Tesla posts best revenue ever in last quarter with EV tax credit, but the stock slides on weaker margins

The last quarter with the US government’s EV tax credit was a serious boon for Tesla’s top line.

The company posted its highest quarterly revenue ever, at $28.1 billion in the third quarter, coming in ahead of Wall Street’s expectation of $26.4 billion. Unfortunately for Elon Musk and co. the top line strength failed to cascade through to the bottom line, with adjusted earnings per share coming in at $0.50, shy of analysts’ forecast of $0.54, according to data from Bloomberg.

The stock, which is known to swing sharply after earnings, fell after-hours, and has continued to stay in the red in early trading on Thursday.

During the earnings call, Musk made the case that “Tesla really is the leader in real-world AI” and, to that end, attempted to address the future of its autonomous cars and robots — topics Tesla bulls are more concerned with than old-fashioned electric cars.

He said the company now has “clarity” on achieving unsupervised full-self driving, but didn’t specify exactly what that meant. He did say it gave him confidence to expand vehicle production “as quickly as we can,” potentially hitting an annualized production rate of 3 million in the next two years. It’s unclear, however, if the demand for so many vehicles is there. Analysts expect Tesla’s full-year sales to decline for the second year in a row to 1.656 million in 2025.

Musk also said Tesla’s robotaxi program would be expanding to 8-10 cities this year, down from being available to half the US population as he said in July. It’s likely if that expansion does occur it will be akin to Tesla’s Uber-like service in the Bay Area where a person sits in the driver’s seat and uses supervised FSD — not really an autonomous experience.

On the robot front, Musk said Tesla will unveil Optimus version 3 in the first quarter of 2026, but noted that perfecting the robot’s hands has proven difficult and that they would be “doing rolling changes for the Optimus design even after start of production.” Earlier this year Musk claimed Tesla would build 10,000 robots for internal use in 2025.

Back in the present, Tesla still gets the vast majority of its revenue from regular EVs.

The latest earnings come after Tesla sold a record number of vehicles in the third quarter, helped by customers who flocked to buy EVs en masse to take advantage of the $7,500 tax credits before they expired.

Of course, that credit is going away and Tesla also accomplished the feat of record sales by offering huge discounts that ate into its profit margins.

Tesla’s automotive gross margin excluding revenue credits was 15.4% last quarter, down from 17.1% a year earlier. The analyst consensus was 16.3%, according to FactSet. For a longer-term comparison, that number was nearly 30% for the third quarter of 2021.

As a countermeasure to the end of the government’s tax credit, Tesla earlier this month unveiled its long-awaited more affordable vehicles, in the form of lower-trim versions of its Model 3 and Model Y. These “Standard” models cost about $5,000 less than previous versions, but also have a lot fewer features, with the intention of increasing sales volume as a way to drive overall revenue, though it’s likely that could eat into earnings.

Tesla reported $417 million in regulatory credits in the third quarter, down from $739 million a year ago. That number will likely decline going forward since there's effectively no longer a regulatory credit market in the US.

Tesla's overall net income dropped to $1.4 billion, down 37% from a year earlier, as operating costs soared: R&D expenses jumped 57%, and selling, general and administrative expenses climbed 32%.