, and Tesla expects to release the third-generation Optimus in the first quarter of next year, stating that it "doesn't even look like a robot" because "it looks so realistic that you need to poke it to believe it's really a robot," and it will become "an incredible surgeon."

After the earnings report was released, Tesla's stock price, which fell over 0.8% on Wednesday, maintained a decline of more than 1% in after-hours trading. During the earnings call, the after-hours decline had expanded to over 4%. Some commentators noted that the expanded drop in stock price may partly stem from Musk not bringing any significant news during the call, and additionally, the tariff impact revealed by the CFO affected the stock price.

On October 22, Eastern Time, Tesla announced its financial performance for the third quarter of 2025 after the U.S. stock market closed.

1) Key Financial Data

Revenue: In the third quarter, Tesla's operating revenue was $28.095 billion, a year-on-year increase of 12% and a quarter-on-quarter increase of nearly 25%, while analysts expected $26.36 billion, with a year-on-year decline of 12% in the second quarter.

EPS: The adjusted EPS under non-GAAP standards for the third quarter was $0.50, a year-on-year decrease of 31%, while analysts expected $0.54, with a year-on-year decline of 23% in the second quarter.

Operating Profit: The operating profit for the third quarter was $1.624 billion, a year-on-year decrease of 40%, while analysts expected $1.65 billion, with a year-on-year decline of 42% in the second quarter

Net Profit: Adjusted net profit for the third quarter was $1.77 billion, a year-on-year decrease of 29%, compared to a 23% decrease in the second quarter.

Profit Margin: The operating profit margin for the third quarter was 5.8%, compared to 4.1% in the second quarter and 10.8% a year ago; the gross profit margin for the third quarter was 18%, a year-on-year decrease of 1.8 percentage points, with analysts expecting it to remain flat at 17.2% from the second quarter.

Capital Expenditure: Capital expenditure for the third quarter was $2.248 billion, a year-on-year decrease of 36%, compared to a 5% increase in the second quarter.

Free Cash Flow: Free cash flow for the third quarter was $3.99 billion, a year-on-year increase of 46%, with analysts expecting $1.25 billion, compared to an 89% year-on-year decrease in the second quarter.

2) Segment Business Data

Automotive: Automotive revenue for the third quarter was $21.205 billion, a year-on-year increase of 6%, compared to a 16% decrease in the second quarter. The gross profit margin for the automotive business, excluding regulatory credit points, was 15.4%, with analysts expecting 16.3%, compared to 15% in the second quarter and 17% a year ago.

Energy Storage: Revenue from energy production and storage for the third quarter was $3.415 billion, a year-on-year increase of 44%, compared to a 7% decrease in the second quarter.

Third Quarter Revenue Growth of 12% Far Exceeds Analyst Expectations, Automotive Revenue Hits Nearly Two-Year High

This financial report shows that Tesla performed exceptionally well in terms of revenue in the third quarter, with total revenue not only turning from a 12% year-on-year decline in the second quarter to growth but also achieving a growth rate of 12%, far exceeding analysts' expectations of less than 5% growth.

Earlier this month, Tesla announced that global deliveries in the third quarter reached 497,099 vehicles, a year-on-year increase of 7%, setting a record for the highest quarterly deliveries, significantly surpassing analysts' expectations. This financial report indicates that with the substantial increase in delivery volume, Tesla's automotive revenue in the third quarter reached a nearly two-year high.

However, Wall Street Journal previously mentioned that the delivery performance in the third quarter was partly due to consumer purchases ahead of the expiration of tax credit policies at the end of September. This early release of demand may put pressure on Tesla's sales growth in the coming months. Investors expect that after the expiration of electric vehicle subsidies, Tesla will find it difficult to replicate the outstanding performance seen in the third quarter.

Tesla's financial report also acknowledged that one of the three main drivers of revenue growth in the third quarter was the increase in delivery volume driven by the expiration of tax credits.

EPS in the Third Quarter Accelerates to a 31% Year-on-Year Decline, "Carbon Selling" Revenue Falls for Five Consecutive Quarters to a Two-Year Low

Tesla's overall performance in terms of profit in the third quarter was disappointing. The year-on-year decline in EPS expanded from over 20% in the second quarter to 31%, while analysts expected a decline of about 25%. Operating profit also fell short of analysts' expectations, with a decline of 40% Although Tesla's overall gross margin of 18% in the third quarter exceeded analysts' expectations of 17.2%, the gross margin for its automotive business fell by 1.6 percentage points year-on-year to 15.4%, below analysts' expectations of 16.3%.

As in previous quarters, Tesla's revenue from "selling carbon" credits from regulatory credit points further declined, continuing to impact revenue and profits. In the third quarter, "selling carbon" revenue was $417 million, marking a two-year low for a single quarter, down 5% from the second quarter, and has decreased for five consecutive quarters. Moreover, it is expected that this type of revenue will further decrease, at least during the Trump administration.

Tesla's financial report stated that the decrease in "selling carbon" revenue was one of the negative factors affecting revenue growth and also one of the negative factors for the company's profitability.

Other negative factors for profitability mentioned by Tesla include: increased operating expenses including R&D projects such as AI, increased stock compensation and restructuring and other expenses, reduced one-time FSD revenue recognition, lower absorption rates of fixed costs for certain models leading to increased average costs per vehicle, government-imposed tariff increases, and changes in sales mix. It noted that the decline in raw material costs offset some of the negative impact on profitability.

Energy Business Revenue Up 44% Gross Profit Reaches New High of $1.1 Billion

The growth of the energy business was a major driver of Tesla's revenue and profitability in the third quarter. Tesla's energy business revenue returned to growth year-on-year, increasing by 44%.

Tesla's financial report stated that the deployment capacity of the energy business reached a new high, marking the 13th consecutive quarter of record-breaking performance.

Among them, the deployment of Powerwall products set a record for the highest quarterly deployment for the sixth consecutive quarter. The gross profit of the energy business continued to grow both quarter-on-quarter and year-on-year, reaching a new quarterly high of $1.1 billion.

South Korea Becomes the Company's Third Largest Market Supervised FSD Launch in Central Europe Awaiting Regulatory Approval

Regarding the automotive business, Tesla mentioned that in the third quarter, delivery volumes in South Korea, Japan, Singapore, and Taiwan reached new highs in their respective regions, with South Korea now becoming Tesla's third-largest market after the United States and China.

Tesla reiterated its preparations for a broader launch of the supervised version of Full Self-Driving (FSD) software in China this year and is seeking to launch this FSD version in Europe, currently awaiting approval from regulatory authorities in both regions.

Tesla's CFO Taneja stated during the earnings call that Tesla is working with regulatory agencies in China and the Europe, Middle East, and Africa (EMEA) region to seek approval for the relevant FSD.

After launching the first batch of Robotaxi services in Austin, Texas, in June this year, the financial report mentioned expanding the geographical scope of this autonomous taxi service and the number of vehicles providing services in Austin, noting the launch of such services in the San Francisco Bay Area.

Musk stated during the call that by the end of this year, most of the Robotaxi service vehicles in Austin will no longer be equipped with safety drivers Tesla continues to advance the localization of its battery and powertrain supply chain. It is expected that the lithium refining plant located in Texas, USA, will commence production in the fourth quarter of this year, while the lithium iron phosphate (LFP) production line in Nevada will start production in the first quarter of next year.

Cybercab, Semi, and Megapack 3 are planned for mass production next year

Regarding the impact of the tariff war initiated by the Trump administration, Tesla's earnings report outlook section almost entirely reused the wording from the first quarter report, stating:

"It is difficult to measure the impact of changes in global trade policies on the automotive and energy supply chains, our cost structure, and the demand for durable goods and related services. We are making prudent investments to prepare for growth in automotive, energy, and other future businesses, but this year's growth rate will depend on various factors, including the acceleration of our autonomous driving business, the increase in factory output, and the broader macroeconomic environment."

In terms of products, Tesla stated that Cybercab, Semi trucks, and Megapack 3 are all planned to begin mass production next year. The first production lines for Optimus are being installed, and mass production is expected to be achieved.

Samsung and TSMC will jointly focus on AI 5 chips

At the end of July this year, media reports indicated that Samsung Electronics signed a $16.5 billion agreement with Tesla for the manufacturing of artificial intelligence (AI) chips, with the contract lasting until the end of 2033. Musk later confirmed the details of the cooperation, stating that Samsung's factory in Texas will specifically manufacture Tesla's AI 6 chips.

During the earnings call this Wednesday, when asked about the agreement for Samsung to produce several generations of self-developed AI chips and computers for Tesla, Musk clarified that both Samsung and TSMC will focus on the design of AI 5, adding, "We will not replace NVIDIA."

According to media reports, the previous understanding was that Samsung would produce the AI 4 generation of chips, AI 5 would be handed over to TSMC for production, and AI 6 would return to Samsung. It now appears that Tesla will still collaborate with Samsung on AI 5 and will not rely entirely on TSMC.

Musk explained during the call that Tesla focuses more on self-developed chips rather than solely relying on NVIDIA's GPUs or AI accelerators because NVIDIA needs to serve a broader customer base. Musk's view is that Tesla is better off keeping it simple by using chips specifically designed for its own required tasks. These tasks refer to training and running vision-based autonomous driving models