# How Tesla makes money

CXProWealth Business Lens · Tesla (TSLA) · Q3 FY2026

Read from the 10-Q for the period 2026-07-01 to 2026-09-30, filed 2026-10-22 with the SEC (accession 0001628280-26-066775): https://www.sec.gov/Archives/edgar/data/1318605/000162828026066775/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $28.0B (-0.2% on the year)
- Operating income: $718.0M (operating margin 2.6%)
- Net income: $787.0M (net margin 2.8%)
- Gross margin: 19.6%
- Free cash flow: $1.5B (5.5% of revenue)
- Cash conversion (operating cash flow / net income): 7.96x
- Capital expenditure: 16.9% of revenue

## Where the money goes (Q3 FY2026)

- Automotive sales → Total revenues: $20.1B
- Automotive regulatory credits → Total revenues: $113.0M
- Energy generation and storage sales → Total revenues: $2.7B
- Services and other → Total revenues: $4.6B
- Automotive leasing → Total revenues: $353.0M
- Energy generation and storage leasing → Total revenues: $136.0M
- Total revenues → Total cost of revenues: $22.6B
- Total revenues → Gross profit: $5.5B
- Gross profit → Total operating expenses: $4.8B
- Total operating expenses → Research and development: $2.8B
- Total operating expenses → Selling, general and administrative: $2.0B
- Gross profit → Income from operations: $718.0M
- Income from operations → Other (expense) income, net: $117.0M
- Income from operations → Interest expense: $90.0M
- Income from operations → Income before income taxes: $511.0M
- Interest income → Income before income taxes: $445.0M
- Income before income taxes → Provision for income taxes: $152.0M
- Income before income taxes → Net income: $804.0M
- Net income → Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries: $17.0M
- Net income → Net income attributable to common stockholders: $787.0M

## Where the revenue comes from

### Products and services (Summary of Significant Accounting Policies - Schedule of Disaggregation of Revenue by Major Source (Details))

| Member | Value | Share |
|---|---:|---:|
| Automotive sales | $20.1B | 71.6% |
| Services and other | $4.6B | 16.4% |
| Energy generation and storage sales | $2.7B | 9.8% |
| Automotive leasing | $353.0M | 1.3% |
| Energy generation and storage leasing | $136.0M | 0.5% |
| Automotive regulatory credits | $113.0M | 0.4% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q3 FY2026 | Of revenue |
|---|---:|---:|
| Total revenues | $28.0B | 100% |
|   Automotive Revenues | $20.6B | 73.3% |
|   Automotive sales | $20.1B | 71.6% |
|   Automotive regulatory credits | $113.0M | 0.4% |
|   Automotive leasing | $353.0M | 1.3% |
|   Energy generation and storage | $2.9B | 10.3% |
|   Services and other | $4.6B | 16.4% |
| Total cost of revenues | $22.6B | 80.4% |
|   Automotive Revenues | $16.8B | 59.7% |
|   Automotive sales | $16.6B | 59.1% |
|   Automotive leasing | $184.0M | 0.7% |
|   Energy generation and storage | $1.9B | 6.9% |
|   Services and other | $3.9B | 13.8% |
| **Gross profit** | $5.5B | 19.6% |
| Research and development | $2.8B | 9.8% |
| Selling, general and administrative | $2.0B | 7.2% |
| Restructuring and other | $0 | 0.0% |
| **Total operating expenses** | $4.8B | 17.0% |
| **Income from operations** | $718.0M | 2.6% |
| Interest income | $445.0M | 1.6% |
| Interest expense | ($90.0M) | 0.3% |
| Other (expense) income, net | -$117.0M | 0.4% |
| **Income before income taxes** | $956.0M | 3.4% |
| Provision for income taxes | $152.0M | 0.5% |
| **Net income** | $804.0M | 2.9% |
| Net income attributable to noncontrolling interests and redeemable noncontrolling interests in subsidiaries | $17.0M | 0.1% |
| **Net income attributable to common stockholders** | $787.0M | 2.8% |
| Basic (in dollars per share) | $0 | 0.0% |
| Diluted (in dollars per share) | $0 | 0.0% |
| Basic (in shares) | 3,240,000,000 |  |
| Diluted (in shares) | 3,541,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2009 | $111.9M | -$51.9M | -$55.7M | -$80.8M | $11.9M | -$92.7M |
| FY2010 | $116.7M | -$146.8M | -$154.3M | -$127.8M | $40.2M | -$168.0M |
| FY2011 | $204.2M | -$251.5M | -$254.4M | -$128.0M | $184.2M | -$312.3M |
| FY2012 | $413.3M | -$394.3M | -$396.2M | -$263.8M | $239.2M | -$503.0M |
| FY2013 | $2.0B | -$61.3M | -$74.0M | $264.8M | $264.2M | $580.0K |
| FY2014 | $3.2B | -$186.7M | -$294.0M | -$57.3M | $969.9M | -$1.0B |
| FY2015 | $4.0B | -$716.6M | -$888.7M | -$524.5M | $1.6B | -$2.2B |
| FY2016 | $7.0B | -$667.3M | -$674.9M | -$123.8M | $1.3B | -$1.4B |
| FY2017 | $11.8B | -$1.6B | -$2.0B | -$61.0M | $3.4B | -$3.5B |
| FY2018 | $21.5B | -$388.0M | -$976.0M | $2.1B | $2.1B | -$3.0M |
| FY2019 | $24.6B | -$69.0M | -$862.0M | $2.4B | $1.3B | $1.1B |
| FY2020 | $31.5B | $2.0B | $721.0M | $5.9B | $3.2B | $2.8B |
| FY2021 | $53.8B | $6.5B | $5.5B | $11.5B | $6.5B | $5.0B |
| FY2022 | $81.5B | $13.7B | $12.6B | $14.7B | $7.2B | $7.6B |
| FY2023 | $96.8B | $8.9B | $15.0B | $13.3B | $8.9B | $4.4B |
| FY2024 | $97.7B | $7.1B | $7.1B | $14.9B | $11.3B | $3.6B |
| FY2025 | $94.8B | $4.4B | $3.8B | $14.7B | $8.5B | $6.2B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: -2.9% (year before +0.9%): slowing
- Operating income: -38.5% (year before -20.4%): slowing
- Net income: -46.5% (year before -52.7%): accelerating
- Free cash flow: +73.7% (year before -17.8%): accelerating

## Operating figures stated in the filing

- Consumer vehicles produced, year to date: 1,320,000 vehicles (as of 2026-09-30). "In 2026, we produced approximately 1.32 million consumer vehicles and delivered approximately 1.32 million consumer vehicles through the third quarter." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Consumer vehicles delivered, year to date: 1,320,000 vehicles (as of 2026-09-30). "In 2026, we produced approximately 1.32 million consumer vehicles and delivered approximately 1.32 million consumer vehicles through the third quarter." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Energy storage deployed, year to date: 36 gwh (as of 2026-09-30). "In 2026, we deployed 36.0 GWh of energy storage products through the third quarter." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Cash deliveries, decrease vs the same quarter a year earlier: 2.0% (as of 2026-09-30). "due to a decrease of approximately 2% in cash deliveries, primarily from fewer Model S and Model X deliveries after the product sunset in mid-2026" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Cash deliveries, increase vs the first nine months a year earlier: 10.0% (as of 2026-09-30). "due to an increase of approximately 10% in cash deliveries, in part from bringing down all of our vehicle factories simultaneously for the changeover to the New Model Y in the prior period" (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Research now absorbs half of Tesla's gross profit

R&D of $2.76B equalled 50.3% of gross profit against 32.3% a year earlier, so a wider gross margin still produced less operating income.

Gross profit rose 8.71% to $5.49B as gross margin widened 1.6 points to 19.59%. Research and development rose 69.39% to $2.76B, and total operating expenses rose 39.24% to $4.78B, equal to 86.9% of gross profit against 67.9% a year earlier. Income from operations fell 55.79% to $718M, an operating margin of 2.56%, down 3.22 points. _(from the filing)_
The filing ties the research increase to super intelligence work and programs such as Optimus, silicon development, battery technologies and new vehicles, plus higher stock-based compensation. It states that this investment "will negatively impact our profitability during this phase". SG&A also rose 29.0% to $2.02B, driven mostly by stock-based compensation tied to the CEO performance award. _(from the filing)_
The longer record shows the same direction. At the annual peak of gross profit, $20.85B on $81.46B of revenue, the operating margin was 16.8%. In the latest full year it was 4.6%, $4.36B of operating income on $94.83B of revenue, while gross margin went from 25.6% to 18.0%. Operating costs grew over that span while gross profit shrank. _(from the filing)_
Analysis: this quarter's profit squeeze came from the spending side. Gross profit grew; the company chose to reinvest more of it. Whether that reads as investment depends on the products it names, Robotaxi, Cybercab and Optimus, producing revenue lines of their own, which this filing does not yet report. _(analysis)_

### Interest on cash equals 62% of operating profit

Interest income of $445M equalled 62.0% of the $718M operating income, against 27.0% a year earlier, lifting pre-tax income above operating income.

Interest income was $445M, up 1.37%, almost unchanged, while income from operations fell 55.79% to $718M. Interest income went from 27.0% of operating income a year earlier, $439M against $1.62B, to 62.0%. Income before income taxes, $956M, came out above operating income. _(from the filing)_
The filing attributes the interest to a larger average balance of cash, cash equivalents and short-term investments, partly offset by a lower average interest rate. Other expense of $117M, against $28M a year earlier, worked the other way: the filing names mark-to-market moves on the SpaceX stake and on bitcoin, and currency swings on intercompany balances it does not typically hedge. _(from the filing)_
Tax narrowed the fall further. The provision for income taxes was $152M on $956M of pre-tax income, an effective rate of 15.9%, against $570M on $1.96B, or 29.1%, a year earlier. The filing attributes the drop mainly to the mix of jurisdictional earnings. Net income attributable to common stockholders fell 42.68% to $787M, a smaller fall than operating income. _(from the filing)_
Analysis: interest income depends on the size of the cash reserve and on rates, not on selling cars or batteries. If heavy capital spending draws the reserve down, or rates fall, this cushion under reported profit would shrink even with the operating business unchanged. _(analysis)_

### Operating cash still covers capital spending that doubled

Capital spending of $4.73B was 2.1 times a year earlier, yet took 75.6% of operating cash flow, leaving free cash flow of $1.53B.

Operating cash flow was $6.26B, level with $6.24B a year earlier, while capital expenditure rose to $4.73B from $2.25B. Capital spending took 75.6% of operating cash flow, against 36.0% a year earlier, and free cash flow fell to $1.53B from $3.99B. Capital expenditure equalled 16.87% of revenue. _(from the filing)_
Operating cash flow was 7.96 times net income attributable to common stockholders of $787M. Over the nine months, the filing credits most of the rise in operating cash flow to favorable changes in operating assets and liabilities, and says that shorter days sales outstanding than days payable outstanding help its sales growth turn into cash. _(from the filing)_
Analysis: part of that cash comes from timing, collecting from customers sooner than paying suppliers, rather than from profit, and timing gains can reverse when growth slows. Reported profit and cash flow tell different stories this quarter, and each needs reading alongside the other. _(analysis)_

### Services, not new cars, carried the quarter's growth

Services and other revenue rose 32.52% to $4.61B, now 22.9% of automotive sales, while automotive sales slipped 1.3% on fewer deliveries.

Total revenues were flat at $28.05B, down 0.17%, but the mix moved. Services and other gained 4.05 points of revenue share to 16.42%. Automotive sales fell 1.3% to $20.09B, which the filing explains by a decrease of approximately 2% in cash deliveries, mainly fewer Model S and Model X after their sunset, partly offset by a weaker dollar and higher FSD (Supervised) subscription revenue. _(from the filing)_
The filing attributes the services rise to "increases in used vehicle sales volume and average selling price, non-warranty maintenance services and collision revenue, and paid Supercharging sessions". Cost of services and other was $3.87B, or 84.1% of the line's revenue, so services adds revenue at a thinner margin than the company as a whole, whose gross margin was 19.59%. _(from the filing)_
Analysis: most of this line rides on the installed fleet, through used cars, repairs, collision work and charging, rather than on new units. It can keep growing while new-car volume stalls, but at a margin below the company average it shifts the revenue mix more than the profit mix. _(analysis)_

### Competitive edge

- **Unit cost fell faster than revenue** Cost of revenues fell 2.12% against a 0.17% revenue dip, lifting gross margin 1.6 points to 19.59% with no help from volume.
- **A large fleet feeds software and data** About 1.32 million vehicles delivered through the third quarter widen the base for FSD subscriptions and for the driving data the company trains on.
- **Energy storage rides rising demand on the grid** Tesla deployed 36.0 GWh of storage through the third quarter, and the filing sees power load growth from compute as an opening for grid storage.

### What to watch

- **Policy is already moving the numbers** Regulatory credits fell 72.9% to $113M, from 25.7% of operating income a year earlier to 15.7%, after rules restricted credit programs.
- **Autonomy must earn back the research bill** Research spending of $2.76B, 9.84% of revenue, rests on autonomy and robotics that face evolving regulation and lawsuits over driver assistance.
- **The build may outgrow the cash it generates** Capital spending of $5.79B outran $4.70B of operating cash flow the quarter before, and the filing expects heavy spending to need outside funding.

## Investor view

**Tesla's research spending rose 69.4% in a flat-revenue quarter, more than absorbing a higher gross margin**

### How it makes money

Tesla still earns most of its revenue by selling cars. Automotive sales were $20.1B of the quarter's $28.0B in total revenues, a 71.65% share. Services and other, the line where the filing places used vehicle sales, non-warranty maintenance, collision repair and paid Supercharging, added $4.6B, or 16.42%. Energy generation and storage sales added $2.75B, or 9.79%. _(from the filing)_
Of each dollar of revenue, 80.41% went to cost of revenues, leaving a gross margin of 19.59%. The car itself carries a thinner margin than the company as a whole: cost of automotive sales was $16.6B against $20.1B of automotive sales revenue, or 82.5%. _(from the filing)_
Very little of the gross profit reaches operating income. Operating expenses of $4.78B took 86.9% of the $5.49B gross profit, leaving income from operations of $718M, a 2.56% operating margin. Interest income of $445M on the company's cash and investments was equal to 62.0% of operating income, which is why income before income taxes, $956M, came out above operating income. _(from the filing)_
In cash terms the quarter paid for itself. Operating cash flow was $6.26B and capital expenditure $4.73B, leaving free cash flow of $1.53B, a 5.46% free cash flow margin. Capital expenditure equalled 16.87% of revenue. _(from the filing)_

### What shifted

Revenue was flat, $28.0B against $28.1B a year earlier, down 0.17%, but the mix moved. Services and other rose 32.52% to $4.6B and gained 4.05 points of share. Automotive sales slipped 1.3%, which the filing explains by a decrease of approximately 2% in cash deliveries, mainly fewer Model S and Model X after their sunset, partly offset by a weaker dollar and "higher revenue from FSD (Supervised) subscriptions". _(from the filing)_
Energy generation and storage sales fell 16.34% to $2.75B. The filing names tariff refunds owed to certain Megapack customers, a lower average selling price per Megapack, fewer Powerwall deployments and fewer solar retrofit cash deployments, partly offset by more Megapack deployments. The segment's cost of revenue fell further, to $1.93B from $2.34B, helped by tariff refunds booked as a reduction of cost. _(from the filing)_
Regulatory credits fell 72.9% to $113M from $417M. The filing says "recent governmental and regulatory actions have restricted certain regulatory credit programs tied to our products", and that it reversed credits revenue for the contractual return of credits delivered earlier. A year earlier credits were equal to 25.7% of operating income; this quarter, 15.7%. _(from the filing)_
Gross margin rose 1.6 points to 19.59% and gross profit grew 8.71% to $5.49B, but operating expenses grew 39.24% to $4.78B. Research and development rose 69.39% to $2.76B, which the filing ties to super intelligence work, Optimus, silicon, battery technologies and new vehicle programs. SG&A rose 29.0% to $2.02B, driven mostly by stock-based compensation for the CEO performance award. Operating margin fell 3.22 points to 2.56%. _(from the filing)_
Net income attributable to common stockholders fell 42.68% to $787M, less than the 55.79% fall in operating income, because the effective tax rate dropped to 15.9% from 29.1%, which the filing puts down to the mix of jurisdictional earnings. Other expense of $117M, against $28M a year earlier, came mainly from mark-to-market moves on the SpaceX stake and on bitcoin, and from currency swings on intercompany balances. _(from the filing)_

### Risks in the filing

Trade and fiscal policy. The company says rapidly changing trade policy and geopolitical conflict put its supply chain and cost structure at risk, and that the current tariff regime hits the energy business harder than the automotive one. It also says import tariffs and the One Big Beautiful Bill Act could significantly raise battery cell costs and raise prices for its customers, weighing on demand. _(from the filing)_
A cyclical, rate-sensitive market with more competitors. The filing describes vehicle demand as sensitive to consumer trends, interest rates, energy prices and policy, says higher rates have hurt the affordability of leases and loans, that new entrants mean it must keep executing to hold its position, and that suppliers' liquidity could cut its access to components or raise their cost. _(from the filing)_
Autonomy at scale, and the legal exposure around it. Scaling autonomy, the company says, faces evolving regulation, the resources required for SI inference and training, and the operating infrastructure a robotaxi fleet needs, any of which could set back its timelines. It also faces lawsuits and regulatory inquiries over its driver assistance technology and what it has said about it, including a jury verdict now on appeal. _(from the filing)_
Ramps and funding. The company names the uncertainty of ramping new products and factories at once and its ambitious battery cell targets, and says periods of heavy capital spending will need funding beyond operating cash flow. It does not typically hedge currency risk on its large intercompany balances, so exchange rates can swing other income from quarter to quarter. _(from the filing)_
Several of these risks already show in the quarter's numbers. Policy is visible in the regulatory credits line, which the filing ties to restricted credit programs, and in tariff refunds running through both revenue and cost. Funding pressure is visible in capital spending that has outgrown the free cash flow of a year earlier. Competition and the auto cycle show more quietly, in automotive sales slipping while services grew. _(analysis)_

## Founder view: mechanisms

### The current business pays for the next one

Tesla runs its existing products, cars and energy storage, as a funding engine for products that earn little so far: autonomy, Robotaxi, Optimus, its own chips and cells. It accepts a thin operating margin today in exchange for owning the research outright, instead of raising outside money for each bet. The interest earned on a large cash reserve softens the hit to reported profit while it does so. _(analysis)_

### The fleet becomes a services business

Every car sold leaves an owner who will need repairs, charging and, eventually, a buyer for the used car. Tesla captures those later transactions itself through its own service centers, body shops, Supercharger network and used-car sales, so revenue keeps arriving from cars sold years ago even when new-car sales stall. _(analysis)_

### Software sold on top of the hardware

Tesla sells its driver-assistance software, FSD (Supervised), as a subscription on cars it has already delivered, alongside connectivity and over-the-air updates. Each subscription adds revenue to a car with no extra build cost, and the company describes its fleet as a loop in which more cars produce more data, better software and, in turn, more cars. _(analysis)_

### Unit cost carries the margin when volume does not

Tesla's stated way to keep cars affordable without giving up margin is to keep cutting the cost of each unit: localizing supply, making its own battery materials and cells, and redesigning its lines. When unit volume is flat, cost per unit is the main lever on gross margin the company controls, since price is set against competitors. _(analysis)_

## Member research

Signed-in members read, on the page: what Tesla's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Tesla 10-Q for the period to 2026-09-30: https://www.sec.gov/Archives/edgar/data/1318605/000162828026066775/ (2026-10-22)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02