Tesla delivered a record 497,099 vehicles in the third quarter of 2025, marking its strongest sales performance in over a year. But the record-breaking quarter did not translate into higher earnings. Instead, the company’s net profit fell 37% year-on-year to $1.4 billion, underscoring how rising costs, tariffs, and internal restructuring have squeezed margins even amid robust demand.
According to a shareholder letter released Wednesday, Tesla generated $21.2 billion in automotive revenue, its highest in over a year, driven largely by a surge of U.S. customers rushing to take advantage of the expiring federal electric vehicle (EV) tax credit. Yet, despite this revenue boost, the company’s bottom line continued to weaken, exposing deeper structural pressures within the world’s most valuable automaker.
A Record Quarter Masking a Profit Slump
Tesla’s profit decline comes after what had been a difficult start to the year. Sales had dropped sharply in the first quarter, a downturn analysts partly linked to CEO Elon Musk’s political entanglements with the Trump administration, which alienated some customers and generated negative publicity.
The third-quarter rebound — driven by incentive-driven U.S. buyers — offered a temporary lift. But Tesla’s cost base expanded far faster than its revenue. The company reported a 50% increase in operating expenses (OpEx) compared with the same period in 2024, citing heavy investments in artificial intelligence (AI), research and development, and restructuring charges totaling nearly $240 million.
Tesla did not specify the nature of those restructuring costs, but sources familiar with the matter have tied them to the shutdown of the company’s Dojo supercomputer project, a six-year effort intended to strengthen Tesla’s neural network training capabilities.
The company’s letter also identified U.S. tariffs as a significant drag on profits, a development that highlights an unusual irony: Musk — who reportedly spent more than $300 million supporting Donald Trump’s return to the White House — is now contending with trade policies that have directly hurt Tesla’s business.
Tesla’s gross margins have steadily declined since 2022, when the company began aggressively cutting prices to defend its global market share against Chinese rivals like BYD and XPeng. Those price cuts helped stimulate demand, but at the expense of profitability.
The third-quarter data confirmed that trend. Despite the record shipment volume, Tesla’s operating margin fell to its lowest point in nearly four years, reflecting both pricing pressure and ballooning expenses. Analysts say the combination of tariffs on imported components, higher logistics costs, and AI infrastructure spending has created a profitability ceiling that Tesla has struggled to break through.
With the year-end approaching, Tesla now faces the daunting task of producing another record quarter — or better — to match its 2024 delivery totals. That goal looks increasingly challenging given softening demand in Europe and parts of Asia, where local competitors are offering cheaper EVs with comparable range and features.
A Strategic Shift Away from Cars
Musk, however, has spent much of the past two years trying to reframe Tesla’s narrative beyond carmaking. In shareholder briefings and public statements, he has urged investors to view Tesla as a technology and robotics company, not merely an automaker.
“We’re at a critical inflection point for Tesla and our strategy going forward as we bring AI into the real world,” Musk said on Wednesday’s earnings call.
Central to that vision is Musk’s push to create a global network of self-driving robotaxis — an initiative he believes could one day rival ride-hailing giants like Uber. Tesla is at the “beginning of scaling, quite massively, Full Self-Driving and Robotaxi, and fundamentally changing the nature of transport,” he said.
Tesla has also heavily promoted its humanoid robot, Optimus, which Musk has described as the company’s most important long-term product, even predicting it could eventually become “the best-selling product of all time.”
Yet, Wednesday’s shareholder letter offered little new information on either front. Progress on Tesla’s Full Self-Driving (FSD) software remains incremental, with regulators still reluctant to approve large-scale deployment in most jurisdictions. Meanwhile, Optimus remains in the prototype phase, and Tesla has not disclosed any commercial timelines or cost details.
For many investors, the lack of clarity raises questions about whether Tesla’s core automotive business, which remains its only consistent revenue engine, can sustain the company through its costly technological pivots.
Investor Tensions Over Musk’s $1 Trillion Pay Plan
The disappointing quarterly profit numbers land just weeks before Tesla’s annual shareholder meeting, where investors will vote on a $1 trillion stock compensation plan for Musk — a proposal that has already become one of the most contentious in corporate history.
The plan, if approved, would grant Musk one of the largest single payouts ever awarded to a corporate executive. Advisory firms Institutional Shareholder Services (ISS) and Glass Lewis have both urged shareholders to vote against the proposal, arguing that it is excessive and poorly aligned with recent performance.
Nonetheless, given Musk’s near-cult following among retail shareholders and the overwhelming support he has received in prior compensation votes, the proposal is widely expected to pass.
Tariffs, Politics, and Uncertain Growth
The trade friction between Washington and key trading partners is now adding another layer of complexity to Tesla’s outlook. The Trump administration’s new tariff regime on vehicle imports and electric components has driven up Tesla’s production costs in North America, particularly for models relying on parts sourced from Asia.
These tariffs also risk depressing overseas demand for U.S.-made vehicles at a time when Tesla is already battling slowing EV sales growth globally.
At the same time, Musk’s growing proximity to Washington has complicated the company’s public image. His political advocacy has drawn both loyalty and backlash, and some analysts believe it has contributed to brand polarization among U.S. consumers — particularly younger, urban buyers once core to Tesla’s growth.
However, Tesla remains profitable, but its once unstoppable momentum has slowed. The company that once promised 50% year-over-year growth is now struggling to defend margins and sustain investor confidence amid shifting politics, rising costs, and the enormous financial demands of its AI and robotics ambitions.
Even with record deliveries, Tesla’s third-quarter report shows that the company’s financial gravity is catching up. Musk’s bold vision of a robot-driven future may yet define Tesla’s long-term identity, but for now, the company’s profitability still depends on the very business Musk seems most eager to transcend — building and selling cars.
