Tesla's profit drops as it explores a possible merger with Musk's other public company, SpaceX

Tesla reported lower third-quarter profits on Wednesday as Elon Musk's electric vehicle maker ramped up spending on artificial intelligence, robotics and autonomous transport.

The electric vehicle maker reported third-quarter net income attributable to shareholders of $787 million (€701 million), or 22 cents per share, down 43% from the year-earlier period. Besides marginally lower car sales, Tesla saw a drop in revenues from regulatory credits and energy generation and storage.

Revenue was essentially flat at $28 billion (€24.9 billion), falling slightly short of the company-compiled average analyst forecast of $28.3 billion.

Excluding certain items, though, earnings per share of 48 cents beat Wall Street analyst expectations by 3 cents.

One standout for the quarter was Tesla's $1.5 billion (€1.3 billion) in free cash flow, a measure of cash generated after subtracting investments needed to keep the business running.

Given heavy spending on artificial intelligence, analysts had expected Tesla would report it had burned through cash, not generated it. However, free cash flow was still down 62% from a year earlier.

"It seems Tesla is taking a more capital-efficient approach, delaying longer-term projects to be able to self-fund their AI growth," said Morningstar analyst Seth Goldstein, calling the unexpected positive cash flow the big surprise of the quarter.