filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are focused on bringing SI into the real world, through products and services like FSD (Supervised) and Robotaxi, as well as working to develop and commercialize SI robots (including Optimus). We intend to leverage our current operations, in which we design, develop, manufacture, sell and lease high-performance fully electric vehicles and energy generation and storage systems that increasingly deliver SI-related and enhanced software and services to our customers, to achieve that objective.
As a result of rapidly evolving trade and fiscal policy and geopolitical conflicts, uncertainty in the automotive and energy markets continues, posing risks to our global supply chain and cost structure which could have a meaningfully adverse impact on demand for our products and our profitability. The current tariff regime will have a relatively larger impact on our energy generation and storage business compared to our automotive business. While we prepare for near-term challenges to our business under current policies, we are focused on long-term growth opportunities as we continue to further vertically integrate and localize our supply chain and make prudent investments in infrastructure.
In 2026, we produced approximately 1.32 million consumer vehicles and delivered approximately 1.32 million consumer vehicles through the third quarter. We are focused on profitable growth and scale, further improving and deploying our FSD (Supervised) capabilities, including future autonomous capabilities through our purpose-built Robotaxi product, Cybercab, advancing our battery and SI compute technologies and expanding our global infrastructure. Since launching our Robotaxi service in June 2025, we have continued to expand and refine our product and operations - including the rollout of Cybercab in September 2026, capitalizing on our SI investments and scalable mobility infrastructure to advance a service-driven business model.
In 2026, we deployed 36.0 GWh of energy storage products through the third quarter. We are focused on ramping the production, increasing the market penetration of our energy storage products and developing our solar manufacturing and battery technologies.
During the three and nine months ended September 30, 2026, we recognized total revenues of $28.05 billion and $78.67 billion, respectively, representing a decrease of $49 million and an increase of $8.74 billion, respectively, compared to the same periods in the prior year. During the three and nine months ended September 30, 2026, our net income attributable to common stockholders was $787 million and $2.38 billion, respectively, representing decreases of $586 million and $576 million, respectively, compared to the same periods in the prior year. We continue to ramp production and build and optimize our manufacturing capacity, expand our operations while focusing on further cost reductions and operational efficiencies, including through vertical integration of our battery and semiconductor supply chains, to enable increased deliveries and deployments of our products. We are also investing heavily in research and development to accelerate our SI, software and fleet-based profits for further revenue growth, which will negatively impact our profitability during this phase.
We ended the third quarter of 2026 with $45.45 billion in cash and cash equivalents and short-term investments, representing an increase of $1.39 billion from the end of 2025. Our cash flows provided by operating activities were $14.90 billion during the nine months ended September 30, 2026, compared to $10.93 billion during the same period ended September 30, 2025, representing an increase of $3.96 billion. Capital expenditures amounted to $13.01 billion during the nine months ended September 30, 2026, compared to $6.13 billion during the same period ended September 30, 2025, representing an increase of $6.88 billion. Overall growth has allowed our business to generally fund itself. As we make critical high-value investments in our SI initiatives and expand manufacturing capabilities, including for our semiconductor, Optimus and solar operations, we intend to manage the business such that we maintain a strong balance sheet and sufficient liquidity, which may include additional funding.
Management Opportunities, Challenges and Uncertainties and 2026 Outlook
Automotive and SI Enabled Products—Production
We are focused on growing and optimizing our manufacturing capacity, which includes capacity for manufacturing newer vehicle models and future vehicles utilizing aspects of our next generation platform, while maximizing production rate and efficiency at our Gigafactories. The next phase of production growth will be initiated by advances in autonomy and the introduction of new products, including those built on our next generation vehicle platform, as well as our ability to efficiently manufacture and rapidly scale our own cells that we are developing to have high-volume output, lower capital and production costs and longer range. In the third quarter of 2026, we continued to progress towards these objectives through the launches of Cybercab and the Tesla Semi, along with production ramps across our new battery and material factories, including cathode material and lithium refining in Texas. We are focused on improving vehicle performance, decreasing production costs and increasing affordability and customer awareness. Leveraging our autonomy-enabled products, our goal is to redefine and lead transportation across all modes, advancing toward a future of safer, more accessible, efficient and sustainable mobility. We are also capitalizing on our strengths in real-world SI data to advance the development of Optimus, a general purpose, autonomous humanoid robot, as we make preparations and investments in large-scale production.
These plans are subject to uncertainties inherent in establishing and ramping manufacturing operations, which may be exacerbated by new product and manufacturing technologies we introduce, the number of concurrent international projects, any industry-wide component constraints, labor shortages and any future impact from events outside of our control. For example, changes to fiscal and trade policy with respect to tariffs, export controls and other restrictions may impact our global supply chain cost structure and availability, affecting not only vehicle production, but also facility expansions. Furthermore, scaling autonomy operations presents significant challenges due to evolving regulations, the resources required for SI inference and training, and operational and infrastructure support required, any of which could adversely affect our timelines and results. Moreover, we have set ambitious technological targets with our plans for battery cells as well as for iterative manufacturing and design improvements for our vehicles.
Automotive and SI Enabled Products—Demand, Sales and Deliveries and Supporting Infrastructure
Our cost reduction efforts, cost innovation strategies, and additional localized procurement and manufacturing are key to our vehicles’ affordability and have allowed us to competitively price our vehicles. We will also continue to generate demand by improving our vehicles’ performance and functionality, including through product offerings and features utilizing super intelligence, and delivering new vehicles and vehicle options. Our FSD (Supervised) technology serves as a key growth driver and product differentiator, with cumulative miles driven having increased exponentially in 2026. The launch of our Robotaxi service and introduction of Cybercab further unlocks the potential for significant business growth to advance a service-driven business model leveraging the same technology. This initiates a compounding, positive feedback loop, whereby fleet growth generates more data that further improves our technology, driving additional fleet growth, and we plan to scale future production accordingly. We will continue to improve safety and profitability while scaling the network. In addition, we have been increasing awareness, and expanding our vehicle financing programs, including attractive leasing terms for our customers. We will also continue to work on developing our robotics offerings.
However, we operate in a cyclical industry that is sensitive to shifting consumer trends, geopolitical conflicts, political and regulatory uncertainty, including with respect to trade and the environment, all of which can be compounded by inflationary pressures, rising energy prices, interest rate fluctuations and the liquidity of enterprise customers. For example, as inflationary pressures increased across the markets in which we operate, central banks in developed countries raised interest rates rapidly and substantially, which impacted the affordability of vehicle lease and finance arrangements. Further, sales of vehicles in the automotive industry also tend to be cyclical in many markets, which may expose us to increased volatility as we expand and adjust our operations. Moreover, as additional competitors enter the marketplace and help bring the world closer to sustainable transportation, we will have to adjust and continue to execute well to maintain our momentum. Additionally, our suppliers’ liquidity and allocation plans may be affected by current challenges in the automotive industry, which could reduce our access to components or result in unfavorable changes to cost. These macroeconomic and industry trends have had, and will likely continue to have, an impact on the pricing of, and order rate for our vehicles, and in turn our operating margin.
Changes in government and economic policies, incentives or tariffs may also impact our production, cost structure and the competitive landscape. For instance, while the final scope and application of recently announced changes in trade policy remain uncertain at this time, tariffs on imports and subsequent retaliatory tariffs could impact consumer spending and demand for durable goods and related services. We will continue to adjust accordingly to such developments, and we believe our ongoing cost reduction efforts, including through production innovation, process improvements and logistics optimization, and focus on operating leverage, vertical integration and supply chain localization will continue to benefit us in relation to our competitors. Our new products, production capacity, infrastructure investments and advances in autonomy and robotics, position us for future growth.
As our vehicle production increases, we must work constantly to similarly increase vehicle delivery capability so that it does not become a bottleneck on our total deliveries. As we expand our manufacturing operations and vehicle lineup globally, we will also have to continue to increase and staff our delivery, servicing and charging infrastructure accordingly, maintain our vehicle reliability and optimize our Supercharger locations to ensure cost effectiveness and customer satisfaction. We have also begun deploying public Megachargers in preparation for the production and ramp of Tesla Semi. In addition, we remain focused on continued enhancements of the capability and efficiency of our servicing operations. In tandem with the launch of our Robotaxi business, we are focused on developing and optimizing dedicated infrastructure, including in relation to vehicle cleaning and maintenance, charging, security, teleoperations and fleet management, to ensure service quality as we continue to scale.
Energy Generation and Storage Demand, Production and Deployment
The long-term success of this business is dependent upon incremental volume growth. We continue to increase the production and capabilities of our energy storage products to meet high levels of demand, including the ramps of our Megafactories in Shanghai and Lathrop, California, and the construction of a new Megafactory near Houston, Texas, which began production in the third quarter of 2026. In 2025, we introduced Megapack 3 and Megablock, our next-generation industrial storage product, and began manufacturing a new residential retrofit solar panel. For Megapack, energy storage deployments can vary meaningfully quarter to quarter depending on the timing of specific project milestones and logistics. As these product lines grow, we will have to maintain adequate battery cell supply for our energy storage products. In the third quarter of 2026, we shipped the first Megapack with LFP cells manufactured at Gigafactory Nevada, further advancing our efforts to localize supply chains. At the same time, changes in government and economic incentives or tariffs may also impact our sales, cost structure and the competitive landscape. For instance, import tariffs by the US government and the provisions of the One Big Beautiful Bill Act (the “OBBBA”) could significantly increase battery cell expenses and impact costs for our consumers, negatively impacting consumer demand. Despite these challenges, as SI infrastructure drives rapid load growth, we see opportunities for our energy storage products to stabilize the grid, shift energy when it is needed most and provide additional power capacity.
Infrastructure
To support our businesses in clean energy and transport and autonomous robots, we are investing in and developing the necessary infrastructure. We continue to expand Cortex, our onsite training clusters at Gigafactory Texas, to provide sufficient compute resources for the development of our SI products and services, and are expanding our scope of manufacturing to include semiconductor and solar fabrication. We are focused on exploring opportunities independently and with strategic partners to develop bespoke and scalable solutions, including through vertical integration, to optimize for cost, functionality, efficiency and safety.
Cash Flow and Capital Expenditure Trends
Our capital expenditure projections are subject to variability given the number and breadth of our projects at any given time. Changes in, among other things, global market conditions, trade and fiscal policies, and strategic timing and direction, may necessitate adjustments to our project timelines, potentially impacting our capital expenditure expectations. We are focused on long-term growth opportunities through critical, high-value investments. We are simultaneously developing and ramping new products, building or ramping manufacturing facilities on three continents, piloting the development and manufacture of new battery cell technologies, expanding our Supercharger network and investing in autonomy, robotics and other super intelligence enabled training and products and its supporting infrastructure, and the pace of our capital spend may vary depending on overall priority among projects, the pace at which we meet milestones, production adjustments to and among our various products, increased capital efficiencies and the addition of new projects. We currently expect our capital expenditures to be in excess of $20 billion in 2026, driven by our SI initiatives, including investments in compute infrastructure and data centers, the expansion and ramp of our manufacturing and R&D production lines and facilities, and growth in our fleet of company-operated SI-enabled assets and our retail, service and charging footprint. We believe this strategy will position our Company for further growth as we make investments in a capital efficient manner.
Our business has generally been consistently generating cash flow from operations in excess of our level of capital spend, and with better working capital management resulting in shorter days sales outstanding than days payable outstanding, our sales growth is also generally facilitating positive cash generation. We have and will continue to utilize such cash flows, among other things, to invest in autonomy and robotics, further vertically integrate our supply chain, expand our product roadmap and provide financing options to our customers. At the same time, periods of heightened levels of capital expenditures due to capital-intensive projects and other potential variables such as rising material prices and increases in supply chain and labor expenses resulting from changes in global trade conditions and labor availability, will necessitate additional funding beyond our operating cash flow. For example, in September 2026, we entered into three credit agreements providing aggregate commitments of $30 billion, which afford us additional flexibility to support our planned investments, as described above.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies and estimates, refer to Part II, Item 7, Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no material changes to our critical accounting policies and estimates since our Annual Report on Form 10-K for the year ended December 31, 2025.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
Revenues
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Automotive sales | $ | 20,094 | $ | 20,359 | $ | (265) | (1) | % | $ | 55,573 | $ | 49,071 | $ | 6,502 | 13 | % | |||||||||||||||||||||||||||||||
| Automotive regulatory credits | 113 | 417 | (304) | (73) | % | 639 | 1,451 | (812) | (56) | % | |||||||||||||||||||||||||||||||||||||
| Automotive leasing | 353 | 429 | (76) | (18) | % | 1,098 | 1,311 | (213) | (16) | % | |||||||||||||||||||||||||||||||||||||
| Total automotive revenues | 20,560 | 21,205 | (645) | (3) | % | 57,310 | 51,833 | 5,477 | 11 | % | |||||||||||||||||||||||||||||||||||||
| Services and other | 4,605 | 3,475 | 1,130 | 33 | % | 12,931 | 9,159 | 3,772 | 41 | % | |||||||||||||||||||||||||||||||||||||
| Total automotive & services and other segment revenue | 25,165 | 24,680 | 485 | 2 | % | 70,241 | 60,992 | 9,249 | 15 | % | |||||||||||||||||||||||||||||||||||||
| Energy generation and storage segment revenue | 2,881 | 3,415 | (534) | (16) | % | 8,428 | 8,934 | (506) | (6) | % | |||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 28,046 | $ | 28,095 | $ | (49) | — | % | $ | 78,669 | $ | 69,926 | $ | 8,743 | 13 | % |
Automotive & Services and Other Segment
Automotive sales revenue decreased $265 million, or 1%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025, due to a decrease of approximately 2% in cash deliveries, primarily from fewer Model S and Model X deliveries after the product sunset in mid-2026, offset by a positive impact from the weakening of the United States dollar compared to foreign currencies year over year and an increase from higher revenue from FSD (Supervised) subscriptions in the current period.
Automotive sales revenue increased $6.50 billion, or 13%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, due to an increase of approximately 10% in cash deliveries, in part from bringing down all of our vehicle factories simultaneously for the changeover to the New Model Y in the prior period, partially offset by fewer Model S and Model X deliveries after the product sunset in mid-2026. Additionally, there was a positive impact from the weakening of the United States dollar when compared to foreign currencies year over year and an increase from higher revenue from FSD (Supervised) subscriptions in the current period.
Automotive regulatory credits revenue decreased $304 million, or 73%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Automotive regulatory credits revenue decreased $812 million, or 56%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. Fluctuations in automotive regulatory credits are impacted by our supply of credits, subject to changes in regulation, production and sales. Recent governmental and regulatory actions have restricted certain regulatory credit programs tied to our products.
Services and other revenue increased $1.13 billion, or 33%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Services and other revenue increased $3.77 billion, or 41%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. These increases were primarily due to increases in used vehicle sales volume and average selling price, non-warranty maintenance services and collision revenue, and paid Supercharging sessions.
Energy Generation and Storage Segment
Energy generation and storage revenue decreased $534 million, or 16%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Energy generation and storage revenue decreased $506 million, or 6%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. These decreases were primarily due to tariff refunds for certain Megapack customers, a lower average selling price per Megapack unit, a decrease in Powerwall deployments, and a decrease in solar retrofit cash deployments, partially offset by an increase in Megapack deployments.
Cost of Revenues and Gross Margin
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||||||||||||||||||||||||||
| Automotive sales | $ | 16,570 | $ | 17,365 | $ | (795) | (5) | % | $ | 46,052 | $ | 42,393 | $ | 3,659 | 9 | % | |||||||||||||||||||||||||||||||
| Automotive leasing | 184 | 225 | (41) | (18) | % | 567 | 692 | (125) | (18) | % | |||||||||||||||||||||||||||||||||||||
| Total automotive cost of revenues | 16,754 | 17,590 | (836) | (5) | % | 46,619 | 43,085 | 3,534 | 8 | % | |||||||||||||||||||||||||||||||||||||
| Services and other | 3,871 | 3,109 | 762 | 25 | % | 11,203 | 8,526 | 2,677 | 31 | % | |||||||||||||||||||||||||||||||||||||
| Total automotive & services and other segment cost of revenues | 20,625 | 20,699 | (74) | — | % | 57,822 | 51,611 | 6,211 | 12 | % | |||||||||||||||||||||||||||||||||||||
| Energy generation and storage segment | 1,927 | 2,342 | (415) | (18) | % | 5,882 | 6,230 | (348) | (6) | % | |||||||||||||||||||||||||||||||||||||
| Total cost of revenues | $ | 22,552 | $ | 23,041 | $ | (489) | (2) | % | $ | 63,704 | $ | 57,841 | $ | 5,863 | 10 | % | |||||||||||||||||||||||||||||||
| Gross profit total automotive | $ | 3,806 | $ | 3,615 | $ | 10,691 | $ | 8,748 | |||||||||||||||||||||||||||||||||||||||
| Gross margin total automotive | 18.5 | % | 17.0 | % | 18.7 | % | 16.9 | % | |||||||||||||||||||||||||||||||||||||||
| Gross profit total automotive & services and other segment | $ | 4,540 | $ | 3,981 | $ | 12,419 | $ | 9,381 | |||||||||||||||||||||||||||||||||||||||
| Gross margin total automotive & services and other segment | 18.0 | % | 16.1 | % | 17.7 | % | 15.4 | % | |||||||||||||||||||||||||||||||||||||||
| Gross profit energy generation and storage segment | $ | 954 | $ | 1,073 | $ | 2,546 | $ | 2,704 | |||||||||||||||||||||||||||||||||||||||
| Gross margin energy generation and storage segment | 33.1 | % | 31.4 | % | 30.2 | % | 30.3 | % | |||||||||||||||||||||||||||||||||||||||
| Total gross profit | $ | 5,494 | $ | 5,054 | $ | 14,965 | $ | 12,085 | |||||||||||||||||||||||||||||||||||||||
| Total gross margin | 19.6 | % | 18.0 | % | 19.0 | % | 17.3 | % |
Automotive & Services and Other Segment
Cost of automotive sales revenue decreased $795 million, or 5%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025, due to the decrease in deliveries year over year as discussed above, a lower average cost per unit from sales mix and a favorable impact from tariff refunds, offset by an unfavorable impact from the weakening of the United States dollar when compared to foreign currencies year over year.
Cost of automotive sales revenue increased $3.66 billion, or 9%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, due to the increase in deliveries year over year as discussed above. Average cost per unit was relatively consistent due to favorable impacts from tariffs and warranty adjustments, offset by an unfavorable impact from the weakening of the United States dollar when compared to foreign currencies year over year.
Cost of services and other revenue increased $762 million, or 25%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Cost of services and other revenue increased $2.68 billion, or 31%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. These increases were in alignment with the increases in services and other revenue as discussed above.
Gross margin for total automotive increased from 17.0% to 18.5% in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Gross margin for total automotive increased from 16.9% to 18.7% in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The increases were primarily due to the fluctuations in automotive sales revenue and cost of automotive sales revenue, partially offset by a decrease in regulatory credits revenue, as discussed above.
Gross margin for total automotive & services and other segment increased from 16.1% to 18.0% in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Gross margin for total automotive & services and other segment increased from 15.4% to 17.7% in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The increases in gross margin were primarily due to the increases in automotive sales gross margin, as discussed above, as well as from an improvement in services and other gross margin.
Energy Generation and Storage Segment
Cost of energy generation and storage revenue decreased $415 million, or 18%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Cost of energy generation and storage revenue decreased $348 million, or 6%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. These decreases were primarily due to the deployment fluctuations as discussed above, favorable impacts from tariff refunds, and decreases in average cost per unit for Megapack.
Gross margin for energy generation and storage increased from 31.4% to 33.1% in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Gross margin for energy generation and storage decreased from 30.3% to 30.2% in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The changes in gross margin were primarily due to the changes in energy generation and storage revenue and cost of energy generation and storage revenue, as discussed above.
Research and Development Expense
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Research and development | $ | 2,761 | $ | 1,630 | $ | 1,131 | 69 | % | $ | 7,078 | $ | 4,628 | $ | 2,450 | 53 | % | |||||||||||||||||||||||||||||||
| As a percentage of revenues | 10 | % | 6 | % | 9 | % | 7 | % |
Research and development (“R&D”) expenses increased $1.13 billion, or 69%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. R&D expenses increased $2.45 billion, or 53%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. These increases were primarily due to increases in costs related to SI and other programs, such as Optimus, silicon development, battery technologies, and new vehicle programs as we continue to expand our product roadmap, and increases in stock-based compensation of $178 million and $511 million, respectively.
R&D expenses as a percentage of revenue increased from 6% to 10% in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. R&D expenses as a percentage of revenue increased from 7% to 9% in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. These increases were primarily due to higher R&D expenses in the current periods offset by the increase in total revenues in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.
Selling, General and Administrative Expense
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 2,015 | $ | 1,562 | $ | 453 | 29 | % | $ | 5,830 | $ | 4,179 | $ | 1,651 | 40 | % | |||||||||||||||||||||||||||||||
| As a percentage of revenues | 7 | % | 6 | % | 7 | % | 6 | % |
Selling, general and administrative (“SG&A”) expenses increased $453 million, or 29%, in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025, driven by a $293 million increase in stock-based compensation primarily related to the 2025 CEO Performance Award, a $144 million increase in facilities related and computer software expenses, and a $91 million increase in employee and labor costs, including professional services.
SG&A expenses increased $1.65 billion, or 40%, in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, driven by a $870 million increase in stock-based compensation primarily related to the 2025 CEO Performance Award, a $357 million increase in employee and labor costs, including professional services, a $275 million increase in facilities related and computer software expenses and a $136 million increase in operating expenses including litigation related expenses.
Interest Income
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 445 | $ | 439 | $ | 6 | 1 | % | $ | 1,301 | $ | 1,231 | $ | 70 | 6 | % |
Interest income increased $6 million, or 1%, in the three months ended September 30, 2026 and increased $70 million, or 6%, in the nine months ended September 30, 2026 as compared to the three and nine months ended September 30, 2025, respectively. The increases were primarily due to higher interest earned on our cash and cash equivalents and short-term investments due to an increase in our average portfolio balance, partially offset by a lower average interest rate.
Other Income, Net
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Other (expense) income, net | $ | (117) | $ | (28) | $ | (89) | 318 | % | $ | (62) | $ | 173 | $ | (235) | Not meaningful |
Other (expense) income, net, changed unfavorably by $89 million in the three months ended September 30, 2026 as compared to the three months ended September 30, 2025. Other (expense) income, net, changed unfavorably by $235 million in the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025. The changes were primarily due to mark-to-market adjustments on our SpaceX equity investment, which we entered into in March 2026, and adjustments on our bitcoin digital assets, as well as fluctuations in foreign currency exchange rates on our intercompany balances. As our intercompany balances are significant in nature and we do not typically hedge foreign currency risk, we can experience significant fluctuations in foreign currency exchange rate gains and losses from period to period.
Provision for Income Taxes
| Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 152 | $ | 570 | $ | (418) | (73) | % | $ | 610 | $ | 1,098 | $ | (488) | (44) | % | |||||||||||||||||||||||||||||||
| Effective tax rate | 16 | % | 29 | % | 20 | % | 27 | % |
Our provision for income taxes decreased by $418 million in the three months ended September 30, 2026 and by $488 million in the nine months ended September 30, 2026 as compared to the three and nine months ended September 30, 2025, respectively, primarily due to decreases in our income before income taxes and changes in the mix of our jurisdictional earnings, partially offset by the non-deductibility of stock-based compensation expense related to the 2025 CEO Performance Award. Our effective tax rate decreased from 29% to 16% in the three months ended September 30, 2026 and from 27% to 20% in the nine months ended September 30, 2026 as compared to the three and nine months ended September 30, 2025, respectively, primarily due to changes in the mix of our jurisdictional earnings, partially offset by the non-deductibility of stock-based compensation expense related to the 2025 CEO Performance Award. Additionally, the decreases in our provision for income taxes and effective tax rate for the nine months ended September 30, 2026 included the impact of a release of the valuation allowance on our California deferred tax assets other than research and development tax credits during the second quarter of 2026.
See Note 10, Income Taxes, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details.
Liquidity and Capital Resources
We generally expect to continue to generate net positive operating cash flow. The cash we generate from our core operations enables us to fund ongoing operations and production, our research and development projects for new products and technologies including our proprietary battery cells, additional manufacturing ramps at existing manufacturing facilities, the construction of future factories, and the continued expansion of our retail and service locations, body shops, Mobile Service fleet, Supercharger, energy product installation capabilities and autonomy and other super intelligence enabled products.
In addition, because a large portion of our future expenditures will be to fund our growth, we expect that if needed we will be able to adjust our capital and operating expenditures by operating segment. For example, if our near-term manufacturing operations decrease in scale or ramp more slowly than expected, including due to global economic, tax, trade or business conditions, we may choose to correspondingly slow the pace of our capital expenditures. We continually evaluate our cash needs and the evolving nature of our business and may decide it is best to raise additional capital or seek alternative financing sources to fund the rapid growth of our business, including through drawdowns on existing or new debt facilities or financing funds. For example, in September 2026, we entered into three credit agreements providing aggregate commitments of $30 billion, which afford us additional flexibility to support our planned investments. Conversely, we may also from time to time determine that it is in our best interests to voluntarily repay certain indebtedness early. Accordingly, we believe that our current and potential sources of funding will provide us with adequate liquidity during the 12-month period following September 30, 2026, as well as in the long-term.
See the sections below for more details regarding the material requirements for cash in our business and our sources of liquidity to meet such needs.
Material Cash Requirements
From time to time in the ordinary course of business, we enter into agreements with vendors for the purchase of components and raw materials to be used in the manufacture of our products. However, due to contractual terms, variability in the precise growth curves of our development and production ramps, and opportunities to renegotiate pricing, we generally do not have binding and enforceable purchase orders under such contracts beyond the short-term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project.
As discussed in and subject to the considerations referenced in Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations—Management Opportunities, Challenges and Uncertainties and 2026 Outlook—Cash Flow and Capital Expenditure Trends in this Quarterly Report on Form 10-Q, we currently expect our capital expenditures to be in excess of $20 billion in 2026, driven by our SI initiatives, including investments in compute infrastructure and data centers, the expansion and ramp of our manufacturing and R&D production lines and facilities, and growth in our fleet of company-operated SI-enabled assets and our retail, service and charging footprint. Changes in, among other things, global market conditions, trade and fiscal policies, and strategic timing and direction, may necessitate adjustments to our project timelines, potentially impacting our capital expenditure expectations.
As of September 30, 2026, we and our subsidiaries had outstanding $9.28 billion in aggregate principal amount of indebtedness, of which $1.32 billion is current. For details regarding our indebtedness, refer to Note 8, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Sources and Conditions of Liquidity
Our sources to fund our material cash requirements are predominantly from our deliveries and servicing of new and used vehicles, deployments and servicing of our energy storage products, interest income, and proceeds from debt facilities and equity offerings, when applicable.
As of September 30, 2026, we had $17.85 billion and $27.59 billion of cash and cash equivalents and short-term investments, respectively. Balances held in foreign currencies had a U.S. dollar equivalent of $5.97 billion and consisted primarily of euros and Chinese yuan. As of September 30, 2026, we had $30.00 billion of unused committed amounts under our senior unsecured credit facilities. For details regarding our indebtedness, refer to Note 8, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
We continue adapting our strategy to meet our liquidity and risk objectives, such as investing in U.S. government securities and other investments, investing in autonomy, further vertically integrating our supply chain, expanding our product roadmap and providing financing options to our customers.
Summary of Cash Flows
| Nine Months Ended September 30, | |||||||||||
| (Dollars in millions) | 2026 | 2025 | |||||||||
| Net cash provided by operating activities | $ | 14,897 | $ | 10,934 | |||||||
| Net cash used in investing activities | $ | (14,928) | $ | (8,950) | |||||||
| Net cash provided by financing activities | $ | 1,536 | $ | 429 |
Cash Flows from Operating Activities
Net cash provided by operating activities increased by $3.96 billion to $14.90 billion during the nine months ended September 30, 2026 from $10.93 billion during the nine months ended September 30, 2025. This increase was primarily due to favorable changes in net operating assets and liabilities of $3.51 billion and an increase in net income excluding non-cash expenses, gains and losses of $451 million.
Cash Flows from Investing Activities
Net cash flows from investing activities and their variability across each period related primarily to capital expenditures, which were $13.01 billion and $6.13 billion for the nine months ended September 30, 2026 and 2025, respectively, mainly for global SI and operational infrastructure and factory expansion, as well as machinery and equipment as we expand and enhance our product roadmap. We also had net proceeds from maturities of short-term investments of $95 million for the nine months ended September 30, 2026, compared to net purchases of short-term investments of $2.82 billion for the nine months ended September 30, 2025, respectively. Additionally, we invested $2.00 billion in SpaceX common stock during the nine months ended September 30, 2026. Refer to Note 13, Related Party Transactions, for additional information regarding the equity investment.
Cash Flows from Financing Activities
Net cash flows from financing activities changed by $1.11 billion to $1.54 billion net cash inflows during the nine months ended September 30, 2026 from $429 million net cash inflows during the nine months ended September 30, 2025. The change was primarily due to a $1.60 billion increase in proceeds from issuances of debt, offset by a decrease of $258 million proceeds from exercise of stock options and other stock issuance, and a $156 million increase in repayments of debt. See Note 8, Debt, to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for further details regarding our debt obligations.
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