Tesla Earnings Review
On Wednesday, Tesla (TSLA) reported Q3 2026 earnings that were largely in line. EPS of $0.50 snuck by Wall Street expectations of $0.45. Meanwhile, revenue was flat year-over-year at $28.05 billion, matching Wall Street expectations. One bright spot was free cash flow. FCF of $1.53B - $3.99B signaled a rebound after sharply heavy CAPEX quarters, supporting $6.26B in operating cash flow. Auto margins rebounded to 18.1% from 16.3% on a more favorable product mix and higher Full Self-Driving (FSD) subscription revenues. Meanwhile, the energy segment remained a bright spot, with revenues surging 33%. The big takeaway is that CAPEX slowed to $4.73 billion (down from $5.79 billion in Q2) and Tesla delivered 486,532 vehicles against 464,391 produced, keeping inventories low.
Tesla has reached a maturity stage in its legacy EV business. Growth has steadied, but the company still generates strong cash flow. For the stock to break out, investors will want to see concrete progress on new growth avenues like Optimus, robotaxis, and Terafab.
Shares are currently green in a blood-red tape, signaling robust relative strength. If Tesla shares can break above the 200-day moving average, it will signal a bullish trend change.
Image Source: TradingView
Thoughts on Tesla/SpaceX Merger
Elon Musk’s comments during the SpaceX (SPCX) conference call confirmed that Tesla and SpaceX have formed independent special committees to explore a potential merger. For investors who have been following Musk’s companies, the announcement is not a surprise. Months ago, Chamath Palihapitiya, a close friend and Musk investor, predicted a Tesla/SpaceX merger. Meanwhile, the Polymarket betting market suggests a 68% chance a Tesla/SpaceX merger will occur before the end of 2027.
Image Source: Polymarket
Why now? The stars have aligned perfectly for a merger for several reasons. First, a merger makes practical sense. With both Tesla and SpaceX becoming AI-first companies, their shared technical stack, consolidated compute, and integrated energy ecosystem are worth more as a synergy than a stand-alone entity. From a regulatory perspective, a merger also makes sense right now. Under President Biden, FTC Chair Lina Khan was known as an M&A hawk, striking down several big mergers. However, Musk’s ties to the Trump administration could help his M&A aspirations. FTC Chair Andrew Ferguson has said that he plans to “get out of the way” of pro-competitive deals rather than mount opposition. Also, the combination makes sense from a financial perspective. Tesla has matured into a slower-growing but cash-rich company with a strong balance sheet. On the other hand, SpaceX is a hyper-growth company that faces enormous CAPEX concerns as it scales Starlink and Starship. Together, the two companies offer the magical elixir: Tesla’s stable cash generation and SpaceX’s massive revenue-growth trajectory.
A merger would re-engineer Musk’s corporate governance. Musk holds 48% of SpaceX and ~20% of Tesla. A merger would let Musk expand his aggregate governance over Tesla’s vast market cap without buying Tesla shares outright. Additionally, Musk would benefit because he could anchor his voting power to SpaceX’s tightly controlled structure, insulating him from shareholder activism and regulatory red tape. Another benefit would is that Musk could more easily share talent across his ecosystem, depending on which companies need the most talent at the time to achieve growth.
Bottom Line
Combining Tesla’s robust balance sheet with SpaceX’s aggressive growth trajectory creates compelling technical, financial, and strategic synergies.
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This article originally published on Zacks Investment Research (zacks.com).