Tesla returns to positive free cash flow of $1,531 million, cuts spending
Key Facts
Tesla returned to positive free cash flow in the third quarter of 2026, generating $1,531 million, according to results released on October 21, compared with a deficit of $1,092 million in the previous quarter. The swing to a surplus defied the average analyst forecast compiled by the company, which pointed to negative free cash flow of $4,506 million. Operations generated $6,263 million in cash during the quarter, according to its quarterly update. Actual capital expenditure totaled $4,732 million, compared with an average forecast of $7,771 million in the same compilation. The cash flow surprise coincided with operating profit of $718 million, while spending on assets came in below analysts' expectations.
Adjusted diluted earnings per share were $0.48 in the third quarter, according to financial statements published by Tesla. That compared with an average forecast of $0.45 in the analyst compilation the company published on October 19. Revenue totaled $28,046 million, below the average estimate of $28,341 million in the same Tesla compilation. Revenue in the corresponding quarter of 2025 was $28,095 million, marking a slight year-on-year decline in sales. Net income attributable to shareholders fell to $787 million from $1,373 million a year earlier, despite adjusted earnings per share beating expectations. Among expense items, research and development spending totaled $2,761 million during the period, according to the company's quarterly update.
In its automotive business, Tesla reported deliveries of 486,532 vehicles in the third quarter, compared with production of 464,391 vehicles during the same period. The company said in its quarterly update that "battery availability" remained a constraint on increasing vehicle production. Automotive gross margin excluding regulatory credits rose to 18.1% from 16.3% in the second quarter, according to the earnings call transcript published by Investing.com. The chief financial officer attributed the quarter-on-quarter improvement to the Asia-Pacific region accounting for a larger share of total deliveries. Automotive regulatory credit revenue, which is excluded from that margin measure, totaled $113 million, according to the company's results.
In its energy business, Tesla deployed 13.7 gigawatt-hours of energy storage products during the third quarter, according to its production and deliveries statement. The segment's gross margin was 33.1%, the chief financial officer said during the earnings call, according to the transcript published by Investing.com. The margin was 20.4% in the previous quarter. The chief financial officer attributed the improvement primarily to tariff refunds and adjustments that reduced warranty provisions. The reduction in those provisions followed an agreement with a supplier over battery cell costs.
On investment plans, Tesla cut its 2026 capital expenditure guidance to about $20 billion from an expected outlay of more than $25 billion, according to Reuters. Shares fell 2.22% to $377.88 in the after-hours trading snapshot reported by Investing.com following the results. Reuters linked the share weakness to investor concerns that reduced spending signaled slower growth in AI and robotics projects. In a development concerning the structure of the two companies, Elon Musk said Tesla and SpaceX had formed "special committees" to explore a potential merger, according to the news agency. On financing, the chief financial officer said during the earnings call that Tesla had secured borrowing capacity of up to $30 billion and did not intend to draw on the new facilities during the year.
In its driving software business, active subscriptions to its driver-assistance system stood at 1.74 million at the end of the third quarter, according to Tesla's definition in its quarterly update. The metric includes customers who paid for the system upfront as well as monthly subscribers. It excludes free-trial users. The company is targeting the first activation of unsupervised autonomous driving in customer vehicles in the second quarter of 2027, according to the earnings call published by Investing.com. In parallel, Tesla plans to begin trial operations of equipment at its Austin semiconductor plant in 2027, according to its quarterly update.