Rising costs and declining revenue from highly profitable regulatory credits are squeezing Tesla’s margins, underscoring that even the EV maker is feeling cost pressures rippling through the auto industry as President Donald Trump overhauls U.S. policy.
Despite the short-term squeeze, Tesla’s hefty valuation still rests on investor expectations that future growth will come from robotics and artificial intelligence, even as car sales continue to generate the bulk of 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, CFO Vaibhav Taneja said.
“Margin compression is the real concern. Higher operating costs, higher rates and lower revenues from regulated lending have all been hit in one fell swoop,” said Farhan Badami, market analyst at eToro.
“Tesla is trying to address short-term headwinds by cutting costs and managing inventory, but its long-term value story depends on products that are still some time away from commercial payout.” global automaker, if losses persist.
The stock traded at more than 200 times the company’s earnings estimates, significantly higher than Big Tech and other mega-cap stocks.
Tesla shares have seen sharp swings in 2025. Shares fell as much as 39% in March due to weak demand and political backlash related to Musk’s ties to the Trump administration, leading to calls for boycotts.
The stock turned positive this year after Tesla’s board proposed a $1 trillion CEO compensation plan for shareholder approval last month, hoping to encourage Musk to focus on growing the company.
Its shares are up nearly 9% so far this year, though it remains one of the weaker performers among the “Magnificent 7,” a group of mega-cap tech companies.
Record deliveries of electric vehicles helped Tesla beat third-quarter revenue expectations, driven by a rush among U.S. buyers to secure tax breaks before they expire. However, demand for electric vehicles is expected to decline in the coming quarters as key credits phase out.
To boost sales, Tesla recently introduced cheaper ‘Standard’ versions of its Model Y and Model 3, costing up to $5,500 less than the ‘Premium’ versions.
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