Tesla reported surprise positive free cash flow for the third quarter on Wednesday after spending far less on AI and robotics than Wall Street expected, as the EV maker weighs a possible merger with CEO Elon Musk’s SpaceX.
The unexpected cash flow could bolster Tesla’s case as investors weigh its value in a potential merger. But with much of its value tied to AI, robotaxis and humanoid robots, preserving cash at the expense of investment could undermine the very growth story investors are betting on.
“The free cash flow beat was a pleasant surprise, but when combined with the lower-than-expected capex, raises questions on the next step for the automaker,” said Ryan Lee, senior vice president of product and strategy at Direxion, which offers ETFs tied to Tesla. “Lower capex suggests less of an ‘all-in’ approach to the AI arms race than one would expect from Elon.”
Tesla shares were down 1.8% in after-hours trading.
Capital expenditure at $4.7 billion was still more than double that of a year ago, but lower than the $7.5 billion analysts on average were expecting, according to LSEG data.
Free cash flow in the September quarter came in at $1.53 billion, compared with an expectation of cash burn of $4.92 billion.
The company also beat Wall Street estimates for third-quarter revenue as deliveries rose from the previous quarter.
Musk said on Tuesday that a merger between Tesla and SpaceX was a “good idea” and that the companies had formed special committees to discuss a deal.
“The merger still faces a high bar, but tonight’s numbers make the financial logic harder to ignore,” said Thomas Monteiro, a senior analyst at Investing.com.
“The main takeaway is that Tesla’s surprisingly positive cash flow quarter did not come from stronger profits, but from spending billions less than planned at a time when SpaceX is preparing to invest up to $40 billion in a single quarter.”
Revenue beats estimates
The Austin, Texas-based automaker reported revenue of $28.05 billion for the three months ended September 30, above the $27.88 billion analysts were expecting, despite the end of US tax credits that supported sales last year, as high gasoline prices stoked demand for EVs, especially in Europe.
“We ended the quarter with the largest backlog for our passenger vehicles in four years,” the company said.
With 486,532 vehicles delivered in the third quarter, Tesla is on track to increase annual deliveries for the first time in three years.
Automotive gross margin, excluding regulatory credits, came in at 18.1% in the third quarter, higher than analysts’ estimates of 16.7%, according to Visible Alpha data.
Still, its core automotive business remains under scrutiny as rivals globally launch newer, often cheaper models, while Tesla leans heavily on the aging Model 3 and Model Y. It has said it has passed 10 million vehicles delivered and that Model Y is on track to be the world’s best-selling vehicle this year.
To stimulate demand, Tesla has offered stripped-down, cheaper versions of both models and launched a six-seater Model Y in the United States in July.
A test of Musk’s ambitions
Investors have been keen to see clearer evidence that Musk’s push into self-driving and robotics is moving from promise to commercial reality.
Its fleet of robotaxis, including Cybercabs, which come without manual controls, has grown more slowly than promised. Tesla launched unsupervised robotaxi rides in the Florida cities of Miami, Orlando and Tampa in July, after launching in Dallas and Houston in April.
Tesla’s energy unit has become a key counterweight, helped by demand for grid-scale batteries from renewable-power developers and data centers. Tesla has said the current tariff regime will hit its energy business harder than its auto business.
The company’s shares have fallen about 14% this year. At roughly $1.4 trillion, it remains the world’s most valuable automaker by a wide margin, reflecting investor expectations that self-driving software, energy storage, robotaxis and humanoid robots could eventually deliver higher-margin growth than vehicle sales.