Tesla (TSLA) Q3 2025 Earnings Preview: Why Record Deliveries Still Mean a Profit Margin Squeeze

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Tesla’s TSLA third-quarter 2025 financial results presents a challenging picture for market participants. On the one hand the company sold a record number of cars but it likely came at the expense of profit.

What to Expect?

Tesla achieved its highest-ever vehicle deliveries and energy sales in the third quarter. However, analysts expect that to show a drop in profit per share (EPS) of about 25% (from $0.72 last year down to around $0.53-$0.55 this year), despite a small increase in revenue (around 4% to 6%). This means sales grew through aggressively cutting prices, which hurt the company's profit quality.

Looking at the earnings release, the stock's current price is very high and trades well above the average analyst price target of around $365. This means the stock's value may depend less on these actual car sales and profit numbers and much more on investor belief in the company's ambitious, long-term plans for AI, self-driving cars, and robotics.

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Source: LSEG, TradingKey

Q3 2025 Operational Performance: The Baseline and the Cliff Edge

Vehicle Volume

Tesla delivered a record 497,099 vehicles in the third quarter, which was more than it produced. This means the company used up its stored inventory to hit that number.

This record was largely due to a short-term boost: many buyers rushed to finalize purchases before the $7,500 federal electric vehicle (EV) tax credit expired at the end of September. This created a temporary surge by pulling sales forward, which almost guarantees a noticeable slowdown in vehicle demand during the fourth quarter of 2025 and into 2026.

Therefore, what management says about future sales targets is more important than the past record numbers.

Energy Segment Strength

The good news comes from Tesla's Energy segment, which acts as a stable counter-balance.

This segment also hit a record, deploying 12.5 GWh of battery storage, driven by high demand from the booming AI industry and its need for power-hungry data centers. This growing, high-margin energy business is expected to slightly increase the company's overall profit margin, helping to lessen the negative effect of the price cuts in the car business.

Financial Consensus and Sensitivity Analysis: The Margin Squeeze

The most critical figure investors will scrutinize is the Automotive Gross Margin (excluding regulatory credits).

Analysts expect the profit margin on cars (Automotive Gross Margin) to be around 16.5% to 17.0%, which is less than half of what it was at its peak in 2021. This shows that the record number of cars sold were achieved through aggressive price cuts.

Furthermore, the small amount of high-profit revenue Tesla gets from selling regulatory credits to other automakers is expected to disappear completely, making strong core car profitability even more critical. If the margin falls below 16.5%, it suggests that the cost of making the cars is dangerously high.

One of the main reasons Tesla’s stock price is so high is because market participants are betting heavily on its future in Artificial Intelligence (AI) and robotics, not its current car profits.

Market participants need to see concrete, believable updates on the launch of Full Self-Driving (FSD) and the Robotaxi/Cybercab service. If management fails to give solid timelines for these AI initiatives, the stock's high price premium could quickly collapse, as market participants have already priced in a lot of success in this area.

A major non-business risk is the controversial $1 trillion pay package proposed for CEO Elon Musk. Influential shareholder advisors have asked investors to reject the "astronomical" package.

This is a problem because Musk has warned he might take key AI projects outside of Tesla if his ownership stake isn't increased. This creates a risk that the essential AI strategy, the primary reason the stock is valued so highly, could be compromised by a failure in corporate leadership.

Potential Implications for the Tesla Share Price

The Q3 2025 earnings report is expected to be a major catalyst, with options pricing implying high volatility: a potential stock move of around 7.44% to 8.53%.

If the news is good: meaning profits (margins) are better than expected, or there are convincing updates on the Robotaxi plans, the stock price could jump and challenge its previous record high of $488.

If the news is bad: meaning profits or the forecast for the next quarter are disappointing (especially due to the expired tax credit), the stock is likely to fall quickly. Given that the stock is currently trading about 17% higher than what most analysts think it's actually worth (the $365 consensus), any bad news could rapidly push the price down to that lower, more realistic value.

Tesla TSLA Daily Chart, October 21, 2025

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Source: TradingView

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