Profit at Elon Musk's Tesla falls again despite record sales in third quarter

Tesla Inc. once again fell short of Wall Street expectations, as CEO Elon Musk and other executives emphasized the company’s long-term focus on artificial intelligence and self-driving technology during its quarterly earnings call Wednesday.

Shares slipped during the call after executives offered little guidance for the coming quarters.

The Austin-based automaker reported record third-quarter revenue of $28.1 billion, up 12% from a year earlier. However, profit plunged 37% to $1.4 billion, marking the company’s fourth consecutive quarterly decline. Earnings per share were 50 cents, missing analyst estimates by 4 cents.

Despite selling more vehicles in the United States than a year ago, Tesla earned less per car as price cuts and incentives squeezed margins. The company offered low-interest loans and reduced prices on its popular Model 3 and Model Y by about $5,000 compared with previous entry-level versions.

Those moves followed the expiration of federal electric vehicle tax incentives that had helped boost sales for Tesla and other automakers.

THIS MONTH: Tesla sales rise 7% in Q3 as buyers rush to use $7,500 EV credit

Tesla’s profit also took a hit from a 50% jump in operating expenses, which the company attributed to spending on artificial intelligence and “other R&D projects,” along with declining sales in Europe and China.

As in the previous quarter, Musk focused heavily on AI, autonomy and energy, rather than financial results, during Wednesday afternoon’s earnings call with investors.

Musk touted the launch of version 14 of Tesla’s “Full Self-Driving” software, or FSD, during the quarter. The company has increasingly leaned on FSD Supervised, its partially automated driver-assistance system, despite its slow progress. Chief Financial Officer Vaibhav Taneja said customers using FSD Supervised make up only about 12% of Tesla’s current fleet.

Musk said he encourages customers to wait for version 14.2 of FSD before downloading, saying the update will make the software safer and more comfortable to use.

The system has drawn the attention of federal safety regulators, who opened an investigation after more than 50 reports of Tesla vehicles using the software allegedly violated traffic laws or were involved in crashes. Earlier versions of FSD were already under investigation for performance concerns, including its use in Tesla’s robotaxi operations in Austin.

Musk and Taneja said they expect FSD adoption to grow as Tesla’s robotaxi service expands.

“We feel that as people experience the supervised FSD at scale, demand for vehicles will increase significantly,” Taneja said in the call.

Musk said Tesla plans to remove the safety moderators from its Austin-area robotaxis by the end of this year. Each vehicle has operated with a person in the front passenger seat as a precaution since the service launched in June.

Tesla also plans to expand its robotaxi service to eight to 10 markets by year’s end, including Nevada, Florida and Arizona. Musk did not specify the other markets or cities under consideration but has previously said he wants robotaxis available to “half the U.S. population” by the end of 2025. The service is currently available only in Austin and the San Francisco Bay Area.

RELATED: Tesla taps Samsung in $16.5B AI chip deal tied to new Austin-area facility

During the quarter, Tesla announced a $16.5 billion deal with Samsung Electronics tied to the company’s semiconductor manufacturing plant in Taylor, about 30 miles northeast of Austin. Samsung will produce Tesla’s new AI chips at the Taylor facility through 2033. Part of the plant is expected to come online by late next year, with full operations projected for 2028.

Samsung currently makes Tesla’s AI4 chips, which power its Full Self-Driving software. Musk said both Samsung’s Taylor plant and TSMC’s Arizona factory will initially produce the next-generation AI5 chips — designs he said he’s been “spending almost every weekend” refining.

Tesla said it plans to begin “volume production” of its Cybercab, heavy-duty electric semitrucks and new Megapack 3 energy storage systems in 2026. The company is also building first-generation production lines for its humanoid Optimus robots — a long-touted project that has yet to scale.

“With a humanoid robot, there is no existing supply chain,” Musk said. “Tesla has to be very vertically integrated and manufacture many parts internally.”

Musk said Tesla expects to unveil the Optimus V3 in the first quarter of next year.

Just hours before Wednesday’s call, reports surfaced that Tesla is recalling about 13,000 Model 3 and Model Y vehicles built this year because of a potential power loss while driving.

MORE: Tesla recalls 13,000 U.S. EVs over risk of power loss while driving

At the end of Wednesday’s call, Musk turned the conversation over to an upcoming shareholders vote considering a potential pay package that would net the CEO nearly $1 trillion worth of stock and expand his control over the company. 

A group that includes the American Federation of Teachers and Public Citizen launched a website for Take Back Tesla, a campaign urging shareholders to vote no on the potential pay package. 

Musk said Wednesday that it “should not be considered” a compensation package, saying the package and control needs to be enough where he can give strong influence but not too much to where he couldn’t be fired “if I go insane.” 

“I don’t feel comfortable building a robot army here and then being ousted because of some asinine recommendations,” Musk said. 

The vote is set to take place on Nov. 6. 

Tesla shares fell slightly in regular trading Wednesday and were down about 3% in after-hours trading following the earnings report. The stock was trending up slightly Thursday afternoon.