Tesla Achieves $1.53 Billion in Free Cash Flow While Reducing 2026 Spending Forecast by One-Fifth
Tesla reported a surprising $1.53 billion in free cash flow for the third quarter, exceeding Wall Street’s expectations. The electric vehicle manufacturer achieved this by spending less than anticipated on capital expenditures. However, the company has reduced its 2026 capital expenditure forecast by one-fifth, now estimating around $20 billion, down from over $25 billion, raising concerns about its investment plans in artificial intelligence, robotics, and autonomous driving.
In the quarter ending September 30, Tesla’s capital expenditure reached $4.7 billion, significantly higher than the previous year but below the $7.5 billion analysts had projected. This lower spending contributed to the unexpected free cash flow, contrasting sharply with market expectations of a cash outflow of $4.92 billion. Following the announcement, Tesla’s shares initially rose 2% in after-hours trading but later reversed direction, trading 2% lower. The stock has declined approximately 14% this year.
SpaceX Merger Puts Spending Under Scrutiny
The results come amid discussions by CEO Elon Musk regarding a potential merger between Tesla and SpaceX. The unexpected cash generation could bolster Tesla’s financial position ahead of a possible deal. However, reduced investment in AI and robotics may raise doubts about the company’s ability to meet its growth targets. Musk described the merger as a “good idea” and mentioned that special committees have been formed to explore the proposal, though he did not provide further details during the analysts’ call.
A merger would align with Musk’s vision of an integrated technology and manufacturing group that spans AI, energy, robotics, communications, and transportation. Investors are keen to see if Tesla is investing sufficiently to realize Musk’s ambitions, especially as the rollout of robotaxis has not met expectations. Analysts noted that while the merger faces challenges, the latest financial results make the financial rationale more compelling.
Revenue Beats Estimates, but Net Income Plunges 43%
Tesla’s financial performance showed mixed results. Revenue remained flat compared to the previous year, despite the expiration of U.S. tax credits that had previously boosted sales. However, the revenue figure surpassed Wall Street’s expectations. Net income fell 43% during the quarter, but Tesla reported its largest backlog of passenger vehicles in four years. Increased petrol prices have driven demand for electric vehicles, particularly in Europe, with the company delivering 486,532 vehicles in the third quarter, positioning it for annual delivery growth for the first time in three years.
Musk stated that demand for Tesla vehicles is growing rapidly, outpacing production. He expressed optimism about future growth, indicating a shift from years of stagnation to significant expansion.
FSD Adoption and Automotive Margins Improve
Tesla also reported improved adoption rates for its driver-assistance technology in North America. The attach rate for its Full Self-Driving (FSD) feature exceeded three-quarters of new vehicle deliveries, marking an increase of nearly 20 percentage points from the previous quarter. The automotive gross margin, excluding regulatory credits, reached 18.1% in the third quarter, surpassing analysts’ estimates of 16.7%.
The company’s energy business has recently helped mitigate pressures on its automotive operations, which face scrutiny as competitors introduce newer, often cheaper models. Despite these challenges, Tesla aims to produce five million vehicles annually by around 2030, compared to an expected 2.5 million this year.
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