Updated Version 3 - Tesla Achieves Positive Cash Flow Unexpectedly Due to Lower Than Expected AI Expenditures

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Akash Sriram/Abhirup Roy

Reuters, Oct 21 - Tesla TSLA.O on Wednesday reported an unexpected positive cash flow for the third quarter, as its investments in artificial intelligence and robotics were far below Wall Street's expectations. The electric vehicle manufacturer is currently contemplating a merger with CEO Elon Musk's rocket company SpaceX SPCX.O.

Tesla is walking a tightrope. This surprise cash flow may strengthen its case as investors assess the potential value of a merger. However, considering that much of its value is tied to artificial intelligence, robotaxi services, and humanoid robots, preserving cash at the expense of investment could shake investor confidence in its growth narrative.

“Capital expenditure seems to be the key number,” said Ryan Lee, SVP of product and strategy at Direxion, which offers Tesla-linked ETFs. “The market is still acting like Goldilocks in the Goldilocks story—we don’t want to see too much or too little.”

Tesla shares rose about 0.5% in after-hours trading.

According to data from London Stock Exchange Group (LSEG), the $4.7 billion in capital spending was still more than double a year earlier, but below both last quarter’s level and analyst average expectations of $7.5 billion.

Free cash flow for the September quarter was $1.53 billion, while the market had previously expected a cash burn of $4.92 billion.

Benefiting from a rebound in vehicle deliveries boosted by high oil prices (especially in Europe), as well as growth in its energy storage segment, the company’s third quarter revenue also exceeded Wall Street expectations.

Musk said on Tuesday that a merger between Tesla and SpaceX was a “good idea,” and both companies have formed a special committee (link) to explore the deal.

“The deal still faces a high hurdle, but tonight’s earnings release makes its financial logic harder to ignore,” said Thomas Monteiro, Senior Analyst at Investing.com.

“The main takeaway is that Tesla showed an unexpectedly positive cash flow this quarter—not from profit growth, but because spending was billions of dollars less than planned, while SpaceX is preparing to invest as much as $40 billion in a single quarter.”

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Delivery Rebound Drives Revenue Beat

According to data compiled by LSEG, the Austin, Texas-based automaker reported revenue of $28.05 billion in the three months ended September 30, topping analyst expectations of $27.88 billion. Revenue for the same period last year was $28.10 billion.

Based on Visible Alpha data, third-quarter automotive gross margin (excluding regulatory credits) was 18.1%, above analyst expectations of 16.7%.

Tesla delivered 486,532 vehicles in the third quarter, exceeding Wall Street expectations of about 461,100. Deliveries fell about 2% from a year earlier.

As global competitors launch refreshed, often cheaper models—and Tesla remains heavily reliant on the aging Model 3 and Model Y—its core automotive business remains under scrutiny. The company stated deliveries have surpassed 10 million units, and Model Y is on track to become the world’s best-selling vehicle this year.

To stimulate demand, Tesla has introduced stripped-down and lower-priced versions of both models, and in July launched a six-seat Model Y in the US. However, last year’s removal of tax credits hit US market demand.

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Autonomous Ride-Hailing Fleet Continues to Expand in US Cities

Investors have been eager to see more concrete evidence that Musk’s push into autonomous driving and robotics is moving from promises to commercial reality.

Earlier this month, Tesla said its “Cybercab” fleet in Austin grew from fewer than 40 vehicles to over 300 in about a month, with Dallas set as the next destination. After launching services in Dallas and Houston in April, the company expanded its driverless ride-hailing service in July to Miami, Orlando, and Tampa, Florida.

Thanks to demand from renewable energy developers and data centers for grid-scale batteries, Tesla’s energy business has become an important counterbalance to its automotive operations. Tesla noted that current tariff structures would have a more severe impact on its energy business than on its automotive business.

The company’s share price is down about 14% this year. Its market capitalization stands at about $1.4 trillion, maintaining a wide lead as the world's most valuable automaker, reflecting investor expectations that autonomous driving software, energy storage, robotaxis, and humanoid robots may eventually deliver even greater profit margin expansion than car sales.

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