Tesla’s Q3 profit drops as it prepares for possible merger with Musk’s other public company, SpaceX

NEW YORK (AP) — Tesla reported a decline in profit for the latest quarter but a measure of cash its business generated surged, leaving investors with a mixed picture as it prepares for a possible merger with Elon Musk’s other big company, SpaceX.

The electric vehicle maker reported third-quarter net income of $787 million, or 22 cents per share, down 44% from the year-earlier period. Excluding certain items, though, earnings per share of 48 cents beat Wall Street analyst expectations by 3 cents.

One standout for the quarter was Tesla’s $1.5 billion in free cash flow, a measure of cash generated after subtracting investments needed to keep the business running. Given big artificial intelligence spending, analysts had expected Tesla would report it had burned through cash, not generated it.

“It seems Tesla is taking a more capital-efficient approach, delaying longer-term projects to be able to self-fund their AI growth,” said Morningtar analyst Seth Goldstein, calling the cash jump the big surprise of the quarter.

Revenue was basically flat at $28 billion, falling slightly short of analysts’ forecast.

In a SpaceX conference call after that company reported earnings on Tuesday, Musk said a long-rumored merger with Tesla might be in the works. He said that special committees had been set up at each company to discuss a possible combination, while cautioning that many hurdles remain.

Musk declined to discuss the possible merger further on Tesla’s conference call.

Tesla stock fell 3.2% in after-hours trading after climbing 3.6% during the regular trading session.

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The company also reported doubling capital spending for the quarter to $4.7 billion, but analysts had expected a far bigger increase. The shortfall raised questions as to whether growth in the business in future months might not be as fast as investors had expected, a concern that Tesla heightened in its conference call when it said it was cutting its full-year 2026 capital spending estimate from $25 billion to $20 billion.

On the positive side, Tesla reported that a big selling feature of Tesla’s cars, driver-assistance software that Tesla owners pay for separately, are in high demand with 75% of vehicles sold in North America including a subscription to the service.

The company calls the feature Full-Self Driving (Supervised), the word in parenthesis added after regulators said the term was misleading because the software requires drivers to stay alert and ready to take control at any time.

Profit margins also held up despite concerns that discounts to boost sales may have squeezed profitability in recent quarters. For the three months through September, Tesla reported that it made 18.1 cents for every dollar of car sales, up almost 3 cents from a year earlier.

Tesla had previously reported selling nearly 490,000 vehicles last quarter, a rise from the prior three months. The increase followed a brutal drop stretching more than a year amid backlash over Musk’s support for President Donald Trump and right-wing politicians in Europe.