Tesla shares rose 2% in after-hours trading after the electric vehicle and energy company beat Wall Street forecasts on gross margin and free cash flow in the third quarter of 2026, even as profits fell sharply from a year earlier and revenue came in fractionally below expectations.
The company reported total revenues of $28.05 billion for the three months to September 30, roughly flat year on year and just short of the $28.34 billion average analyst estimate.
The headline profit figures made uncomfortable reading.
Operating income fell 56% year on year to $718 million, generating an operating margin of 2.6%.
GAAP net income attributable to common stockholders came in at $787 million, down 43% from the same period last year, with diluted earnings per share of $0.22.
The brighter news came from gross margin and cash generation, where Tesla delivered meaningful beats against consensus expectations.
Total GAAP gross margin improved to 19.6%, up 160 basis points year on year and well ahead of the 17.9% to 18% analysts had pencilled in.
Free cash flow of $1.53 billion was a substantial positive surprise: the analyst consensus had pointed to an outflow of around $4.4 billion to $4.5 billion, driven by heavy capital expenditure assumptions.
Tesla's actual capital spending of $4.73 billion came in significantly below the $7.8 billion to $8 billion consensus range, explaining the swing.
On a non-GAAP basis, earnings per share of $0.48 beat the $0.45 consensus, while non-GAAP net income rose to $1.7 billion.
Operating cash flow was $6.26 billion, flat year on year and ahead of most estimates, lifting the quarter-end cash pile to $45.4 billion.
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Active subscriptions to Full Self-Driving (FSD), Tesla's advanced driver assistance software, rose 67% year on year to 1.74 million.
The company said FSD attach rates in North America reached over 75% of new vehicle deliveries in the quarter, a nearly 20 percentage point sequential jump.
Total vehicle deliveries of 486,532 were down 2% year on year, with battery supply described as the main constraint on volume.
Services revenue, at $4.6 billion, rose 33% year on year and was the only major revenue line to beat consensus.
Tesla said it delivered its 10 millionth vehicle during the quarter and launched its Cybercab into the Austin Robotaxi fleet on September 3.
