Tesla's third-quarter earnings report showed staged progress across its autonomous driving, energy storage, and robotics businesses, with gross margins also beating expectations. However, persistently elevated operating expenses, weaker-than-expected profitability, and a still-distant commercialization timeline have kept major Wall Street investment banks on the sidelines. The company, valued at $1.6 trillion, is facing an increasingly thorny dilemma: the story keeps getting bigger, but the valuation is becoming harder and harder to justify.

Tesla's third-quarter revenue came in at $28 billion, with EBIT of just $718 million, far below the expectations of Goldman Sachs and Morgan Stanley, with higher-than-expected operating expenses as the main drag. Although non-GAAP diluted earnings per share of $0.48 slightly beat expectations, Goldman Sachs has already cut its 2026 to 2027 EPS forecasts, citing persistently rising operating costs. On the stock price front, Goldman Sachs maintained a neutral rating and a $360 target price, implying roughly 7% downside from the current share price; Morgan Stanley also maintained a neutral rating with a $400 target price; and JPMorgan tagged the stock with a neutral rating.

The three major investment banks rarely reached a consensus: the progress is real, but the valuation is already fully priced in, or even overly rich.

Even so, the bright spots in the earnings report cannot be overlooked. North American FSD take rates on new vehicles rose from 55% in the second quarter to over 75%; fully driverless Robotaxi cumulative miles jumped from 1 million to 3.1 million in just a few weeks; the energy storage business gross margin climbed to 33.1%, and Megapack backlog orders hit a record high. These data points provide genuine support for Tesla's long-term narrative and form the underlying logic behind why most analysts have not completely abandoned the stock.

Gross Margin Surprise, Profit Narrative Stalls

Tesla's third-quarter overall gross margin was 19.6%, comprehensively beating expectations across the board — Goldman Sachs forecast 18.5%, the company's compiled market consensus was 17.9%, and the FactSet figure was 17.5%.

Among the segments, automotive gross margin (including stock-based compensation and excluding regulatory credits) reached 18.1%, beating Goldman Sachs's forecast of 16.3%; energy storage gross margin hit 33.1%, also sharply above Morgan Stanley's forecast of 26.5%; and services gross margin reached 15.9%, a record high.

However, the gross margin beat was offset by out-of-control costs. Third-quarter EBIT was only $718 million, clearly below Goldman Sachs's forecast of $1.043 billion and Morgan Stanley's forecast of $526 million; R&D expenses were $2.761 billion, about 11% above Morgan Stanley's estimate. Management explicitly stated that to support the expansion of AI and energy businesses — including Optimus, Robotaxi, and Megapack — operating expenses and capital expenditures will continue to grow quarter over quarter.

Goldman Sachs promptly cut its 2026 to 2027 EPS forecasts, revising them down from $0.82 and $1.75 to $0.67 and $1.60, respectively, while slightly raising its 2028 forecast to $2.50.

JPMorgan also took a cautious stance. Based on the current share price, the 2028 forward P/E ratio remains as high as 154 times, and free cash flow yield is negative in both 2026 and 2027, meaning investors need to pay an extremely high premium for a distant future.

Robotaxi and FSD: Milestones Accelerating, but Commercialization Still Early

Robotaxi was the most closely watched business development of the quarter. As of October 18, Tesla's fully driverless Robotaxi cumulative miles reached 3.1 million, more than tripling from about 1 million on September 3, with a weekly growth rate of roughly 20%, exceeding the upper end of Goldman Sachs's prior forecast range of 2 to 3 million miles.

According to Goldman Sachs research, since Tesla began fully unsupervised operations on January 22, 2026, there has been an average of one accident approximately every 100,000 miles (regardless of fault or severity); by comparison, Waymo averaged one accident every 180,000 miles between July 2025 and August 2026, and recent data has reached one every 360,000 miles. The gap still exists, but Tesla's pace of improvement cannot be ignored.

On geographic expansion, management said Cybercab has already begun operating in Austin and is expected to launch in Dallas next month; San Antonio and Jacksonville were added to the list of subsequent expansion cities, while previously announced Phoenix and Las Vegas are also moving forward.

FSD active subscription users reached 1.74 million, up 67% year over year; full EU-wide approval is expected as early as December 2026, and management aims to secure unified EU approval before the first quarter of 2027. Despite the positive progress, Goldman Sachs believes pressure from competitors such as Waymo should not be underestimated and lists competition in the autonomous driving space as one of the main downside risks.

Optimus: A More Conservative Pace Than the Market Expected

The humanoid robot Optimus was another highly scrutinized topic this quarter.

Musk confirmed on the earnings call that Optimus has begun mass production at the Fremont factory, but his description of the production ramp was quite cautious — targeting 10,000 to 20,000 units within 12 months, below some of the previously optimistic market expectations. This batch of robots will first be used internally at Tesla's Tesla Academy for self-training and data generation. Commercial sales to external customers are targeted for the end of 2027, with consumer-facing applications even further out.

Musk described Optimus's production ramp as an "S-curve," emphasizing that it requires "ten thousand things to go right at the same time," with the slowest component or process determining the overall ramp pace. He singled out the hand (dexterous hand) as the biggest current hardware bottleneck, noting that achieving human-level dexterity and long-term reliable operation remains a challenge.

On the computing side, Tesla plans to integrate its next-generation AI5 chip into Optimus by April 2027. According to management, the chip's computing power is roughly 10 times that of the current AI4 chip, which will significantly enhance complex behavior capabilities.

According to JPMorgan research, its stance on the entire humanoid robot supply chain has therefore become more cautious, and it remains wary of expectation revision risks facing Unitree, Estun, and UBTech over the next one to three months.

Energy Storage and Vehicle Demand: Substantive Bright Spots

Among the core businesses easily overshadowed by the AI narrative, energy storage and vehicle demand actually provided convincing fundamental support.

The energy storage business gross margin was 33.1%, a sharp sequential improvement; management said Megapack capacity is "almost sold out for 2027," and energy business backlog orders hit a record high. The Texas Megafactory has begun production.

Notably, third-quarter energy storage revenue of $2.881 billion was below Goldman Sachs's forecast of $3.749 billion, with management attributing part of the gap to tariff refunds to energy customers; Goldman Sachs said it will continue to track ASP (average selling price) trends and the pricing environment.

On vehicle demand, management said passenger vehicle backlog is at a four-year high, with record deliveries achieved in Canada, Australia, Japan, and Taiwan, and Tesla Semi also entering production. Goldman Sachs raised its 2026 to 2028 delivery forecasts to 1.84 million, 1.95 million, and 2.03 million units. On the supply chain side, battery availability remains one of the limiting factors for the global production ramp, but the company is advancing related capacity construction in Berlin, Texas, and Nevada.

Valuation "Fully Priced In"

Despite the bright spots in business progress, mainstream Wall Street institutions remain highly aligned on Tesla stock.

Goldman Sachs maintained a neutral rating with a 12-month target price of $360, based on a 150 times P/E multiple applied to EPS forecasts for the next five to eight quarters (including stock-based compensation), implying roughly 7% downside from the current share price. Morgan Stanley maintained a neutral rating with a $400 target price; its valuation model includes $44 for the core automotive business, $145 for network services, $120 for Tesla Mobility, $35 for energy storage, and a discounted $56 value allocation for humanoid robots, already reflecting long-term option value quite fully.

Goldman Sachs explicitly stated that the current valuation "is full," that profitability and free cash flow will remain under pressure in the near to medium term, and that the magnitude and pace of EPS improvement will be constrained by competitive pressure across multiple areas. Tesla's 12-month share price performance relative to the S&P 500 has underperformed by about 24% over the past year, reflecting the market's continued digestion of the premium while waiting for execution.

In addition, Goldman Sachs said Tesla's CEO mentioned on the earnings call that SpaceX disclosed on its October 20 earnings call that SpaceX and Tesla have each established special committees composed of independent directors to discuss a potential business combination. This disclosure adds a new variable to Tesla stock, but with limited information currently available, major institutions said they will continue to track it and have not yet incorporated it into their valuation frameworks.