Tesla Stock Falls About 1.5% After Q3 Earnings: Net Income Drops 42.7%

Tesla stock fell about 1.5% to $380.76 in midday trading on Thursday, October 22, one day after the company reported third quarter results that beat on adjusted earnings but showed shrinking profit, a reduced capital spending plan and a scaled back long-range sales target. The shares dipped to a pre-market low of $365.25, down about 5.5% from the prior close, and briefly traded above Wednesday's $386.47 close during the morning, touching a session high of $388.48, up 0.52%, before easing back to $380.76 at midday, still about 1.5% below the prior close. The automaker posted net income of $787 million for the quarter, down 42.7% from a year earlier, on revenue of $28.05 billion that was essentially flat, per the results released after the close on Wednesday, October 21.

Investors had driven the shares to a $386.47 close on Wednesday, October 21, up 3.4% from the prior session's $373.71 and about 5.0% above Monday's $368.06 close, on speculation about a possible merger with SpaceX. The actual numbers put that enthusiasm to a different test. Adjusted earnings of $0.48 a share came in above the consensus estimate, and free cash flow beat expectations, but the market focused on the parts of the report that pointed to a slower and costlier road ahead.

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The profit math is straightforward. Operating income fell to $718 million from $1.62 billion in the year ago quarter, and research and development spending climbed to $2.76 billion from $1.63 billion as the company funded autonomy, the Optimus humanoid robot and AI compute. Vaibhav Taneja, the chief financial officer, said on the October 21 earnings call that this trend of growing operating expenses would continue until the company commercializes those new products.

Two forward looking numbers mattered more than the headline beat. The company revised its full year capital spending guidance to about $20 billion, down from an earlier plan of more than $25 billion, per the October 21 earnings call. And Elon Musk pointed to a smaller sales trajectory than he once projected, telling analysts on the October 21 earnings call that management targets 5 million vehicles a year by around 2030 while noting that demand is currently outpacing production.

Related reading: Procter & Gamble Earnings Beat: Q1 Core EPS $2.00, Stock Up 5%.

There is a bull case buried in the quarter. Automotive gross margin, excluding regulatory credits, improved sequentially to 18.1% from 16.3%, per Tesla's third-quarter shareholder update. Energy revenue came in at $2,881 million, down from $3,139 million in the second quarter, and the company posted its second highest quarter of energy storage deployments of the last five at 13.7 gigawatt hours, behind the 14.2 gigawatt hours it deployed in the fourth quarter of 2025. The total number of paid Full Self-Driving subscribers reached 1.74 million, up from 1.04 million a year earlier. Deliveries came in at 486,532 vehicles, the second straight quarter above 480,000, with management saying battery availability, not demand, set the ceiling.

The bear case rests on valuation and the merger question. Trailing price to earnings sits near 419 times at a time when profit is contracting, and Mr. Musk said on the October 21 earnings call that the special committees studying a Tesla SpaceX combination have not reached agreement on terms, calling the prospect a high hurdle. Reuters reported on Thursday, October 22 that his public endorsement could delay the talks by several weeks. The CBOE Volatility Index traded near 19, up about 14% on the day, a cautious backdrop that did not spare the broader market. Yet the reaction within the EV group was far from uniform: Lucid rose about 7% to $3.4499, touching an intraday high up roughly 9.4%, while Rivian fell about 2.5%. Tesla's slide alongside a rallying rival cuts against an EV-wide selloff and points the blame back at Tesla's own print and outlook.

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The report also carried two items that cushioned the headline miss. Net income was hit by a $142 million mark to market reduction on Tesla's SpaceX holding, which was offset by a roughly $290 million gain on its Bitcoin position, per the earnings materials. The company ended the quarter with positive free cash flow of over $1.5 billion and a cash and investment balance above $45 billion, and it secured capacity to borrow up to $30 billion, per the October 21 earnings call, to fund the increase in capital spending it expects over the next few years, though Taneja said no draws were planned for this calendar year.

On the autonomy timeline, Mr. Musk said on the October 21 earnings call that cumulative unsupervised Robotaxi miles grew eightfold quarter over quarter, with a Dallas launch planned for next month, and that the company expects Robotaxi to become a meaningful part of revenue and profitability in 2027. He also said on the same call that an Optimus humanoid robot could reach customers in about a year, with early production underway and a video demonstration potentially within a month or two. Those are the assets investors are paying about 419 times trailing earnings for, against a quarter where profit contracted and the sales target was trimmed.

Related reading: SpaceX Stock Price Slips to $147 as Q3 Earnings Due After Tuesday Close.

For Tesla, the next test is whether the independent committees agree on merger terms and whether Robotaxi can carry the valuation into 2027. The market is pricing about 419 times trailing earnings for a growth plan that is getting more expensive before it gets bigger, and Thursday's swing from a 5.5% pre-market drop to a 1.5% midday decline was the market's first read on whether that price is worth paying.