Tesla posted mixed third-quarter results after Wednesday's closing bell, beating Wall Street's adjusted earnings estimate even as net income collapsed and margins kept shrinking under the weight of Elon Musk's artificial intelligence spending spree.

The electric automaker reported adjusted earnings of 48 cents a share, ahead of the 45-cent consensus but down from 50 cents a year ago, according to Tesla's SEC filing. Revenue came in around $28.05 billion, roughly flat year-over-year and close to Wall Street's $28.06 billion target. On a GAAP basis, the picture was far bleaker: earnings per share fell to 22 cents from 39 cents, and net income dropped 43% to $787 million.

Deliveries beat, but profitability slides

Tesla delivered 486,532 vehicles in the quarter, down 2.1% from a year ago but well ahead of the roughly 462,000 Wall Street expected, as demand for the refreshed Model 3 and Model Y offset weaker sales of the company's other models. Energy storage deployments rose to 13.7 gigawatt-hours.

Operating income, however, fell 56% as spending on artificial intelligence initiatives — including the Full Self-Driving software push and the Optimus humanoid robot program — climbed sharply. Free cash flow dropped 62% year-over-year to roughly $1.5 billion.

The results follow a stronger first half of the year, when Tesla's energy and storage business helped offset cooling EV demand growth. Q3's figures suggest that trade-off is intensifying: deliveries and storage are holding up, but the costs of expanding into robotics and autonomy are increasingly showing up on the bottom line.

A LOT OF MERIT

On the earnings call, Musk leaned into the company's AI ambitions rather than dwelling on the margin pressure, telling analysts that a potential merger between Tesla and SpaceX has "a lot of merit," according to CBS News. Musk and Tesla's finance chief used much of the call to preview upcoming FSD and robotics milestones rather than detail the quarter's cost pressures in depth.

Investors have grown accustomed to Tesla framing near-term profit softness as the price of its longer-term AI bet, but the scale of this quarter's net income drop — down nearly in half from a year earlier — is among the steepest of Musk's tenure. The company's full results are due to be detailed further in its 10-Q filing for the quarter ended Sept. 30.

Wall Street's reaction was muted in after-hours trading, with analysts split over whether the delivery beat and EPS beat outweigh the deteriorating margins and cash flow. Tesla gave no formal guidance for the fourth quarter on the call.