Tesla spent $4.73 billion on capital projects in the third quarter, 40 per cent less than the $7.94 billion S&P Global Market Intelligence forecast, and cut its 2026 capital budget to about $20 billion from more than $25 billion.
The figures are in the third-quarter update Tesla filed with the SEC on Wednesday, and the new budget was given on the earnings call that evening, Yahoo Finance reported. Free cash flow, which is operating cash flow minus capital spending, was positive $1.53 billion. The S&P forecast was negative $4.09 billion. In our preview on 18 October we said the cash line would settle the quarter. It did. The reason it did is the more interesting part.
How did the results compare with the forecasts?
The cash numbers beat by a wide margin, and the revenue lines were mixed. These are the S&P Global Market Intelligence forecasts from our preview against what Tesla reported:
| Measure | Forecast | Reported | |---|---|---| | Capital expenditures | $7.94 billion | $4.73 billion | | Free cash flow | -$4.09 billion | +$1.53 billion | | Automotive revenue, change on a year earlier | -6.8% | -3.0% | | Energy, services and other revenue | $8.31 billion | $7.49 billion |
The car business shrank less than forecast and the rest of the company grew less. Energy generation and storage revenue fell 15.6 per cent to $2.88 billion, which Tesla attributed partly to "tariff-related customer refunds." Services and other revenue rose 32.5 per cent to $4.61 billion. Total revenue was $28.05 billion, down 0.2 per cent, and slightly below the $28.13 billion Bloomberg consensus cited by Yahoo Finance. Non-GAAP earnings were $0.48 a share against an estimate of $0.44.
Forecasts were not unanimous. Yahoo Finance cited a capex estimate of $7.96 billion and a free cash flow estimate of negative $4.92 billion, without naming their source. Either way, the gap is about $3 billion of spending.
Why did free cash flow beat?
Because Tesla spent less, not because it earned more. Operating cash flow was $6.26 billion, up 0.4 per cent from a year earlier. Had Tesla spent the $7.94 billion S&P expected, free cash flow would have been about negative $1.7 billion, by this publication's arithmetic. The forecast of negative $4.09 billion also implied operating cash flow of about $3.85 billion, so the forecasters were too low on cash coming in as well as too high on cash going out.
The new budget says where the spending went. Tesla's second-quarter 10-Q said it expected capital expenditures "in excess of $25 billion in 2026." The company has now spent $13.01 billion in nine months: $2.49 billion, $5.79 billion and $4.73 billion. A $20 billion year leaves about $7 billion for the fourth quarter, by this publication's arithmetic, which would be the largest quarter of the year.
Chief Financial Officer Vaibhav Taneja said on the call that the savings would come from "managing our capital deployment efficiently, and plan to fund [capex] primarily from our cash flows from operations," as quoted by Yahoo Finance. Elon Musk, the chief executive, said: "I think capex is actually ending up being a little lower than we anticipated, but we'll start to become more meaningful next year. And then noticeable in the tens of billions in '28."
Where did profit go?
Into operating expenses. Gross profit rose to $5.49 billion from $5.05 billion, and the GAAP gross margin rose to 19.6 per cent from 18.0 per cent. Operating expenses rose 39 per cent to $4.78 billion, with research and development up to $2.76 billion from $1.63 billion. Tesla's update cites spending on SI, its label for "Super Intelligence," and other research projects, plus stock-based compensation including the 2025 CEO Performance Award. GAAP operating income fell 55.8 per cent to $718 million.
GAAP net income attributable to common shareholders was $787 million, or $0.22 a share. Non-GAAP net income was $1.697 billion. Tesla's reconciliation explains the $910 million gap: $982 million of stock-based compensation after tax, a $108 million after-tax unrealized loss on its SpaceX investment and $44 million of tax items, partly offset by a $224 million after-tax gain on digital assets.
What does SpaceX have to do with it?
It is now a line in Tesla's accounts. Tesla bought $2.002 billion of SpaceX equity in the first quarter, booked a $1.005 billion pre-tax unrealized gain on it in the second and a $142 million loss in the third, according to the cash flow statement. As we reported on Wednesday, Musk said on SpaceX's call on Tuesday that he thinks both companies have formed special committees to discuss combining. Neither company has announced them. On Tesla's call he added nothing: "With regard to a potential merger with SpaceX, I think I said everything that should be said yesterday," he said, as quoted by Yahoo Finance.
Tesla's shares slipped after the report, Yahoo Finance said. It quoted Seth Goldstein, a Morningstar analyst, as saying the market was reacting to "capacity constraints in the company's auto and battery growth, which could slow near-term growth." Tesla's update says battery availability "continued to be the limiting factor" on vehicle volumes.
What to watch
The fourth-quarter capex figure. If it comes in near $7 billion, the third-quarter beat was timing and the $20 billion budget holds. If it comes in well below, Tesla is spending less on its AI and robotics programme than its second-quarter guidance implied, and the question becomes what Musk's "tens of billions in '28" will be funded with. Tesla reports in January.
All third-quarter figures, the five-quarter history, the SpaceX investment entries, the GAAP to non-GAAP reconciliation and Tesla's quoted statements on Optimus, Robotaxi and training compute come from Exhibit 99.1 to Tesla's Form 8-K filed with the SEC on 21 October 2026. The "in excess of $25 billion" guidance comes from Tesla's Form 10-Q for the second quarter of 2026. The $7.94 billion capex, negative $4.09 billion free cash flow, automotive and energy-and-services forecasts are S&P Global Market Intelligence's, published on Seeking Alpha on 16 October 2026 and set out in our preview of 18 October. The $20 billion guidance, the Taneja and Musk call quotations, the Bloomberg revenue consensus, the $0.44 EPS estimate, the alternative $7.96 billion and negative $4.92 billion estimates, the Seth Goldstein remark, the share-price direction and Musk's SpaceX remarks on both calls come from Yahoo Finance (Pras Subramanian, 22 October 2026). The implied fourth-quarter capex, the implied forecast operating cash flow, the percentage changes and the free cash flow comparisons are this publication's arithmetic. The analysis is our own.
Topics technologyTeslaearningscapital spendingfree cash flowElon MuskSpaceXenergy storage
