Tesla Beats Q3 Estimates With Surprise Cash Flow Swing as SpaceX Merger Talks Drive Markets Higher

Tesla reported third-quarter adjusted earnings of $0.48 per share on revenue of $28.05 billion Wednesday evening, topping Wall Street estimates of $0.43 and $27.88 billion respectively. The most striking result was free cash flow of $1.53 billion against a consensus expectation of negative $4.99 billion, driven by capital expenditure that came in below forecasts at $4.73 billion. Gross margin expanded to 19.6%, well ahead of the 17.8% estimate and up from 16.8% the prior quarter, marking the second consecutive quarter in which Tesla's trailing twelve-month revenue topped $100 billion. GAAP net profit fell to $787 million from $1.37 billion a year earlier, and operating income dropped 56% year over year to $718 million, reflecting heavy investment in artificial intelligence infrastructure and new manufacturing lines.

On the product front, Tesla confirmed that Optimus humanoid robot production has begun on high-volume lines at its Fremont, California factory, while Tesla Semi production started in Nevada. The company's Robotaxi service, which launched in Austin on September 3 using Cybercabs, accumulated nearly two million cumulative unsupervised miles in the quarter, an eightfold increase from the prior period. Active full self-driving subscriptions reached 1.74 million, up 67% year over year and a record quarterly addition of roughly 260,000. Tesla said it plans to reach 400 megawatts of AI training compute by year-end to support vehicle and humanoid robot autonomy software, and CEO Elon Musk said on the call that the company has a realistic shot at producing approximately five million vehicles annually by 2030, with Megapacks nearly sold out for 2027.

The results arrived against a backdrop dominated by merger speculation. Earlier in the day, SpaceX reported its first profitable quarter since its public listing, with third-quarter revenue of $14.6 billion, up 161% year over year, sending its shares up more than 10%. On SpaceX's earnings call, Musk confirmed that both the SpaceX and Tesla boards have formed independent special committees to evaluate a potential combination, calling the idea "a good idea" while cautioning that treating a deal as certain would be overstating it. The combined entity would carry a valuation of roughly $3.5 trillion to $3.6 trillion, consolidate 30,221 bitcoin across the two balance sheets, SpaceX's 18,712 and Tesla's 11,509, and employ more than 155,000 people. Prediction markets placed the probability of a completed merger before 2028 at 85% after Tesla's results were released.

Analyst reaction was broadly constructive. JPMorgan doubled its SpaceX price target to $500, cited strong strategic logic for a merger and now forecasts $254 billion in SpaceX revenue for 2027. Altimeter Capital's Brad Gerstner placed a $420 to $550 per share range on Tesla in a merger scenario. Oppenheimer's analyst called a deal "pretty inevitable." Regulatory complexity remains a key obstacle: SpaceX is a major Pentagon contractor while Tesla operates significant manufacturing inside China, factors Reuters and JPMorgan both flagged as potentially requiring lengthy antitrust review. Musk's personal financial interest in a transaction is also notable, with reports indicating a deal could accelerate the vesting of Tesla compensation shares that otherwise would not vest until 2028, potentially adding more than $110 billion to his net worth, which crossed $1 trillion during the session on the strength of the SpaceX earnings surge.