Tesla reported a 44% profit fall to USD 787 million for the third quarter. Despite this, the company generated USD 1.5 billion in free cash flow, surprising many analysts. Morningstar analyst Seth Goldstein said, "It seems Tesla is taking a more capital-efficient approach, delaying longer-term projects to self-fund their AI growth."
Tesla reported a decline in profit for the latest quarter but a measure of cash its business generated surged, leaving investors with a mixed picture as it prepares for a possible merger with Elon Musk's other big company, SpaceX.
The electric vehicle maker reported third-quarter net income of USD 787 million, or 22 cents per share, down 44 per cent from the year-earlier period. Excluding certain items, though, earnings per share of 48 cents beat Wall Street analyst expectations by 3 cents.
One standout for the quarter was Tesla's USD 1.5 billion in free cash flow, a measure of cash generated after subtracting investments needed to keep the business running. Given big artificial intelligence spending, analysts had expected Tesla would report it had burned through cash, not generated it.
"It seems Tesla is taking a more capital-efficient approach, delaying longer-term projects to be able to self-fund their AI growth," said Morningtar analyst Seth Goldstein, calling the cash jump the big surprise of the quarter.
Revenue was basically flat at $28 billion, falling slightly short of analysts' forecast.
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In a SpaceX conference call after that company reported earnings on Tuesday, Musk said a long-rumoured merger with Tesla might be in the works. He said that special committees had been set up at each company to discuss a possible combination, while cautioning that many hurdles remain.
Musk declined to discuss the possible merger further on Tesla's conference call.
Tesla stock fell 2.4 per cent in after-hours trading after climbing 3.6 per cent during the regular trading session.
Tesla reported that a big selling feature of Tesla's cars, driver-assistance software that Tesla owners pay for separately, are in high demand with 75 per cent of vehicles sold in North America including a subscription to the service.
The company calls the feature Full-Self Driving (Supervised), the word in parenthesis added after regulators said the term was misleading because the software requires drivers to stay alert and ready to take control at any time.
Profit margins also held up despite concerns that discounts to boost sales may have squeezed profitability in recent quarters. For the three months through September, Tesla reported that it made 18.1 cents for every dollar of car sales, up almost 3 cents from a year earlier.
Tesla had previously reported selling nearly 490,000 vehicles last quarter, a rise from the prior three months. The increase followed a brutal drop stretching more than a year amid backlash over Musk's support for President Donald Trump and right-wing politicians in Europe.
The company increased capital spending, a major concern for tech investors who have been questioning future payoffs from artificial intelligence and how the investments will be financed. Tesla's capital spending doubled in the third quarter to USD 4.7 billion.
In the conference call, Tesla said it was cutting estimates of capital spending for the full calendar year from USD 25 billion to USD 20 billion. It also noted that it had secured USD 30 billion in borrowing capacity should it need money to fund big projects, but probably would not draw on it this year.