Tesla Q3 Revenue Hits Record as FSD Purchase Rates Decline

In the early hours of today, Beijing time, Tesla released its third-quarter 2025 financial report. Revenue and delivery volumes both hit record highs, gross margin returned to 18%, but GAAP net profit fell by 37%. The report noted that compared to the same period last year, fewer users purchased FSD outright this quarter, impacting two core metrics: quarterly revenue and net profit.

The post-earnings call was particularly notable, with discussions centered on autonomous driving, robots, and the upcoming AI5 chip. Specifically regarding AI and FSD, Tesla proactively disclosed several key data points:

As of yesterday, total FSD driving mileage reached 6 billion miles, with the chart showing exponential growth;

Paid users account for approximately 12% of the total fleet;

As of September, Tesla’s AI equivalent computing power stood at 120,000 H100 chips.

Meanwhile, Elon Musk revealed significant details about the AI5 chip. In certain performance metrics, it is up to 40 times better than the AI4. The AI5 will offer 2 to 3 times better performance per watt than the AI4, and improve artificial intelligence performance per dollar by a factor of 10. Additionally, the AI5 chip will eliminate traditional GPUs and image signal processors (ISPs), freeing up more space for modules such as memory, accelerators, and CPUs.

Tesla's development of AI, FSD, and the AI5 chip currently in development will ultimately be integrated into Tesla's new vehicles and the nearly identical Optimus robot. In Tesla's new vehicle lineup, the long-rumored budget model has been removed, replaced by the standard versions of the Model 3 and Model Y. Next year, Tesla's mass production focus will be on the Cybercab (second quarter), Semi, and Megapack 3. Meanwhile, Tesla will prepare a production line for Optimus prototype products in the first quarter of next year (likely February or March).

It is clear that Elon Musk's product strategy is constantly adjusting in the face of competition in the electric vehicle market, but its unchanging core is AI. As Elon Musk said: "Tesla is indeed the leader in real-world artificial intelligence; no one can do what we do with real-world AI."

01Revenue Hits Record High

In the third quarter of 2025, Tesla's revenue reached USD 28.095 billion, a year-on-year increase of 12 percent, marking the highest revenue quarter in its history. Among this, automotive business revenue was USD 21.205 billion, up 6 percent year-on-year; energy storage business saw rapid growth with revenue of USD 3.415 billion, up 44 percent year-on-year; and service and other businesses generated revenue of USD 3.475 billion, an increase of 25 percent year-on-year.

Among Tesla's three major businesses—automotive, energy storage, and services & other—which one is the most profitable?

According to financial report data, Tesla's overall gross margin for the third quarter of 2025 was 18%. A breakdown shows that the automotive gross margin was 17%, services and other gross margin was 10.5%, while the energy storage business gross margin reached 31.4%.

In the third quarter of 2025, Tesla's net profit saw a significant year-over-year decline, but it remained up on a quarterly basis. GAAP net profit was USD 1.373 billion, down 37% year over year; non-GAAP net profit was USD 1.77 billion, down 29% year over year.

Why did net profit decline so much year-over-year? Tesla cited four main reasons:

Rising R&D, AI, and administrative expenses;

Declining revenue from one-time FSD purchases (no new features were released recently, whereas the same period last year saw a peak in FSD buyouts driven by the launch of Summon and FSD for Cybertruck);

Higher average cost per vehicle (impacted by tariffs and sales mix);

Reduced regulatory credit income.

Meanwhile, in Q3 2025, Tesla’s free cash flow reached USD 3.99 billion, up 46% year over year.

02FSD Paid Users Reach 12%

Recently, Tesla released FSD V14, improving obstacle avoidance, handling emergency vehicles, and smart parking in complex scenarios. This software version also integrates the core model for Robotaxi. Elon Musk stated: 'I am 100% confident that unsupervised FSD will be safer than human driving.'

However, Tesla CFO Vaibhav Taneja noted that FSD paying users remain a small group, accounting for approximately 12% of the total fleet. The term 'paying users' here likely includes both one-time purchase and subscription models. Previously, Elon Musk had stated on X that the FSD option rate was significantly higher than the 2% reported by media outlets.

Charts released by Tesla show exponential growth in total FSD driving mileage. Ashok, head of Tesla's AI software team, revealed during the earnings call that as of yesterday, total FSD mileage had surpassed 6 billion miles.

Regarding FSD in the Chinese market, the earnings report contained only a brief statement: larger-scale updates are prepared but require regulatory approval.

Elon Musk disclosed that version V14 of the software will introduce reasoning capabilities to vehicles. Ashok added that this reasoning capability will run on AI4 or AI5, definitely before the end of this year.

On the topic of FSD reasoning, Elon Musk provided an example of parking in a shopping mall.

Reasoning begins the moment the vehicle enters the parking lot. The car can drop off passengers at the mall entrance, allowing both the driver and passengers to exit, after which the vehicle drives itself to find a parking spot. Because Tesla has a 360-degree field of view, its ability to detect parking spaces is stronger than that of humans.

Elon Musk said, 'This car feels like it is alive.'

Regarding the AI5 chip, which is slated for mass production in vehicles, Elon Musk made bold claims, stating it offers a 40-fold performance improvement over the AI4 in certain scenarios.

During today's earnings call, Musk provided significant details about the AI5. The chip will deliver a 2- to 3-fold increase in performance per watt and up to a 10-fold increase in performance per dollar for artificial intelligence tasks.

He praised Samsung, calling it an excellent company that manufactured the AI4 computers. However, the upcoming AI5 will be co-manufactured by TSMC and Samsung. Production will take place in the United States: TSMC in Arizona and Samsung in Texas. Musk noted that technically, Samsung’s factory equipment is slightly more advanced than TSMC’s.

In terms of architecture, the AI5 eliminates traditional cores such as GPUs and image signal processors. This allows the AI5 chip to fit within half a photomask area, leaving more space for memory, Tesla’s chip accelerators, ARM CPUs, and PCI modules.

Musk also highlighted the difference between Tesla’s custom chips and NVIDIA’s. He explained that NVIDIA faces the challenge of serving a wide range of customers with broad, massive demands, whereas Tesla only needs to serve one customer. Consequently, chip design becomes simpler, allowing for the removal of unnecessary complex components. Musk described the connections between logic blocks inside the chip as akin to highways. While NVIDIA is optimizing an “impossible task,” Tesla is pursuing radical simplicity.

For cloud training, Tesla has combined AI4 with NVIDIA chips and will continue this approach in the AI5 era. However, Musk stated that this does not replace NVIDIA.”

While discussing the AI5 extensively, Musk did not forget owners of the older HW3 hardware. Ashok revealed that Tesla plans to develop a V14 Lite software version for HW3 hardware in the second quarter of next year, enabling older vehicle owners to access new software features. The Tesla CFO mentioned that his daily commute vehicle is equipped with HW3 hardware, emphasizing that the company would not neglect its existing user base.

03Optimus V3 to Launch in Q1 Next Year

Within Tesla's portfolio, robotics is another significant business area. In July this year, LatePost Auto reported that Tesla had paused humanoid robot production and was revising the design.

This information was already indirectly confirmed in the third-quarter 2025 financial report.

Elon Musk first previewed the new Optimus model, with Optimus V3 set to launch in the first quarter of 2026. Regarding this robot, Elon Musk said you would find that V3 doesn't look like a robot, but rather a person wearing a robot suit. "It looks so human that you have to poke it to believe it's a robot."

Meanwhile, Elon Musk has also outlined plans for robot manufacturing. Tesla must achieve a high degree of vertical integration, deeply penetrate the supply chain, and manufacture certain components in-house, as the industry currently lacks an established supply chain.

He said, "If you put yourself in my shoes, I'm now at a robotics startup. Without mass manufacturing technology, I don't know how to do it. Therefore, Tesla is in a unique position."

According to the plan, Tesla intends to prepare prototype products for production in the first quarter of next year (possibly February or March). Tesla will build an Optimus production line with an annual capacity of one million units, hoping to begin production by the end of next year, though there will be a production ramp-up process. By the time of Optimus 4, the annual production will reach 10 million units; in the subsequent Optimus 5 era, annual production is expected to be between 50 million and 100 million units.

At the start of the conference call, Elon Musk stated that Tesla is at a critical turning point as it brings AI into the real world, while also remaining the leader in real-world AI. AI ties together all of Tesla's products—whether FSD, Robotaxi, the Grok smart cockpit, or Optimus—all of which rely on AI as their core. Facing industry competition, although Elon Musk continuously adjusts strategies to keep pace with the times, the core role of AI has remained unchanged.

Written by James Edited by James