Flying Cars, Grounded Results: Tesla Disappoints on Earnings
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International Markets - Technical Analysis
The two leading U.S. indices have broken their upward trend that had lasted for months, so from a technical perspective, a downward trend remains visible. There is still room for prices to fall, so opening long positions seems early at this point. The Russell 2000 had already signaled significant weakness earlier. Although some buying pressure is currently observable, which could lead to a corrective rally, this appears to be more of a temporary rebound than the start of a sustained uptrend. Following their corrections, the DAX and Stoxx 600 indices also appear to be turning downward again, so the formation of new swing lows cannot be ruled out for them either. The index tracking emerging markets has not yet been able to demonstrate any significant buying momentum, so there is still some room here for further weakness.
Chemical Giant's Chart Signals a Potential Turnaround
Major U.S. indices have broken their longer-term uptrends, triggering a significant market correction. Despite this, there are always stocks that exhibit relative strength and may be able to move against the prevailing market direction. This week, one of the standout names was Dow Inc., which ranked among the strongest performers. The company is one of the world's leading players in the chemical industry.
Last week’s spectacular demonstration of the flying Roadster took the spotlight away from Tesla’s latest earnings report. Looking at the report, it now seems that the company is working feverishly to somehow deliver on the plans it previously hinted at in the areas of self-driving, Optimus, and robotaxis. The target dates aren’t far off — and are likely unrealistic — but in the long run, it might not be wise to bet against Elon Musk.
Let's start with the less exciting automotive segment. Tesla delivered 486,532 vehicles during the quarter, representing a 2% year-over-year decline, but comfortably exceeding the market consensus of around 462,000 units. Automotive revenue fell 3% YoY to $20.5 billion, while the automotive gross margin excluding regulatory credits improved to 18.1%, up from 16.3% in the second quarter. The margin expansion was mainly driven by a more favorable product mix and growing revenue from FSD (Full Self-Driving) subscriptions.
Management stated that demand for Tesla's vehicles remains strong, with deliveries currently constrained more by production capacity and battery supply than by end-market demand. That view is somewhat contradicted by the decline in average selling prices, suggesting that the pricing pressure driven by Chinese competitors has yet to ease. Looking further ahead, the company's long-term objective remains unchanged: reaching annual production of around 5 million vehicles by 2030.
The number of customers using the paid FSD service globally exceeded 1.7 million, with roughly half of them now accessing the feature through a subscription model. In North America, more than 75% of newly delivered vehicles were paired with a paid FSD subscription, representing an improvement of approximately 20 percentage points quarter-over-quarter.
Robotaxi
The robotaxi program is expanding rapidly, although meaningful profitability still appears some way off. The cumulative number of miles driven in autonomous mode increased eightfold quarter-over-quarter, while the Cybercab fleet in Austin grew tenfold within a single month. Dallas could be the next market to see the service go live. Tesla now expects the majority of Cybercabs to remain company-owned and operated as a mobility service. While this model could generate higher recurring revenue over the long term, it also requires substantially greater upfront investment. A key question is whether this will ultimately prove to be the right strategy in the robotaxi market.
Following the earnings release, Elon Musk said that the robotaxi business could begin generating visible revenue by Q2 2027, with a more meaningful contribution expected by the end of that year. That appears to be a rather ambitious target, given that the service is currently operating in only one city and expansion is progressing relatively slowly. Then again, investors have become accustomed to Musk setting aggressive timelines that often prove difficult to meet.
Otpimus
Expectations surrounding Optimus were also pushed back, and management spoke more openly than usual about the challenges that still lie ahead. Even according to Elon Musk, reaching a production rate of roughly 20,000 robots per week, equivalent to around one million units annually, could take at least another year and potentially longer. Translated into plain language, it will likely take several years to get there, although that does not necessarily mean the project will ultimately fail to deliver on its ambitions.
The bottlenecks are not limited to manufacturing. Durability still needs to be improved, while the AI system is not yet capable of reliably handling tasks that have not been specifically programmed in advance. Moreover, Tesla does not have access to the vast amount of real-world data for Optimus that its vehicle fleet provides for FSD. To kick-start the reinforcement learning process, thousands of robots will need to perform tasks in both real-world and simulated environments. According to management estimates, roughly 10,000 to 20,000 robots may be required to establish a data collection process based on autonomous practice and training across a wide range of tasks. The integration of the AI5 chip into Optimus is currently planned for April 2027.
Revenue from the energy generation and storage segment declined 16% year-over-year to $2.9 billion, despite deployment volumes increasing 10% to 13.7 GWh. At the same time, the segment's gross margin jumped to 33.1%, up from 20.4% in Q2. However, this improvement was supported by several one-off or temporary factors, including tariff refunds and revisions to certain provisions.
Revenue from the services and other segment increased 33% year-over-year to $4.6 billion, quietly growing into a meaningful business division for Tesla. This segment includes activities such as the Supercharger network, vehicle servicing, insurance, and parts sales. In the future, revenue generated by the robotaxi business is also expected to be recognized within this segment.
Adjusted EPS of $0.48 came in ahead of the $0.45 consensus estimate, but operating income declined as the company continued to invest heavily in capital expenditures. At the same time, Tesla lowered its 2026 capex guidance to $20 billion, down from the previously indicated level of more than $25 billion. In Tesla's case, however, lower capital spending is not necessarily a positive development, which was also reflected in the share price reaction. The market appears to have interpreted the revision as a sign that progress in scaling the robotaxi business, Optimus, and the company's AI infrastructure may be proceeding more slowly than previously expected.
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