Haverhill Financial Research · Analysis · Autos · October 23, 2026
The short version
Tesla's third quarter showed a company whose car sales have stopped growing and whose spending has not. Capital spending rose to $4.73 billion from $2.25 billion, and research and development rose to $2.76 billion from $1.63 billion. Tesla says the money is going into AI, robotics and energy. The car business is paying for it, and it's doing a better job of that than the headline profit suggests.
Capital spending and R&D, $ billions. Source: Tesla Q3 2026 update.
The car business got more profitable
Automotive revenue fell 3% to $20.56 billion, but automotive gross profit rose to $3.81 billion from $3.62 billion. That happened even though revenue from selling regulatory credits, which carries almost no cost, fell to $113 million from $417 million. Taking credits out of both years, we estimate automotive gross margin improved to about 18.1% from about 15.4%.
| Measure | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
| Automotive revenue | $20,560M | $21,205M | −3% |
| Regulatory credits | $113M | $417M | −73% |
| Automotive gross profit | $3,806M | $3,615M | +5% |
| Gross margin, ex creditsCredits removed from revenue and profit | 18.1% | 15.4% | +2.7 pts |
What the spending is buying
AI compute. Tesla is aiming for 400 MW of training compute by the end of the year, and expects to start commissioning equipment at its Austin fab in 2027.
Robotaxi. Cybercab rides started in Austin on September 3. Cumulative unsupervised miles grew eightfold from the prior quarter, to nearly two million, and the service now runs from 6 a.m. to midnight.
Optimus. Production began on high-volume lines in Fremont, which Tesla calls its first production-quality robots. A Texas facility is under construction.
Operating costs. Tesla attributes the rise in operating expenses to its AI and other R&D projects, stock-based compensation including the 2025 CEO performance award, and SG&A.
The part that is already growing fast
Services and other, which covers things like paid Supercharging, insurance, after-sales service and used vehicles, was the fastest-growing line. Revenue rose 33% to $4.61 billion and gross profit doubled to a record $734 million. On the software side, active FSD subscriptions reached 1.74 million, up 67% from 1.04 million a year ago.
Can Tesla afford it?
Easily, for now. Operating cash flow was $6.26 billion, about the same as last year, and free cash flow stayed positive at $1.53 billion after the heavier capital spending. Cash and investments rose $1.9 billion during the quarter to $45.4 billion. Tesla's update gives no number for next year's spending, only that it will keep a strong balance sheet and enough liquidity to fund its plans.
Our take
The usual worry with Tesla is that the car business is weakening while the company spends on projects that may take years to pay off. This quarter answers half of that. The car business, stripped of credits, earned a better margin than a year ago. The other half, whether robotaxi, Optimus and the AI spending turn into revenue at scale, is still open. The early signs we'd watch are FSD subscriptions and the services line, since that's where software and autonomy would show up first.
Sources and disclosures
Figures come from Tesla's Q3 2026 update, filed with the SEC on October 21, 2026. Segment gross profit, margins excluding credits and percentage changes are our calculations.
Disclosures. Haverhill Financial Research is a publisher of general financial commentary. This article is not personalized investment advice and does not consider any reader's financial situation; readers should do their own research. Nothing here is a recommendation to buy or sell any security. Company figures and guidance can change. The author of this post does not hold positions in Tesla or the other companies named. Data as of October 23, 2026.
