Prof G Markets – Episode Summary

Episode: Tesla Profits Plunge 37% Despite Record Sales — Here’s Why

Date: October 23, 2025
Hosts: Ed Elson
Guests: Tim Higgins (Wall Street Journal columnist), Luke Kower (Sherwood News markets editor)

Overview

This episode of Prof G Markets focuses on two major topics shaking up financial markets:

1. Tesla's Q3 earnings report—why profits plunged despite record sales, and what it means for the company’s future.
2. The latest meme stock craze, featuring Beyond Meat’s wild stock surge and crash, and the broader phenomenon of meme stocks.

Financial market news is broken down with the show's signature blend of blunt analysis and a touch of irreverence.

Tesla’s Earnings Breakdown and Market Reaction

Key Discussion Points & Insights

[01:56-10:22]

• Tesla's Q3 2025 Earnings Highlights:
  • Record quarter for deliveries as customers rushed to take advantage of expiring US EV tax breaks.
  • Revenue up 12% YoY, deliveries up 7%, highest auto revenue in nearly two years.
  • Shock Figure: Net income down 37%, attributed to lower EV prices and increased operational costs.
  • Tesla missed on earnings per share (EPS) estimates; after-hours stock fell 4%.

Main Drivers of the Profit Drop

• Reduced Regulatory Credits:
  • Tesla's ability to sell emissions credits to competitors is “kind of evaporating.” (Tim Higgins, 04:22)
  • These credits have been a significant profit source; expected to dwindle further in coming quarters.
• Tariffs and Rising Costs:
  • Geopolitical trade tensions have increased Tesla’s operating expenses.
• Tax Credit Expiration:
  • A “huge bump” in sales was driven by US buyers hurrying to claim tax breaks before they were removed under new Trump administration policies (03:21-06:28).
  • Tim Higgins warns, “You have to kind of ask yourself, is this as good as it’s going to be for a while... given they don’t have a lot of new vehicles in the pipeline?” (03:21)

Market and Investor Sentiment

• Deliveries are solid, but much credited to the expiration of subsidies rather than underlying demand.
• The product lineup (“old in the tooth” — 06:28) is aging; the Cybertruck failed to create new excitement.
• Tim Higgins: “People want new, and the Model Y and the Model 3 for all intents and purposes are old… people want new things every couple years. And that’s one of the challenges that Tesla has.” (06:33)

Tesla’s Big Bets & Future Direction

• Next big launch: the robo-taxi — but with practical uncertainty.
• Some investors are “willing to grin and bear it here for the next few quarters as Musk has suggested. It could be a little rough as they make this incredible transition from being a car company to… a robot company.” (07:38)
• Notably, cash reserves are healthy, crucial due to the high costs anticipated for AI and automation R&D.

Industry Context: Tesla vs. GM

• GM “flushed the bad news” by absorbing EV-related losses up front and raising forward guidance, which markets cheered. (09:07)
• Both companies grappling with a slower-than-expected EV market.

Valuation and The Musk Question

• GM trades at 9x earnings; Tesla at 236x — premised on expectations that Tesla will “be a dramatically different company going forward—a robot company… a humanoid robot maker.”
• “You’re probably also thinking about what’s that future with or without Elon Musk… his pay package comes up for a vote at the shareholder meeting next month. That’s really the big thing… is kind of getting that uncertainty taken care of.” (09:50)

Notable Quotes

• On the profit collapse:

  “Profit fell something like 37% in the third quarter. Not as good as Wall Street was hoping for. And you have to kind of ask yourself, is this as good as it’s going to be for a while when it comes to Tesla, given they don’t have a lot of… new vehicles in the pipeline in the near term?”
  – Tim Higgins, 03:21

• On product strategy and demand:

  “People want new, and the Model Y and the Model 3 for all intents and purposes are old… in the car making business, people want new things every couple years.”
  – Tim Higgins, 06:33

• On future vision and investor mindset:

  “If you’re an investor in Tesla and a long-term investor… you are making a bet that it’s going to be a dramatically different company going forward—it’s going to be a robot company.”
  – Tim Higgins, 09:50

Meme Stock Mania: Beyond Meat’s Wild Ride

Key Discussion Points & Insights

[12:47-23:55]

Beyond Meat’s Turbocharged Stock Rally

• Shares soared 1,300% in four days after a debt-for-equity swap, then crashed so rapidly the NASDAQ halted trading.
• The initial rise was linked to a retail trader’s thesis that eliminating debt, high short interest, and new share issuance would trigger a price spike.
  • “Anything can happen… there’s really nowhere to go but up from here.” (Luke Kower, 14:34)
• Online hype, especially from Reddit and Discord, drove the run-up. The original Reddit user who sparked the craze has since been banned.

Anatomy & Lifecycle of a Meme Stock

• Key Features:
  • “It’s a lot easier to be a meme stock if you’ve effectively crashed” because of nostalgia and the “second chance” narrative. (17:04)
  • Heavily shorted with a low share price makes manipulation easier.
  • Prominent online figure makes a strong case, attracts a cohort.
  • Buyer’s binges (not just short squeezes)—demand outpaces short interest.
  • “For a buyer’s binge to continue… it bears a lot of resemblance to Ponzi finance… you need an increasing amount of buyers in demand to keep the price going up.” (Luke Kower, 17:04)
• The ultimate test: Can the company turn meme enthusiasm into lasting performance or capital? Example: GameStop used the meme rally to strengthen operations and pivot.
• Best-case: Meme-primed share price enables fundraising or strategic M&A; worst-case, bag-holders and a brutal crash.

Meme Stock Communication Channels

• Wall Street Bets (Reddit) remains highly influential but is not alone—Discord, international message boards, and social media play key roles.
• “Word gets out by someone having a strong, well-argued thesis that strikes a chord with people…”
  – Luke Kower, 21:50
• Online groupthink and “us vs. them” dynamics, especially among young, risk-taking traders.

Institutionalization of Meme Stocks

• Memes are now mainstream: “These movements are so common and so institutionalized that they are really now part of the system.” (Ed Elson, 23:56)
• Hedge funds track retail buying, some hire meme stock specialists, and meme stock ETFs now exist.
• “What started as this anarchical movement against the system is now a regular feature of the system. They are so frequent that they’re almost boring… Meme stocks are here to stay.” (Ed Elson, 23:56)

Notable Quotes

• On meme stock cycles:

  “Having a previous backstory of any kind of success… that’s usually a good prerequisite… The second is you do have to get beaten down a fair bit.”
  – Luke Kower, 17:04

• On meme stocks in 2025:

  “They are so frequent that they’re almost boring. Which begs the question, what is the point of meme stocks anymore? … Are they just instruments for alpha? A gambling habit for the terminally online?”
  – Ed Elson, 23:56

Timestamps of Key Segments

• [01:56] – Tesla Q3 earnings headline breakdown
• [03:21] – Record sales, but profits plunge; why this matters
• [04:22] – Regulatory credits drying up and impact on Tesla profits
• [06:33] – Old lineup, failed Cybertruck, and hunger for new models
• [07:38] – Investors betting on robotics, AI, and Musk’s vision
• [08:56] – Tesla vs. GM: contrasting EV strategies
• [09:50] – Tesla’s sky-high valuation and questions about Elon Musk’s future
• [14:34] – Beyond Meat meme surge breakdown
• [17:04] – Meme stock lifecycle explained
• [21:50] – Anatomy of meme stock proliferation online
• [23:56] – Meme stocks’ shift from rebellion to mainstream

Tone & Takeaways

Blunt, data-driven, but wryly self-aware, the episode underscores the volatility and unpredictability of modern capital markets—whether it’s industry giants like Tesla facing hard realities or meme stocks now woven deeply into the financial fabric. Both situations, the hosts argue, reflect a market where narrative, psychology, and online communities often move stocks as much as fundamentals.

For Tesla Investors:
Short-term pain and mounting uncertainty, but cash reserves and long-term ambitions remain. The company’s transformation into a robotics powerhouse is a high-risk, high-reward proposition—much depends on Musk’s continued leadership and execution.

For Everyday Traders & Observers:
Meme stocks are no longer rare underdog phenomena but a persistent (and arguably institutionalized) feature of modern markets—a far cry from the early days of “sticking it to Wall Street.”

Produced by the Prof G Markets team; summary by AI Podcast Summarizer.