Tesla shares drop as company cuts spending forecast and profit falls

Shares of Tesla dropped 4% in pre-market trade on Thursday, October 22, after the electric vehicle maker reduced its yearly spending forecast. The company now expects capital expenditure to be about $20 billion this year, down from a target of more than $25 billion set earlier in the year.

Earnings And Profits

Tesla reported third-quarter revenue of $28.05 billion, which was flat compared to the same period a year earlier. This steady revenue came despite a drop in vehicle deliveries, lower average selling prices, and a decline in the energy business. Net income fell 43% to $787 million, while operating profit declined 56% to $718 million. Operating margin dropped to 2.6% from 5.8% a year ago. Total deliveries for the third quarter reached 486,532 vehicles, marking a 2% year-on-year decrease. However, the company achieved record deliveries in regions such as Canada, Australia, Japan, and Taiwan.

Spending And Future Plans

Chief Financial Officer Vaibhav Taneja stated during an earnings call that spending will keep growing to support the robotaxi fleet, humanoid robot Optimus, and solar products. The company did not specify which exact projects face spending cuts. Analysts had expected an average capital expenditure of $7.95 billion, following a third-quarter outlay of $4.73 billion. Meanwhile, more than 75% of new deliveries in North America included subscriptions to the FSD Supervised driver-assistance software, and the software gained approval in four more European countries. Elon Musk also noted that Tesla and SpaceX are exploring a historic merger. Viram Shah, founder and CEO of Vested, noted that Tesla's quarterly performance was relatively balanced with revenue beating expectations, and mentioned that a potential combination of the two companies could create strategic options.

Context

Capital expenditure refers to the money a company spends to buy, upgrade, or maintain physical assets like property, buildings, or equipment. Large technology and automotive companies often adjust these budgets based on short-term market conditions and long-term goals in areas like artificial intelligence.