TMTPOST -- Tesla Inc. stock shed nearly 4% in extended trading on Wednesday after the electric vehicle (EV) giant posted its highest ever quarterly revenue and a steep decline in earnings, highlighting its profitability pressure amid the ongoing tariff war and intense competition.

Credit：Tesla

Tesla’s top line bounced back from a double-digit decline in the first half of the year. Revenue from July to September surged 12% year-over-year (YoY) to a new quarterly record of $28.1 billion, beating analysts expected $26.36 billion polled by Bloomberg. That was a dramatic rebound given a 12% YoY decrease in revenue recorded for the quarter ended in June, the sharpest quarterly fall in more than a decade.

The record revenue was mainly by an unusual booming EV sales because consumers rushed to buy a car before the $7,500 U.S. federal tax credit for clean vehicles expired on September 30. 

Tesla at the start of this month announced it globally delivered 497,099 vehicles for the third quarter, setting its quarterly delivery record. That represented a 7.4% YoY increase and easily beating the average Wall Street analysts expected around 456,000 units, with the widest margin of beat since the first quarter of 2021. Thanks to the robust delivery, Tesla’s vehicle revenue rose 6% YoY to $21.2 billion, the highest in nearly two years.

Tesla attributed its strong revenue to the increase in deliveries, in part offset by lower regulatory credit revenue. The EV maker sold $417 million in regulatory credits for the September quarter with a 44% YoY decline. The income, hitting the lowest in two years, dropped sequentially for five quarters in a row. The regulatory credit are expected to continue to fade away with the passage of the Trump administration’s budget bill, which eliminated penalties for automakers who exceed emission standards.

Tesla’s bottom line lagged behind Wall Street anticipation with a hefty drop. The diluted earnings per share (EPS) for the third quarter on non-GAAP basis slumped 31% YoY to $0.50 following a 23% YoY decrease three months earlier. That missed analysts estimated $0.54 per share. Adjusted net income fell 29% YoY to $1.77 billion after plunging 23% for the previous quarter. 

Tesla’s gross margin fro the September quarter dropped 1.8 percentage points YoY to 18%, still topping estimates of 17.2%. But auto gross margin excluding regulatory credits down 1.7% points YoY to 15.4%, falling short of estimated 16.3%.

The earnings miss reflected an increase in tariffs, increase in operating expenses driven by artificial intelligence (AI) and other research and development (R&D) projects, increase in restructuring charges and lower regulatory credit revenue, according to Tesla. 

Just like the second quarter, Tesla in its shareholder deck or on its earnings call didn’t provide volume forecast. It in the deck reiterating the challenges in a time of transition.

“It is difficult to measure the impacts of shifting global trade and fiscal policies on the automotive and energy supply chains, our cost structure and demand for durable goods and related services,” Tesla wrote. “While we are making prudent investments that will set up our vehicle, energy and other future businesses for growth, the actual results will depend on a variety of factors, including the broader macroeconomic environment, the rate of acceleration of our autonomy efforts and production ramp at our factories.”

Tesla is facing two major headwinds including the increase in competition and tariffs, Chief Financial Officer (CFO) Vaibhav Taneja on an earnings call told analysts. While the ramp of Gigafactory Shanghai  is helping Tesla avoid tariffs as this factory can supply the non-U.S. demand, tariffs imposed by the Trump administration cost more than $400 million for the third quarter, generally split evenly between the EV business and the energy generation and storage business, Taneja said.