Tesla’s Profit Tumbles as Costs Undermine Record EV Sales

Summary

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Bloomberg Intelligence Podcast

Episode: Tesla’s Profit Tumbles as Costs Undermine Record EV Sales
Date: October 23, 2025
Hosts: Scarlet Fu, Paul Sweeney
Key Guest: Steve Mann (Global Autos & Industrials Research Analyst, Bloomberg Intelligence)

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Episode Overview

This episode dives into Tesla’s latest earnings, dissecting the contradiction between record vehicle sales and a dramatic tumble in profits. The conversation, guided by Scarlet Fu and Paul Sweeney, centers on what drove Tesla’s operating profit down 40% despite robust EV deliveries, with expert insights from Steve Mann. The panel explores the implications of Elon Musk’s proposed $1 trillion pay package, Tesla’s aggressive push into AI and robotics, the international landscape for EVs—especially China—and the ongoing tension between the company’s long-term believers and short-term skeptics.

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Key Discussion Points & Insights

1. Tesla’s Earnings Recap: Record Sales, Plunging Profits

(Starts ~01:14)

• Despite a record quarter for vehicle sales, Tesla saw operating profit plunge by 40%—marking the fourth consecutive quarter of falling earnings.
• Steve Mann: “Given the volume of production, you would think that the fixed cost absorption would be higher… but it didn’t happen. Looks like depreciation costs increase for them. Looks like the tariff cost impact is greater than expected. And then even below the gross margin line, the R&D costs went up quite a bit.” (01:56)
• The uptick in R&D, while hurting profitability, signals a ramp in Tesla’s pivot toward “robo taxi,” Full Self-Driving (FSD), and the Optimus robot initiatives.

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2. Elon Musk’s $1 Trillion Pay Package Controversy

(Starts ~02:35)

• Musk used the earnings call to advocate for his massive compensation package, stressing the need for control to achieve Tesla’s ambitious goals.
• Notable Musk quote (messaged by Steve Mann):
  “There needs to be enough voting control to give a strong influence, but not so much that I can't be fired if I go insane.” (02:35)
• Analysts discuss that for Musk, control may outweigh financial incentive, especially given his experience being ousted from OpenAI.
• Proxy advisers ISS and Glass Lewis have recommended shareholders reject the package, which amplifies tension, especially with a large block of index and retail investors.
  • Steve Mann: “It does matter because a lot of the funds out there are index funds. So it does matter what they say and that’s why he needed to address that in the call.” (07:11)

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3. The Battle Between Bulls and Bears: Tesla’s Long-term Vision vs. Near-Term Struggles

(Starts ~03:00)

• Despite weak earnings, the Tesla stock’s resilience points to ongoing investor faith in Musk’s vision—especially around AI and robotics.
• Steve Mann: “There are a lot of people who believe that he can achieve… getting the Optimus robot up and running, getting physical AI going. So there's a lot of believers out there.” (04:00)
• Investors are divided: short-term focused skeptics vs. long-term believers investing in a “physical AI” future.

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4. Current and Future Growth Drivers

(Starts ~04:09)

• Shift in Company Messaging: Musk primarily highlights Tesla’s robotics and autonomy projects instead of cars.
• However, vehicles still provide the necessary cash flow to sustain these speculative ventures.
• Steve Mann: “He needs to sell cars. He needs to continue to sell cars to actually generate the cash to support his endeavors.” (04:39)
• Discussion of potential for even cheaper models, increased international expansion (recent record sales in Japan, South Korea, push into India).

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5. Should Tesla Scale Back Car Production?

(Starts ~05:36)

• Debate: With profitability under pressure, is it wise to keep producing so many cars?
• Steve Mann: “It’s almost like he’s resetting the company to make it look like a startup… but the big difference is he has a huge cash generator which is selling cars.” (05:52; 06:41)

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6. Proxy Fights and Shareholder Control

(Starts ~06:41)

• The outcome for Musk’s pay package is unpredictable, hinging on a mix of institutional and large retail investors:
  • Steve Mann: “It’s going to be tight… There are a lot of individual investors as well, retail investors as well. Those people are focused on the hope three or five years from now he will be able to kind of meet those targets.” (07:11)
• Ongoing speculation about whether legal battles will determine the result if shareholders vote “no.”

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7. Tesla in China: Opportunity and Challenge

(Starts ~07:53)

• China remains a pivotal market, both as a sales opportunity and a competitive battleground.
• Steve Mann: “China is a challenging market. I think a lot of the policy over there, I do favor the local automakers, but look, the Tesla brand is still highly regarded over there, not just by the consumer but their competitors.” (08:01)
• Tesla continues to adapt: introducing longer versions of its vehicles to match local tastes, awaiting regulatory approval for FSD.
• Chinese competitors watch Tesla closely, especially regarding autonomous technology.

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Notable Quotes & Memorable Moments

• Steve Mann on R&D spending:
  “That could be viewed as a good thing because that’s a sign they’re pivoting to the robo taxi, the FSD and the Optimus robots.” (01:56)

• Elon Musk’s rationale for his compensation/control (via Steve Mann):
  “There needs to be enough voting control to give a strong influence, but not so much that I can’t be fired if I go insane.” (02:35)

• On why vehicle sales still matter:
  “He needs to continue to sell cars to actually generate the cash to support his endeavors… Cars is still going to be important. I think the other half an investor knows and that’s why the stock is down today.” (04:39)

• On the company’s evolving narrative:
  “It’s almost like he’s resetting the company to make it look like a startup… The big difference between now and 10 years ago is that he has a huge cash generator which is selling cars.” (05:52)

• On China:
  “Tesla brand is still highly regarded over there, not just by the consumer but the, you know, their competitors, the BYDs, the Xpeng.” (08:01)

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Important Timestamps

• [01:14] Episode shifts to Tesla earnings and Steve Mann analysis begins
• [01:56] Profit plunges and cost breakdown
• [02:35] Musk’s $1 trillion pay package plea and control concerns
• [03:00] Investor sentiment: Bulls vs. Bears
• [04:00] Faith in Elon Musk and AI projects
• [04:39] Growth drivers: cars vs. robotics, cash flow needs
• [05:36] Discussion on scaling production; Tesla as “startup v2.0”
• [06:41] Proxy battles and the influence of big shareholders
• [07:53] China’s strategic importance and Tesla’s adaptation there
• [08:01] Tesla's brand status in China and competitive dynamics

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Summary & Conclusions

The episode provides a nuanced look at Tesla’s current crossroads:

• Intense pressure on profitability even as vehicle sales hit new highs
• Escalating R&D for breakthrough projects in AI and robotics, requiring heavy near-term investment and ongoing car sales
• Elon Musk’s drive to secure ironclad company control through a record-breaking pay package, splitting opinion among key stakeholders
• China as a simultaneously promising and fraught market
• Ultimately, Tesla’s valuation and investor faith appear to hinge not on present-day EV metrics, but on the longer-term promise of physical AI, autonomous vehicles, and Musk’s ability to deliver on bold futuristic ambitions.

For listeners seeking an in-depth but accessible breakdown of Tesla’s financial pivot and strategic identity crisis, this episode is essential.

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Transcript

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Bloomberg Audio Studios podcasts Radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomb Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's bring in Steve Mann, Bloomberg Intelligence Global Autos and Industrials Research Analyst. To recap Tesla earnings help us look ahead for this company. Steve Record quarter vehicle sales which we knew, but operating profit plunged 40% and we're now looking at a fourth straight quarters of falling earnings and no real sign that that's going to turn around anytime soon either.

[E]

Yeah, it was quite a surprise. Given the volume of production, you would think that the fixed cost absorption would be higher this quarter than in the past, but it didn't happen. Looks like, you know, looks like depreciation costs increase for them. Looks like the tariff cost impact is greater than expected. And then even below the gross margin line, the R and D costs went up quite a bit. That could be viewed as a good thing because that's a sign they're pivoting to the robo taxi, the FSD and the optimist robots.

[F]

Elon Musk, I guess towards the end of the call made a plea for investors to approve his $1 trillion pay package. This is from Elon. There needs to be enough voting control to give a strong influence, but not so much that I can't be fired if I go insane. Mr. Musk said. How did that go over on the call here and what's the thinking among investor community about what may be a $1 trillion pay package?

[E]

Yeah, I'm not sure if money is important to him. He does have a lot already. So I do believe that it's more about the control of the company. Look, Tesla doesn't have the dual class shares like some of the tech companies have. So he does have that fear of getting pushed out. And you know he had that experience, right, with OpenAI. You know, he's one of the initial investors in OpenAI and he got pushed out. So he, he does have the concern. It is his baby. Look, the stocks, you know, the other thing is the stock hasn't reacted, you know, too negatively to the weak earnings that we saw in the last quarter. Right. There's, there's a battle happening between the bulls and the bears, the long guys versus the near term investors. And there are a lot of people who believe that he can achieve.

[G]

Getting.

[E]

The Optimus robot up and running, getting physical AI going. So there's a lot of believers out there.

[A]

There's a lot of believers. And what the company actually reports, especially when it comes to his vehicle sales, almost doesn' based on this idea that Elon Musk will steer the company in the right direction eventually maybe because you know, the robotaxis which are, you know, in operation, but these self driving vehicles, the humanoid robots, those are going to take a couple of years to pan out if that. We don't have any details on it. So in the meantime. Yeah, what, what is the growth driver for this company?

[E]

Well, you know, he definitely in the call, he, you know, he doesn't talk about cars a lot anymore other than Robo Taxi and fsd. He's very focused, physical AI. But at the end of the day, right, and I think that's why the stock is still down a little bit is that, you know, they, he needs to sell cars. He needs to continue to sell cars to actually generate the cash to support his endeavors. Now he has launched cheaper vehicles. It'll be better, it would have been better if he is offering even a cheaper model like something under 30,000 that you know, he, we talked about in the past. He is expanding overseas. Right. He had, you know, record sales in countries like Japan and South Korea. Now he's going Into India. Big market, big market. So cars is still going to be important. I think the other half an investor knows and that's why the stock is down today.

[F]

One could argue that they should produce less cars, fewer cars. I mean, why produce something if you're not making money on it when in the end of the day this is effectively, one could say, just a holding company for R and D for the other businesses.

[E]

That's an interesting question. I think, you know, if we step back and think about Tesla, it's almost when you listen to Elon Musk, it's almost like he's resetting the company to make it look like a startup. Right. But the big difference is, the big difference between now and 10 years ago is that he has a huge cash generator which is selling cars. Right. So I think that's something and also on the investors mind, on the bullseye that hey, you know, we're investing on this company for the long term, this physical AI that nobody's really doing to the extent they are. And now the big difference is that there's a very low risk of it going bankrupt like it did, you know, when he was starting the car business.

[A]

Yeah, it's far from a startup. Now you mentioned how Elon Musk, you know, spent some time talking about his pay package, his $1 trillion pay package, which is over the long term and involves him meeting a lot of ambitious targets. ISS Institutional Shareholder Services as well as Glass Lewis. These proxy advisors have recommended that investors reject this payout. Does that matter? I mean, are their votes are binding in any way or is this going to end up in the courts and Musk is going to get his way?

[E]

It does matter because a lot of the funds out there are index funds. So it does matter what they say and that's why he needed to address that in the call. But it's going to be tight, it's going to be up in the air tight because there are a lot of individual investors as well, retail investors as well. Those people are focused on, you know, the hope three or five years from now they he will able to kind of meet those targets. Have a viable optimus robot and a lot of robo taxis, you know, running around its own across the country.

[F]

What is, what is Elon and the company saying about China both as an end market and as a competitor globally?

[E]

Yeah, China is, is a challenging market. I think a lot of the policy over there, I do favor the local automakers but look, the Tesla brand is still highly regarded over there, not just by the consumer but the, you know, their competitors, the BYDs, the Xpeng. Right. A lot of those companies, you know, when they're looking at autonomous vehicles, autonomous technology, they are benchmarking Tesla. So and Tesla, you know, I think is being nimble as well. They launched the longer version of Model Y that works over there because if you look at, you know, the other foreign like BMW, Mercedes, GM and the likes, they have introduced extended version of their vehicles that they sold that they sell over there and it resonates with the consumer there. So you know it's there. They're still kind of work in progress over there. They're watching the market is changing very rapidly. They're still and they're still waiting for a official approval of the fsd, which I think it will resonate well with the consumers and it has so far from beta testers.

[F]

Stay with us. More from Bloomberg Intelligence coming up after this.

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[D]

So the verdict here Scarlett, is it was a little bit of a mixed quarter for them. If you look at what AT&T reported yesterday, the trends at T Mobile really mirrored what we saw out of AT&T, which is subscriber growth was up, that was strong. Pardon me, but pricing was a little bit weak and so that tells everyone it's a promotional environment. Right now I think probably the iPhone 17 had something to do with it. It's actually turning out to be a pretty strong cycle for that upgrade. And of course when you go out to buy a new phone, people always think about switching carriers. So it boosts switching activity. The carriers all promote to protect their base and Verizon hasn't reported yet. Well we can talk about that a little bit more. But they have a new CEO and so the grand concern in telecom land right now is that the new CEO of Verizon, if they lose share to AT&T and T Mobile, they're going to get their dukes up and start to promote for the first time in a while and that's bad overall for the industry.

[F]

So what's the T Mobile marketing positioning right now for within a very competitive wireless business? John?

[D]

So good question Paul. They are, you know, for years they sort of leaned into this consumer friendly brand. You know, where are the guys that were the UN carrier, that is their tagline. And you know they've done a very good job promoting a very strong brand image. They're now a lot larger and I think what they're doing is starting to lean a lot more on their network quality. They've done a great job over the past three to five years of really upgrading that network. Since they bought Sprint they got a ton of mid band spectrum which is terrific for download speeds. And so they're laying in coverage with that and they're getting, as that coverage expands, they're getting a great high capacity footprint and so network performance has improved a lot. And I think they're leaning heavily into that now to promote the brand.

[A]

You mentioned Verizon has a new CEO. T Mobile also has a new CEO coming up soon. CEO Mike Sievert is stepping down on November 1st, so in a week and the CEO, Srini Goplan will take over. How is he going to put his mark on this company?

[D]

I'll tell you, Mike is a tough act to follow. People were all listening for any sort of a change in strategy this morning because Srini ran the call, which I think was wise. Mike Sievert was on the call as well because he's still in that seat until November 1st, as you said. But Srini ran the call and I really didn't hear anything different from him. I think they've got a winning formula going right now and I think they're going to lean into that. One thing, Scarlett, that you mentioned at the beginning in the intro is broadband, and I think that's an area where T Mobile has been lacking a little bit, specifically on the fiber side. And on the call they mentioned the potential for further M and A, and I think if they were to buy any companies going forward, it would be in the realm of fiber broadband. So if, if Srini does anything different, it'll be to step up M and A on the fiber front.

[F]

Stay with us. More from Bloomberg Intelligence coming up after this.

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Complete disclosures [e-mail] Disclosures Every business starts with an idea. How can you go from daydreamer to industry leader? Amazon Business accelerates your journey with smart business buying. Get everything you need to grow in one familiar place. From office supplies to IT Essentials and Maintenance Tools Amazon Business takes the buying experience you know and love from Amazon plus tools that help you save costs and make insights based decisions ready to bring your visions to life. Learn how at Amazon Business.

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You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk about airlines because two more airlines just reported results. American Airlines flying high and then luv Southwest.

[F]

Do you know why the ticker is luv? No, I don't because they initially they flew out of Love Field in Dallas.

[A]

Makes sense. Yes, they are based there. Well, let's bring in our own George Ferguson. He is Bloomberg Intelligence Aviation Analyst and of course he also covers the defense sector and the aerospace sector to give us a little more insight onto what he sees. American is different from Delta and United in that it is much more domestically focused. So we get a better read of how much people are spending to fly inside the US Whether it's for leisure travel or business travel.

[C]

Yeah. And so from American, you know, what we saw actually in the third quarter was pretty similar to be honest, to what United showed us. And I'm talking about sort of yields, price paid per mile flown by their customers. Americans a very important domestic provider of travel. So you know, I would say that I wasn't super impressed with what I saw in 3Q. I think the flying high is about all about what American is guiding to in 4Q. A sizable, a sizable bump. And you know, when we look at some of the domestic capacity trends for 4Q, we see a market that's probably going to see see growth of around one and a half percent or so, which seems for the first time in a while roughly in balance with where the economy is growing. So something like that should support Americans earnings in 4Q. I mean it's still some of their guidance seems a little aggressive to me, but I guess sort of Given the backdrop of supply and maybe some of Americans initiatives as they try to retake some of the market share that they had previously maybe seems more feasible than other other guidance we've seen.

[F]

How about Southwest Georgia? They're starting to charge for lots of stuff like bags and different seats and all that kind of stuff, which they had not done previously. That had kind of been their core marketing strategy. Were the kind of the bare bones guys. What are they seeing in their business?

[C]

Yeah, you know, I just got off the Southwest call and my head hurts. So there's a lot of initiatives going on here.

[B]

Right.

[C]

And like you said, we're, you know, we're going from an airline here that was bare bones, bags fly free, blah, blah, blah. You know, you keep, you know, there's no breakage in your, I think, you know, frequent flyer miles and if you buy a ticket, you can't use it. There's no expiration of your credit. Now we're going to change everything. Right. And so the call's full of a lot of discussion about how the initiatives in 2026 are going to add a billion here, you know, from premium seating and 700 million there. So there's a lot of big numbers being thrown around. You know, I think the, I think the marketplace is a bit challenged to get its head around, you know, whether or not all of these really roll through the bottom line for Southwest. But what I will say is I think there's some pretty strong opportunity at Southwest given I think they have a pretty loyal brand following. And as they roll out some of the initiatives you're seeing at the full service carriers like United, American and Delta, as they roll out initiatives like branded credit cards, improving the loyalty program, they even talking on this call a little bit about hub cities and, and lounges which, you know, just kind of again, through my, blew my mind, there is, I think an opportunity for them to monetize all of that as they turn into something that looks a lot more like a full service carrier. The question is on timeline. My guess is there's a, there's a decent timeline is as they sort of retrain their customers. But, but I think, you know, in 4Q they have some pretty aggressive bounce back inside their guidance as well. And I think the Street's just kind of trying to get its head around really how much of these initiatives are going to come to fruition and for you.

[A]

So when it comes to Southwest, the activist investors really pushed it to change its business model from this one size fits all kind of offering. There was no checked bag fees? No. Prepaid seat assignments. Does this set of results kind of get that, that pressure off its back?

[C]

No. So I would say 3Q results would not. I thought 3Q they did okay. You know, their expenses came in a bit better than we expected. Their revenue is pretty similar, I think nothing impressive. 3Q is generally kind of, I think blah across most of the airlines. It wasn't that exciting. There's a lot more sort of built into 4Q and beyond. So no, I don't, I don't know that this necessarily gets Elliott sort of off their back.

[F]

Right.

[C]

I think they've got a lot of initiatives to perform on to keep, to keep Elliott happy, shall we say?

[F]

Stay with us. More from Bloomberg Intelligence coming up after this.

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You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is, you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there. Plus an industry leading 3.8% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc. Member Finran Sips Crypto Trading Provided by Bakkt Crypto Solutions LLC Complete disclosures available.

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[F]

Look at what's happening in the cloud. We'll get some more cloud tech news coming. AI adoption in video games can push Microsoft, Sony, Nvidia to kill the console. How about a headline like that? Nathan Naidu joins us here. He is the Bloomberg Intelligence Technology Research Analyst. Talk to us about the cloud and what that means for the gaming business. I'm not going to have to go out and buy any more gaming consoles.

[G]

Well, not for the long term. Thanks for that lead, Paul. I feel like I owe everybody an explanation when I use word like kill. Because really in the 10 years that could actually happen like what I meant if I were to unpack that comment a little bit, that headline consoles will decline gradually and that's what I mean. And kind of remaining over the long term as a niche device for loyal fans, the really hardcore gamers as advancement in cloud infrastructure and we see what's happening with data centers as well as a wider spread of mobile gaming, playing games on mobile devices, whether smartphones or tablets, as that gain widespread and people become less interested in playing games at an unportable gaming hardware that's stuck at home or living room. If they can do so and have the same experience on a mobile device, why not? Right?

[F]

So where are we in kind of that evolution in terms of really putting more and more of the content of the technology, of the capabilities in the cloud? How is that changing the gaming experience, the gaming business?

[G]

Yes. So the key pain point to cloud gaming is network latency because that literally depends on the distance between the user's hardware, whether a mobile device or a console to the nearest cell tower. And we know that 5G network coverage are improving not just in emerging markets, but also becoming better in even developed markets including China and the U.S. and so as that infrastructure and also cloud improve because the proximity to data centers also is a factor in determining the experience of cloud. So far in emerging market there is a pain point, but we're seeing really huge uptick in coverage footprint whether 5G or 4G LTE in markets like India and Middle east and Latin America. So that just support our conclusion that in the next 10 years that experience at pain point would become better. And also let's not forget that mobile phones, mobile screens capture a lot of our attention economy. Actually there is a study according to Harmony Healthcare it that it captures more than five hours of our time averaged every day and about 20% of those time actually go to gaming among Generation Alpha and Generation Z and they are the bulk of the gamers. And also these gamers don't really care about playing games at home anymore if they can play around play on mobile because what they care about is access and also being able to do things on their mobile devices. So I feel like with this generation coming up and entering into the workforce and they are the one who would see spending power increasing and I feel like there's a lot less inclination to actually play games on a console if 10 years down the line you can have the same experience playing games on a mobile on a mobile device.

[A]

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