Tesla’s Most Boring Business Upstages Entire Company

Tesla (NASDAQ:TSLA) stock declined in pre-market trading on Thursday after the company released its third-quarter earnings report. The shares slipped to $371 from this week’s high of $388. While the results showed weakness in the automotive and energy businesses, an often-overlooked segment — services and other — showed notable resilience.

Tesla’s ‘Services and Other’ Business Boasts a Strong Quarter

The often-overlooked services and other business generated $4.6 billion — up 33% from the same period last year. 

In contrast, the automotive segment generated $20.56 billion in revenue, down 3% from a year earlier. Tesla attributed the weakness to lower vehicle prices and fewer deliveries. In the third quarter of last year, sales were stronger as consumers rushed to buy before the federal tax credit ended. Tesla’s energy generation and storage revenue also fell 16% to $2.8 billion.

Tesla’s services and other segment includes Supercharging revenue, insurance, vehicle servicing, retail merchandise, and collision repairs and spare parts. The division’s revenue and profits continued to grow, with gross profit reaching $734 million, more than double the $366 million it earned a year earlier.

By comparison, energy generation and storage earned a gross profit of $954 million, while the automotive segment earned $3.8 billion. These figures show that although Services and Other is the smallest of the three, it contributes substantially to Tesla’s profitability.

Services and Other Trumps Energy Generation, Storage on Revenue

The company’s earnings statement also showed that the Services and other segment continues to outperform its energy storage business this year. 

In the third quarter of last year, the division generated $3.475 billion in revenue, compared with $3.415 billion for energy generation and storage. Since then, the gap has widened, and in this year’s third quarter, services and other revenue was up 46%.

The catch, however, is that while the division is seeing strong growth and gross profitability, it did not translate into overall profit growth for the company. Tesla’s net income dropped to $804 million from $1.38 billion in the same period last year. The decline came as Tesla spent heavily on artificial intelligence and Optimus.

These developments followed Elon Musk‘s confirmation that talks to merge Tesla with SpaceX (NASDAQ:SPCX) were ongoing. Such a merger would create a $3.5 trillion conglomerate with a presence in electric vehicles, artificial intelligence, robots, telecommunications, and robotics.

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