Tesla’s profit drops 29% despite record deliveries; what went wrong?

Tesla reported a 29% fall in third-quarter adjusted net profit on Wednesday as lower emissions credit revenue, higher costs linked to US tariffs, and rising spending on artificial intelligence and robotics weighed on margins.

The electric vehicle maker posted adjusted net income of $1.8 billion for the July-September quarter, missing estimates of $1.9 billion, according to company filings.

Revenue rose 12% to $28.1 billion, above expectations of $26.6 billion, but operating margin nearly halved to 5.8% from 10.8% a year earlier.

Shares of the company fell about 2% in after-hours trading.

What’s driving Tesla’s profit squeeze?

Tesla said it was “difficult to measure the impacts of shifting global trade and fiscal policies” on its business, but added it expects long-term growth in profits from AI, software and fleet operations to complement its vehicle sales.

Income from regulatory credit trading plunged 44% to $417 million after US authorities scrapped fines for non-compliance with emissions standards, effectively ending the trading program.

Tesla earned about $2.8 billion from such schemes last year, mostly in the United States, the Financial Times reported.

The company’s operating expenses jumped 50% to $3.4 billion. Tesla said it has installed 81,000 Nvidia H100 GPUs at its Cortex data centre in Texas to support its autonomous driving and robotics ambitions.

Reported net income fell to $1.4 billion, below forecasts of $1.5 billion. Energy generation and storage revenue surged 44% to a record $3.4 billion, while services revenue — including its “Full Self Driving” software and Supercharger network — rose 25% to $3.5 billion.

Tesla delivered a record 497,099 vehicles in the quarter, boosted by customers rushing to take advantage of a $7,500 federal tax credit before it expired on September 30.

However, analysts said the short-term lift was offset by higher input costs from trade tariffs and supply chain pressures.

The company is lobbying against steep US tariffs, warning they could hurt profits and exports. It plans to counter margin pressure with refreshed and lower-priced versions of its Model Y.