Tesla and SpaceX formed committees to study a possible merger
Tesla reported flat third-quarter revenue of $28 billion and a surprise positive $1.5 billion in free cash flow during Wednesday’s earnings call. Elon Musk said Tesla could be ready to start shipping Optimus humanoid robots to outside companies by the end of next year. Adjusted net income fell 4% to $1.7 billion. A market quote in The Wall Street Journal’s report showed TSLA up 3.41%; separately, Tesla shares fell 3.5% in after-hours trading. Musk also said Tesla and SpaceX had formed special committees to study a potential merger.
The surprise positive free cash flow came despite Tesla’s heavy investments in AI and robotics. Tesla’s “services and other” segment was its growth driver, increasing 33%, while automotive revenue fell 3% and energy-storage revenue fell 16%. The services segment includes FSD subscriptions, the Robotaxi business and EV charging.
Capital expenditures fell to $4.7 billion from $5.8 billion in the previous quarter, though the latest amount remained more than twice what Tesla spent a year earlier. Wall Street expected capital expenditures to accelerate, but Tesla said it now expects about $20 billion in capital expenditures this year, down from an earlier estimate of $25 billion. Musk said the company would still require “tens of billions” in annual capital spending by 2028.
Tesla sold 486,532 electric vehicles globally in the third quarter, 2% fewer than a year earlier. Most of Tesla’s revenue comes from selling EVs. After Tesla discontinued the Model S and Model X and demand for the Cybertruck remained slow, the Model Y SUV and Model 3 sedan accounted for the vast majority of sales. U.S. EV demand fell sharply after incentive credits ended the prior year, leading Tesla to recapture most of the country’s EV market. The Model Y remained far and away the best-selling electric vehicle in the U.S.
Tesla reported that a record 75% of vehicle deliveries included paid subscriptions to Full Self-Driving (Supervised), the automated driving assistance system also known as FSD. Paid subscriptions reached 1.7 million as of the third quarter, up from 1 million a year earlier. On X, Musk said, “People are buying FSD with a car attached, not the other way around.” Musk said demand for Tesla’s human-owned cars was growing because FSD had become a key selling point.
Musk said usage of Tesla’s Robotaxi fleet would surge “exponentially” and that the fleet would soon prove lucrative and become a significant revenue driver. Musk said Tesla was working to make its two-seat autonomous Cybercab available to private and commercial customers by the end of the year. Musk said “the vast majority of the Cybercab stuff will be essentially Tesla-owned,” and he claimed the vehicle would sell for under $30,000.
Early production of the Optimus humanoid has begun at Tesla’s Fremont, Calif., facility, Musk said, but “we still have a lot to get through” before rolling out the product. Optimus needs AI training to become useful for general purposes, Musk said. “The highest-value use, I think, will be kind of heavy industry, dangerous tasks,” Musk said. “Things that may cause repetitive stress injuries and that you want done 24/7.”
The Wall Street Journal reported that Tesla has largely stopped developing new vehicles for human drivers. Musk nonetheless said the company’s vehicle output could more than double to 5 million by 2030. “We’re producing and delivering as many cars as we can, and we’re pushing very hard for FSD approval in additional markets,” he said, naming Europe. Tesla executives also showed a redesigned Roadster last week, a higher-end, limited-edition sports car expected to go on sale in 2028.
Musk said combining Tesla and SpaceX would be a good idea. At SpaceX’s third-quarter earnings call Tuesday, Musk said both companies had formed special committees to study the prospect. The Wall Street Journal said a potential merger with SpaceX dominated much of the conversation around Tesla. On Wednesday, Tesla executives declined to discuss the potential merger and did not take analyst questions about it. “I think I said everything that should be said yesterday,” Musk said. “Tap dancing through a minefield there.”
Analysts said Tesla’s major presence in China could complicate a merger because of SpaceX’s ties to the U.S. government. Musk said shareholders would ultimately decide any merger, and The Wall Street Journal said a transaction would likely give Musk more control over a combined company. The Wall Street Journal also said investors could be keen to support the creation of another AI giant, while Musk acknowledged that getting half of Tesla’s shares to sign off would be “quite a high hurdle.”
The companies remain separate but have long had close relations and frequently do business together. Tesla owns a small share in SpaceX, and SpaceX regularly purchases Tesla vehicles, battery-storage units and solar products. Tesla charging stations and other products use SpaceX’s Starlink satellite internet. SpaceX and Tesla are jointly developing the Terafab chip plant in Texas to meet their AI goals. Musk previously said decisions about the project currently required approval from both companies’ boards.
Barclays analysts said a merger could accelerate the Terafab facility’s development. RBC analysts wrote that “A joint chip manufacturing facility could eliminate costly R&D duplication across two of the most compute-intensive companies in the world.” The Wall Street Journal described the companies’ shared AI interests as the biggest potential merger upside. Musk and President Trump both prefer the term “super intelligence,” abbreviated SI, for AI.
Market quotes displayed with the report showed TSLA up 3.41% and SpaceX’s SPCX up 7.79%. Separately, SpaceX shares rose 8% at Wednesday’s close, while Tesla shares fell 3.5% after hours.