Rising costs and declining revenue from highly profitable regulatory credits strained Tesla’s margins, underscoring that even the EV maker is feeling the cost pressures rippling through the auto industry as President Donald Trump overhauls U.S. policy.
Despite the near-term margin squeeze, Tesla’s hefty valuation still rests on investor expectations that future growth will come from robotics and artificial intelligence, even though vehicle sales continue to generate most of its revenue.
In the third quarter, the company’s costs rose sharply, including more than $400 million in tariffs on auto parts due to Trump’s trade policies, said CFO Vaibhav Taneja.
“The margin compression is the real concern. Higher operating expenses, increased tariffs and lower regulatory credit revenue all hit at once,” said Farhan Badami, market analyst at eToro.
“Tesla is navigating near-term headwinds by cutting costs and managing inventory, but the long-term value story hinges on products that are still some time away from commercial payoff.”Musk’s ongoing pivot to position Tesla as a company focused on robotics and self-driving technology has helped restore some investor optimism.The company is set to lose more than $60 billion of its $1.47 trillion valuation, the largest for an automaker globally, if the losses hold.
The stock was trading at more than 200 times the company’s profit expectations, significantly higher than Big Tech and other megacap stocks.
Tesla’s stock has experienced sharp swings in 2025. The shares dropped as much as 39% through March amid weak demand and political backlash tied to Musk’s ties with the Trump administration, which led to boycott calls.
The stock turned positive this year after Tesla’s board laid out a $1 trillion CEO compensation plan last month for shareholder approval, hoping to incentivize Musk to focus on the company’s growth.
The shares have gained nearly 9% so far this year, although it remains one of the weaker performers among the “Magnificent 7”, a group of megacap technology companies.
Record electric vehicle deliveries helped Tesla beat third-quarter revenue forecasts, driven by a rush among U.S. buyers to secure tax incentives before they expire. However, demand for EVs is expected to fall in the coming quarters as key credits phase out.
To stimulate sales, Tesla recently introduced lower-cost “Standard” versions of its Model Y and Model 3, which cost up to $5,500 less than the “Premium” versions.
