• Tesla is facing some profitability headwinds.
• Its operating income fell 56% year over year as AI and research and development costs climbed.
• The company is still in the green, and it surprised earlier this month by delivering 486,532 vehicles in the third quarter.

Tesla is still selling plenty of cars. Making the same amount of money on them is getting harder.

On Wednesday, the Elon Musk-led automaker reported that its operating income fell 56% year over year to $718 million in the third quarter — below Wall Street's estimates of $746.3 million — while overall revenue of $28.05 billion came in a smidge below analysts' estimates.

Tesla pointed to higher operating expenses tied to its AI efforts, or "SI"/"Super Intelligence" as Trump prefers, and other R&D projects. Lower regulatory credit revenue and weaker energy storage gross profit also weighed on profitability, while lower vehicle prices hurt revenue.

"While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of SI, software and fleet-based profits," the company reported.

It's not all bad news for Tesla's profits. The company is still solidly in the green, and it beat on the bottom line. Tesla reported 48 cents in adjusted earnings per share, above the 44-cent analyst consensus estimate. Free cash flow of $1.5 billion was also a surprise after Wall Street had expected negative free cash flow of $4.92 billion.

The automaker also sees areas of profit growth in its future: autonomy subscriptions are trending up, and Tesla said it's offering the right, region-specific product mixes.

During the earnings call, Tesla's chief financial officer, Vaibhav Taneja, said the company is experiencing its "highest backlog" of vehicles in four years. The company, he said, is trying to increase vehicle production.

He also added that Tesla has secured $30 billion of borrowing to support expected capital expenditures, but the company doesn't expect to "make any draws under any of the new facilities in this calendar year."

"The main takeaway is that Tesla's surprisingly positive cash flow quarter did not come from stronger profits," Thomas Monteiro, senior analyst at Investing.com, said after the report.

"Added to the equation is the fact that Tesla's AI spending remains broadly inefficient, with research costs up nearly 70% and operating margins down to just 2.6%, while at SpaceX AI is already one of the biggest sources of revenue," the analyst added.

The new quarter has already made waves

The Tesla story continues to play out in real time, and it's had a busy month since the fourth quarter kicked off in October.

On Tuesday, during SpaceX's earnings call, Musk said that Tesla and SpaceX had each formed committees to explore a potential merger. Both companies are helmed by Musk — and he owns billions of dollars in stock of each.

Anticipation of the potential mega-merger has been building around the companies for much of 2026, and has only increased since SpaceX went public. Musk said he was not included in those committees and that calling the merger a foregone conclusion "would be overstating it."

It also came less than a week after Tesla held its high-flying demo for the Roadster. The sports car performed a gymnastics routine, including briefly jumping into the air and twirling over a lineup of other Tesla vehicles.

It came nine years after Tesla first promised to relaunch the Roadster. Musk first showed off a prototype of the vehicle in 2017 and predicted a 2020 product launch.

• GM says it's keeping humans in its OnStar call centers to help with emergencies.
• It comes as OnStar is getting a fresh makeover, complete with AI.
• "The stakes are too high," an exec told BI about the human-in-the-loop.

GM is giving OnStar an AI overhaul. The automaker says it is not coming for the person who answers when your airbags deploy.

On Wednesday, during the company's tech conference, GM Forward, Ed Nightingale, GM's vice president of digital products, told Business Insider that the automaker would continue to use human OnStar staffers on emergency calls to contact first responders.

"That's something that isn't changing," Nightingale said. "We feel that, when it comes to a crash or a problem being solved, they want to make sure that there's a human in the loop. The stakes are too high."

After publication, a GM spokesperson told Business Insider that OnStar Advisors "aren't going away" and will remain a core part of the OnStar experience.

Humans-in-the-loop are a notable constraint on GM's AI ambitions compared to other software companies. Other AI-enabled companies, such as SpaceX, have recently highlighted how few customer calls are routed to humans.

GM said that keeping people involved in complex or sensitive situations is an intentional part of its AI strategy. Technology handles more routine interactions, while humans take the call during an emergency.

It also comes as the company gives OnStar — its 30-year-old in-car emergency service — a much bigger job.

GM showed off OnStar AI on Wednesday. It's a new voice assistant designed to understand a vehicle and the driver using it. The automaker said it can answer questions about vehicle alerts, control some functions, plan routes around bad weather, and offer more context-aware suggestions, including from information through a driver's digital calendar.

The assistant will arrive first on the 2027 Cadillac Lyriq via an over-the-air update in the coming months, GM said. Other vehicles will follow.

GM also plans to unify its brand-specific mobile apps under the OnStar AI name next summer.

Onstage, Sterling Anderson, GM's chief product officer, said the company was turning the 30-year-old service into "an intelligent platform."

The shift is part of a large bet from GM.

GM is focusing heavily on its tech capabilities. On recent earnings calls, CEO Mary Barra has highlighted GM's subscription products. Anderson previously told Business Insider about how AI has allowed the company to cut product development time in half, starting with the GMC Hummer EV, which only took 20 months of development. Industry-average product development is typically around 5 years.

On Wednesday, the company also highlighted the development of its hands-off, eyes-off self-driving features, set to make their debut in the Cadillac Escalade IQ in 2028.

GM still has to persuade drivers that the new tools are valuable enough to use — and, in some cases, pay for.

Nightingale said subscriptions only retain customers when drivers can see the benefit.

Work at GM? We want to hear from you. Contact Ben Shimkus at bshimkus@insider.com or Signal at bshimkus.41. Use a personal email address and a nonwork device.

• SpaceX and Tesla have each established exploratory committees to discuss a possible merger, Elon Musk said.
• Musk, who said he can't participate in the talks, gave the update during Tesla's Q3 earnings call.
• Musk said he thinks a merger is a good idea, but cautioned investors that shareholder approval is "quite a high hurdle."

Houston, we have an update on all that SpaceX-Tesla merger chatter.

During SpaceX's Tuesday earnings call, Elon Musk said both of the companies had created "special committees of independent directors" to discuss a potential merger.

Musk, who helms both companies and owns billions of dollars in stock of each, said he can't be part of those exploratory groups.

"Do I think it would be a good idea? Yes," he said on the call. "But at the end of the day, the shareholders have to be supportive of this, and particularly on the Tesla side, we will need a 50% vote of all shares, not just those who vote, but of all shareholders."

He said clearing that bar would be "quite a high hurdle."

It's the most detailed update investors have received yet on the idea of a tie-up, which has been the subject of much chatter since SpaceX went public earlier this year. If the companies ultimately decide to merge, it would further consolidate Musk's business empire, often referred to as Musk Inc.

His businesses have been on a consolidation kick. In 2025, xAI acquired Musk's social media company, X (formerly Twitter), and in February, SpaceX acquired xAI.

Musk also runs the brain-chip startup, Neuralink, and the tunnel-building firm The Boring Company. Both operate independently, but have had business collaborations within Musk Inc.

Tesla and SpaceX's stocks were up in after-hours trading following the news. SpaceX was up around 6.6% and Tesla 1.6%.

Musk sees clear benefits in tying the knot

"I do think there's a lot of merit to combining the companies as we are pretty much in the superintelligence singularity," Musk said during the call.

SpaceX and Tesla have worked together on a host of projects, including artificial intelligence software, chip design, TeraFab manufacturing efforts, robotics, Starlink satellite connectivity, and SpaceX's ability to launch payloads into orbit, Musk and SpaceX president Gwynne Shotwell said.

The most recent result of that partnership: On Thursday, Tesla demoed its long-awaited Roadster, which includes a version with SpaceX technology. The high-powered sports car's top trim will include cold-gas thrusters. The car launched, hovered, and flipped in the air during the demo.

While Musk is for the two companies tying the knot, he said investors shouldn't think it's a sure thing.

"I don't think we should necessarily assume that a SpaceX and Tesla merger is a certainty," he added. "That would be overstating it."

• Starlink missed on customer growth expectations. It's still making a ton of money for SpaceX.
• The company is leaning heavily on large customers, like governments.
• The company acquired a spectrum provider in October. Execs said they're targeting mobile providers.

Starlink is SpaceX's big cash cow. And it just reported some mixed results.

On Tuesday, during the company's earnings call, SpaceX said its satellite-internet service had 13.6 million consumer subscribers at the end of September, up 1.6 million from three months earlier. That fell short of the 14.2 million expected by Bloomberg analysts — though the company said the figure excludes hundreds of thousands of enterprise subscribers and aviation customers.

Still, Starlink is making a lot of money. Monthly consumer revenue per user rose 5% from the previous quarter, while enterprise and government revenue jumped 91% from a year earlier to $2.1 billion.

A big, important customer? Airlines. The company said that, as of the end of September, 3,800 total aircraft had been outfitted with Starlink equipment.

"Aviation remains a major growth opportunity, as we're still early in the installation phase with many of the largest carriers worldwide," CFO Bret Johnsen said on Tuesday's earnings call.

SpaceX's next venture: your phone

The company has recently focused on becoming a mobile provider.

On October 8, SpaceX announced it had agreed to buy a portfolio of low-band wireless spectrum from Grain Management. The deal gives SpaceX a key ingredient that could turn its Starlink satellite-internet provider into a direct challenger to Verizon, AT&T, and T-Mobile.

SpaceX said the spectrum would power Starlink Mobile, which it has described as a hybrid satellite-and-terrestrial network designed to work indoors, outdoors, and in cellular dead zones.

It also comes after SpaceX hinted that it saw itself as a challenger to mobile carriers during its first-ever earnings call in August. The company's president, Gwynne Shotwell, hinted that the company was considering building a "cellular base station on basically the gear that holds the Starlink broadband dish," rather than a ground-based system.

They said the market was worth $600 billion annually.

"I anticipate us to be able to acquire quite a few of their customers," Shotwell said.

During the earnings call, Shotwell said, "The vast majority of mobile connectivity is actually WiFi," an area where Starlink is already well-versed.

"Keep in mind, Starlink broadband does a lot of WiFi work as well," she said. "As far as the mix goes, I think we expect that the S-band spectrum will provide the majority. And then obviously, you need the low-band spectrum, the 800 megahertz spectrum, to basically penetrate buildings. So if you're not on WiFi, you can still receive the signal."

Musk said that there was probably a need for a longer presentation about their Starlink plans.

"I can say we do see a clear path to several hundred billion dollars a year in connectivity revenue," he said. "But I think we should lay — probably describe that in a — in more detail in a forum that's not limited to a few minutes at an earnings call."