Tesla’s free cash flow turned positive unexpectedly in Q3, with AI and robotics spending much lower than anticipated.

Reuters, October 21 - Tesla TSLA.O announced its third-quarter results on Wednesday, with free cash flow unexpectedly turning positive due to capital spending on artificial intelligence (AI) and robotics projects falling well below analysts’ expectations. Meanwhile, the electric vehicle manufacturer is evaluating a possible merger with CEO Musk’s rocket company, SpaceX.

After the earnings release, Tesla’s stock price rose more than 1.7% in after-hours trading.

Third-quarter capital expenditure was $4.73 billion, much lower than the market’s expectation of around $7.5 billion. By comparison, second-quarter capital expenditure was $5.79 billion and $2.25 billion in the same period last year.

For the quarter ending September, Tesla reported $1.53 billion in free cash flow, while analysts had widely expected a free cash flow deficit of $4.92 billion.

Driven by a rebound in vehicle deliveries and growth in the energy storage business, Tesla’s third-quarter revenue also exceeded Wall Street expectations. High oil prices, especially in Europe, are supporting demand for electric vehicles.

On Tuesday, Musk stated that a merger between Tesla and SpaceX is “a good idea”, and that both companies have set up a special committee to discuss the transaction.

The Texas-based company reported third-quarter revenue of $28.05 billion as of September 30, higher than the LSEG analyst average forecast of $27.88 billion; revenue for the same period last year was $28.1 billion.

Tesla delivered 486,532 vehicles in the third quarter, higher than Wall Street’s general expectation of about 461,100 units, but down about 2% from the same period last year.

However, its core automobile business continues to face challenges. Global competitors are launching more updated and lower-priced models, while Tesla still mainly depends on the more matured Model 3 and Model Y. Tesla said the total number of vehicles delivered has topped 10 million and the Model Y is likely to become the world’s best-selling model this year.

Investors have been hoping for more concrete evidence that Musk’s efforts in autonomous driving and robotics may progress from concept to commercialization.

So far this year, Tesla’s share price has fallen about 14%. Nevertheless, Tesla’s market capitalization remains around $1.4 trillion, far exceeding other automakers. Investors are generally betting that self-driving software, energy storage business, Robotaxi, and humanoid robot initiatives will, in the future, deliver growth with higher profit margins than vehicle sales. (End)

(Editor: Liu Jing)

((REBECCA.LIU@thomsonreuters.com;))