Tesla (Nasdaq: TSLA) shares fell 3.32% in after-hours trading to $373.65 following a mixed third-quarter earnings call and investor skepticism over merger talks with SpaceX, according to MarketWatch.
Financial Results
The electric vehicle maker reported flat year-over-year revenue of $28.05 billion, missing Wall Street consensus estimates that ranged from $28.3 billion to $28.13 billion. Net income fell 43% year-over-year to $787 million, or $0.22 per share.
The company attributed the profit decline to heavy research and development spending on AI and robotics. Income was also affected by the loss of the $7,500 federal EV tax credit, which caused sales to slump nearly 20% year-over-year.
Adjusted earnings per share reached $0.48, beating the consensus of $0.44 to $0.45. Free cash flow came in at $1.53 billion, dramatically exceeding Wall Street's negative expectations of between -$4.5 billion and -$4.9 billion. Automotive gross margin rebounded from 16.3% in the previous quarter to 18.1%.
Operational Highlights
Tesla delivered 486,532 EVs in Q3, beating Bloomberg estimates of 463,000 but representing a 2% year-over-year decline. The company reported its highest production backlog in four years, mainly attributed to battery supply constraints.
Full Self-Driving subscriptions increased by 20% in the quarter and served 75% of new Tesla EVs in North America.
Capital expenditures fell to $4.73 billion from $5.8 billion in the previous quarter. These funds were directed toward artificial intelligence, robotics, the Cybercab robotaxi, and the Terafab chip plant being built in conjunction with SpaceX. Tesla also lowered its full-year CapEx guidance from $25 billion to $20 billion.
SpaceX Merger Concerns
On Tuesday, Tesla CEO Elon Musk confirmed that special committees are exploring a potential merger between Tesla and SpaceX. The deal would represent the largest corporate merger in history but requires a 50% vote from all Tesla shareholders.
Supporters say the tie-up would boost AI development by pooling resources for a common product. However, investors fear the deal would dilute Tesla shares to fund the capital-intensive space firm. Another concern is that Tesla would drag down SpaceX, which has better growth metrics. Critics also say the merger would drive attention away from Tesla, which needs to focus on its revenue.
Investors are also looking to history, noting that 70%-75% of large-scale mergers have typically eroded their combined market cap three years down the line. Additionally, Tesla's heavy collaboration with Chinese manufacturers could pose national security issues or regulatory roadblocks when merging with the American space company.
Despite the mixed earnings call, the current analyst consensus rating is Buy, with an average price target of $402.47, representing a 7.70% increase from the closing price of $386.47.
