Tesla reports steep profit decline despite record revenues for third quarter

Tesla returned to growth in the third quarter posting record revenues after booming sales in America – but the good news was undercut by a substantial fall in profits.

The electric carmaker posted total revenue of $28.1bn (£21bn) in Q3, up around 12% year on year, a welcome boost after two consecutive quarters of like-for-like revenue decline.

But operating margin fell to 5.8%, compared with just over 10% a year earlier, while adjusted net income came in at $1.4bn (£1.05bn), down a substantial 37% on the same period in 2024.

This fall in profit caused shares to fall by as much as 5% following the call (22 Oct), with many analysts putting the company’s strong sales down to American car buyers rushing to purchase an electric vehicle ahead of tax credits being removed at the end of last month, rather than any indication that its troubles are behind it.

Tesla’s downturn coincided with CEO Elon Musk’s close relationship with US President Donald Trump, a relationship that has since soured, with many choosing to boycott the brand and Tesla vehicles being returned in large numbers.

CFO Vaibhav Taneja noted on the call that “vandalism and unwanted hostility” towards the brand in some regions had impacted demand, but added that Tesla recorded a record number of global test drives during the period.

On the other hand, Musk pointed to “economic uncertainty” as the main factor why customers aren’t necessarily flocking to the brand.

He said: “People generally want to pause on a major capital purchase like a car. But as far as absent macro issues, we don’t see any reduction in demand.”
Elon Musk slams ‘paid’ protests tarnishing Tesla brand image as profits slide

Tesla’s marketing model remains distinct within the automotive sector insomuch as it does not really have one. The business continues to operate without paid advertising, something Musk famously claimed he “despised”, instead preferring to rely on direct communication through owned channels and customer advocacy.

The company has increased the visibility of owner-created content showcasing the benefits of its ‘Full Self-Driving’ software, focused on areas such as accessibility and convenience.

The firm continues to emphasise localisation and vertical integration as brand messages too. Around 85% of Tesla’s North American vehicle content now meets USMCA standards, while new lithium and cathode refineries in Texas strengthen its positioning as a domestic manufacturer.

These developments form part of the company’s wider brand narrative around energy independence and technological self-reliance.

The automotive division remains Tesla’s largest business, generating $21.2bn (£15.9bn) in revenue for the quarter, up around 6% year on year. The result reflects modest volume growth following the global retooling of the Model Y and lower regulatory credit income. The company said temporary production pauses and factory upgrades weighed on output, although higher vehicle pricing partly offset these effects.The Week in Tech: Tesla opens a restaurant and Substack looks to advertising for growth

Tesla’s heavy investment cycle continued through the quarter. Capital expenditure surpassed $10bn (£8.2bn), driven by Model Y line conversions, AI-related R&D and localisation of supply chains in North America and Europe.

Taneja said margins were affected by lower fixed-cost absorption during factory updates, reduced regulatory credit revenues and higher logistics costs.

Tesla said it remains focused on increasing production efficiency and scaling new vehicle platforms, including the upcoming Cybercab and next-generation compact models.