Tesla reported record third-quarter revenue of $28.1 billion, surpassing Wall Street expectations, driven by a rush to buy electric vehicles before a key tax credit expired. However, the company missed on earnings and margins, while sales in China plunged and a former executive warned of hurdles in autonomous driving progress. These developments highlight ongoing volatility for the electric vehicle maker.
Tesla's 2025 has been marked by turbulence for investors. The year began with a stock plunge due to tariff and trade-policy headwinds, alongside consumer backlash from CEO Elon Musk's political activities. A rebound followed, fueled by optimism around artificial intelligence, robotaxis, and robotics potentially outpacing traditional automaking. The company's roughly 60% share price increase over the past six months has pushed its market capitalization to $1.5 trillion, exceeding that of Ford and General Motors combined many times over.
Last week, Tesla announced third-quarter results with total revenue of $28.1 billion, topping analysts' average estimate of $26.37 billion from LSEG. This surge stemmed from buyers rushing to secure a $7,500 federal tax credit for electric vehicles before its expiration at the end of September. Adjusted earnings per share came in at $0.50, below the expected $0.55. Gross margin, excluding regulatory credits, stood at 15.4%, slightly under the 15.6% forecast from Visible Alpha.
Challenges persist in key markets. In China, Tesla's sales dropped to 26,006 vehicles in October, the lowest in three years and a 36% decline from September's 71,525 units, when deliveries of the longer-wheelbase Model Y began. The company's share of China's EV market fell to 3.2%, down from 8.7% the prior month. Exports from China-made vehicles rose to a two-year high of 35,491. Overall, October sales declined 23% year-over-year across North America, Europe, China, and South Korea, per Wells Fargo analyst Colin Langan.
On autonomous driving, former Tesla AI head Andrej Karpathy cautioned in a podcast that he would "push back" on claims that recent milestones by Tesla and Alphabet's Waymo solve all technology problems. He noted several remaining steps to full autonomy. Tesla faces mounting lawsuits over its full self-driving claims, and its limited summer robotaxi launch in Austin, Texas, still required human supervisors—unlike Waymo, which eliminated that need in 2020.
Research and development spending rose 57% to $1.6 billion in the quarter, contributing to an operating margin of 5.8%, down from 10.8% a year earlier. Shareholders approved Musk's compensation package with 75% support, potentially worth up to $1 trillion, tied to milestones like 20 million vehicle deliveries, one million robotaxis in operation, one million Optimus robots, 10 million Full Self-Driving subscriptions, and $400 billion in core profit.
Top investor Chris Neiger, a 5-star analyst, described Tesla stock as a "losing bet," citing falling margins, sliding earnings, and a price-to-earnings ratio of about 297—far above the S&P 500's 31. He highlighted billions more in needed investments amid the tax credit's removal. Despite a Hold consensus from Wall Street, with an average price target of $383.37 implying minimal downside, Tesla's lofty valuation reflects bets on future AI and robotics potential, even as its core automaking business navigates headwinds like an aging lineup, declining sales, and slow robotaxi scaling.
