Tesla Inc. announced its third-quarter 2025 earnings on October 22, showing a return to revenue growth after two quarters of declines. However, the company missed earnings expectations, leading to declining margins and a drop in its stock price. Analysts highlighted increased R&D spending and reduced regulatory credits as key pressures.
Tesla's Q3 2025 financial results, released on October 22, marked a 12% year-over-year revenue increase, ending two consecutive quarters of declines. This growth was partly attributed to sales pulled forward ahead of the electric vehicle tax credit's expiration on September 30, 2025. Despite the revenue beat, earnings fell short of expectations, signaling weaker margins, and the stock declined following the announcement.
Operating margins have dropped in 10 of the last 11 quarters. Research and development spending rose 42% year-over-year through the first three quarters, largely due to investments in artificial intelligence for Full Self-Driving (FSD) technology and the Optimus robot project. FSD adoption remains low, with only 12% of customers opting to pay for the system.
Regulatory credit revenue, a high-margin stream, fell 44% year-over-year in Q3 to an expected $877 million over the next 12 months, down from $1.8 billion annually in recent years. The company anticipates no such revenue by 2027. Average selling prices also declined as buyers favored lower-priced models to maximize tax credit benefits, which capped eligibility based on vehicle cost.
During the earnings call, executives focused on future initiatives, including the Cybercab robotaxi, Semi truck production, and a next-generation battery storage system. Observers noted increasing competition from other automakers launching affordable EVs, raising questions about Tesla's performance in Q4 without tax incentives.
In a related development, Tesla's board expressed concerns that without approving Elon Musk's massive pay package, the CEO might lose interest or depart the company.