Tesla’s Q3: R&D Jumps 69% to $2.76B as FSD Subscriptions Hit 1.74 Million

Tesla reported a mixed third quarter on October 21, with total revenue of $28.05 billion. Automotive revenue fell 3% year over year to $20.56 billion and energy revenue declined 16% to $2.88 billion, while services and other revenue rose 33% to $4.61 billion, offsetting part of the weakness in the core vehicle business. Net income attributable to common shareholders fell 29% to $787 million, and operating profit declined 56% year over year to $718 million — though that was up from $398 million in the second quarter, helped by a one-time tariff refund.

The spending story is the quarter. Research and development expenses jumped 69% year over year to $2.76 billion, an increase of $1.13 billion that was more than twice the roughly $440 million increase in gross profit. Tesla attributed the R&D rise largely to AI development and related programs, including Optimus humanoid robots, silicon development, battery technologies and new vehicles, plus higher stock-based compensation. The company separately expects more than $20 billion in 2026 capital spending, including computing infrastructure, data centers, manufacturing facilities and other long-lived assets.

Two numbers cut against the profit decline. Automotive gross margin actually improved from 17% to 18.5% year over year, and companywide gross profit rose about 9% to $5.49 billion — so the margin squeeze was a spending story, not a pricing collapse. And Full Self-Driving subscriptions rose 67% year over year to 1.74 million, with FSD Supervised adoption up 20 percentage points from the second quarter. Tesla plans to give some customer vehicles access to its forthcoming FSD Unsupervised system around the second quarter of 2027. Investors are being asked to judge whether that software and robotics bill is an investment or a cost — and Q3 did not settle it.