• Tesla (TSLA) stock rallied to a three-month high, last up 5.5%, as investors weighed a stronger-than-expected earnings beat and positive free cash flow against a federal probe into its Cybercab robotaxi and preliminary merger talks with SpaceX (SPCX).
  • The electric-vehicle maker reported adjusted earnings per share of $0.48, beating the $0.43 consensus, while free cash flow came in at $1.53 billion versus an expected $4.92 billion outflow, though automotive revenue slipped 3% year over year.
  • The rally comes as Tesla navigates a National Highway Traffic Safety Administration (NHTSA) inquiry into the Cybercab’s compliance with safety standards, with a response deadline of October 30, and as special committees at both Tesla and SpaceX examine a potential combination.

A Beat, But Not a Breakout

Tesla shares climbed to their highest level in more than three months on Thursday, last trading up 5.5%, as investors focused on the company’s better-than-expected third-quarter earnings and a surprising swing to positive free cash flow. The stock’s move, which outpaced the broader market, reflects a cautiously optimistic read on Tesla’s ability to manage costs even as its core vehicle business remains under pressure.

The Austin-based company reported adjusted earnings per share of $0.48, topping the $0.43 expected by analysts surveyed by CNBC (VSNT). Revenue came in at $28.05 billion, roughly flat year over year but above the $27.88 billion consensus cited by Reuters (TRI). Free cash flow turned positive at $1.53 billion, a sharp contrast to the $4.92 billion outflow that analysts had forecast—a surprise that Tesla attributed largely to lower-than-expected capital spending. The company also trimmed its 2026 capital-expenditure forecast to roughly $20 billion from more than $25 billion.

Yet the headline beat masks lingering softness in the automotive segment. Vehicle revenue fell 3% to $20.56 billion, even as deliveries rose sequentially to 486,532—a figure that still represents a 2% decline from a year earlier. Automotive gross margin excluding regulatory credits, however, came in at 18.1%, above the 16.7% expected, suggesting underlying profitability is holding up better than the top line implies. Energy-storage deployments increased to 13.7 GWh from 12.5 GWh, though energy revenue fell 16% to $2.88 billion.

The mixed results initially sent shares lower after the release, but the stock reversed course as investors digested the cash-flow beat and the margin outperformance. “The free-cash-flow beat was a pleasant surprise,” said Ryan Lee, an analyst at Direxion, though he cautioned that the lower spending plan “raises questions about Tesla’s commitment to the AI investment race.”

Cybercab Deadline Looms

While the earnings news dominated headlines, a regulatory cloud continues to gather over Tesla’s autonomous-driving ambitions. NHTSA is investigating how Tesla determined that its Cybercab—a vehicle designed without steering wheels or pedals—complies with federal safety standards. The company faces an October 30 deadline to respond to the agency’s request for information.

The probe adds a near-term risk to Tesla’s plan to begin selling Cybercabs to customers before year-end. Proposed rule changes could eventually accommodate vehicles without manual controls, but existing regulations remain in force until any changes are finalized. Tesla has not publicly commented on the specifics of the inquiry, and a company spokesperson did not respond to a request for comment.

SpaceX Talks Add Governance Twist

Separately, Tesla and SpaceX have formed special committees to examine a potential merger, according to people familiar with the matter. No transaction terms or agreement have been announced, and Elon Musk has recused himself from negotiations due to conflicts of interest. However, SpaceX has said that Musk’s approval as its controlling shareholder would still be required for any deal.

The preliminary discussions have raised governance concerns among some investors, who recall the litigation that followed Tesla’s 2016 acquisition of SolarCity (SCTY)—another Musk-linked company. Analysts cited by Reuters view a combination as increasingly likely, but disagree on how Tesla shareholders should be compensated. Any deal would also face significant regulatory hurdles, given SpaceX’s defense and intelligence contracts and Tesla’s extensive operations in China.

What to Watch

Beyond the October 30 NHTSA deadline, investors will be watching whether Tesla’s record vehicle backlog—the largest in four years—converts into deliveries at sustainable margins. Battery availability remains a production bottleneck, meaning strong orders do not automatically translate into immediate revenue. The company also faces intensifying competition from cheaper electric vehicles, particularly in Europe, where higher gasoline prices have supported demand but where new entrants are gaining ground.

For now, the market appears willing to give Tesla credit for its cash discipline and margin resilience. But with the Cybercab rollout hanging in the balance and the SpaceX talks still in early stages, the stock’s rally may hinge on whether the company can turn its autonomous-driving promises into regulatory approvals—and ultimately, revenue.

Correction: An earlier version of this article misstated the analyst consensus for Tesla’s free cash flow. It was a $4.92 billion outflow, not inflow.