Tesla’s best quarter of year isn’t enough to impress investors. Because they know it won’t last

By Chris Isidore, CNN

(CNN) — You’d think after a tumultuous year for Elon Musk’s car company, Wall Street would be cheering Tesla’s record quarterly sales. They’re not.

That’s for two main reasons: First, Tesla’s profit fell from a year ago and missed analysts’ estimates.

Second, Tesla’s sales were largely booming last quarter because customers scrambled to nab electric cars before a US tax credit expired.

Shares of Tesla (TSLA) fell 2% in after-market trading following the report, but ahead of a call for investors scheduled for 5:30 pm ET.

Tesla has a difficult road ahead, and investors know that. The ones still cheering and buying Tesla shares are those who aren’t focused on car sales. Instead, they believe in Musk’s promise of a future based on self-driving cars and robotics.

In fact, neither Musk nor CFO Vaibhav Taneja spent significant time talking about car sales or profits during an hour-long call with investors and analysts on Wednesday.

Instead they spent most of the time talking about the promise of self-driving vehicles, robotaxis and humanoid robots, without much insight on when those thing will contribute to Tesla’s bottom line.

Judging by after-market stock trading, investors were not impressed. Shares were down a bit less than 2% as the call got underway but fell steadily during the first half, hitting a low of down about 5%. While shares climbed back, they were still down more than 3% when the hour concluded.

As for the barely discussed financial results, the company earned adjusted income of $1.8 billion in the third quarter, down 29% from a year ago. That was a slightly bigger drop in earnings than analysts had forecast, and net income tumbled 37%.

Despite the earnings miss, it was still the company’s best quarter so far this year.

The drop in earnings came even after Tesla reported record sales of nearly 500,000 cars during the quarter, as Americans rushed to buy electric cars before a $7,500 federal tax credit expired on October 1.

But electric vehicle sales in the US are widely expected to plunge in the fourth quarter. That’s because people who would have normally bought EVs later in the year flocked to buy cars early to lock in the tax break. The loss of the tax credit is expected to hurt demand among American buyers going forward. Tesla gets nearly half of its revenue from US customers.

Tesla is also facing increased competition for EV sales globally, particularly from Chinese automakers. Those automakers not only dominate their own domestic market, but are also moving into Europe. Chinese automaker BYD is poised to overtake Tesla as the world’s largest seller of EVs this year, despite the fact that it does not sell any cars in the United States.

Tesla sales worldwide fell 13% during the first six months of 2025 compared to a year earlier both due to increased competition, as well as backlash to Musk’s political activity.

Drop in key source of profits

But the removal of the EV tax credit is only part of Tesla’s problem. The Trump administration also eliminated what has been a key profit driver throughout the company’s history – the sale of regulatory credits.

In years past, the federal government set emissions limits on the total greenhouse gases that came out of all the cars a company sold in a given year. If a car company sold too many gas-guzzling pickups, as opposed to economical hatchbacks or cars with no emissions at all, it would have to buy “credits” from companies like Tesla.

But the Trump administration’s massive tax and spending bill passed in July eliminated the federal penalties for violating emissions rules, and thus the need for automakers to buy regulatory credits.

Despite the change in the law, the company still reported $417 million in regulatory credit sales in the third quarter. But that was $322 million less than a year ago, and the revenue loss caused a direct hit to the company’s bottom line. CFO Taneja did say the company entered into new regulatory credit contracts in the quarter, but did not give any details on those contracts.

Regulatory credit sales have brought in $11.4 billion for Tesla since 2019. Sometimes they were the only thing keeping the company profitable at all – including in the first three months of this year.

Robots and robotaxis

Tesla launched the company’s long-promised robotaxi offering with limited service in late June, with Musk promising much grander things to come.

On Wednesday, Musk said he thinks the robotaxi service would be operating in eight to 10 metropolitan areas by the end of the year. But that’s a long step back from the last earnings call in July, when he said the service would be available to half the US population by the year’s end.

Musk said Tesla is still set to start production of the Cybercab, a vehicle for the robotaxi service that does not have a steering wheel, brake or accelerator pedals, by the second quarter next year. But the service now requires has a human safety driver sitting in the driver’s seat during each ride.

“So so our goal is to be actually paranoid about deployment because obviously even one accident will be frontpage headline news worldwide,” he said. “So it’s better for us to take a cautious approach here. But we do expect to have no safety drivers in the car in Austin… within a few months.”

It also said production lines for the first generation of its planned Optimus humanoid robots are being installed in anticipation of volume production. But it did not give details of when production might begin.

Vote on Musk’s $1 trillion pay package

Wednesday’s call was also Musk’s first time talking to investors since the company unveiled a new proposed pay package for the CEO, which could award him stock worth $1 trillion. Shareholders are set to vote on that pay package at Tesla’s annual meeting next month. CFO Taneja took time at the end of the call to urge shareholders to support the pay package.

Musk didn’t get into much detail about the compensation package, characterizing it as necessary for him to be able to keep control of the company.

“It’s not like I’m going to go spend the money,” he said. “It’s just, you know, if we build this robot army, do I have at least a strong influence over that robot army?”

“I just think that there needs to be enough voting control to give us strong influence,” he said near the end of the call, “but not so much that I can’t be fired if I go insane.”

This story has been updated with additional reporting and context.

The-CNN-Wire
™ & © 2025 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.