Tesla has started producing its Optimus humanoid robot at its Fremont, California factory, converting space previously used for electric vehicle assembly. The company announced Wednesday that the current production process meets commercial standards, though design refinements remain underway.
In its third-quarter shareholder letter, Tesla said hardware and manufacturing iterations will continue, but the existing Optimus production method is suitable for market deployment. CEO Elon Musk called the current phase "early production," predicting a slow and uneven ramp-up given the product's complexity. He projected 20,000 units per week by the end of 2027—a target contingent on breakthroughs in AI and reliability that Musk acknowledged have not yet been solved.
The financial hit from Optimus, autonomous driving, and AI development was immediate. Tesla reported flat revenue of $28.04 billion in Q3 versus $28.09 billion a year earlier, but operating expenses surged. Net income collapsed 43 percent to $787 million from $1.37 billion in Q3 2024.
Electric vehicle sales—the company's cash engine—generated $20 billion in revenue, unchanged year-over-year. Tesla delivered 486,532 vehicles, up 6,000 units from Q2 but down from the prior year. Solar and energy storage revenue fell 16 percent to $2.8 billion, attributed to tariff-related refunds. Lower regulatory credit sales also pressured profitability.
The services segment, which includes Full Self-Driving subscriptions, showed strength: $4.6 billion in revenue, up 33 percent year-over-year, with record gross profit of $734 million. That growth, however, was dwarfed by spending on future bets.
Musk's capital allocation strategy is explicit: robotics and AI investment now takes precedence over short-term earnings. The message to shareholders is that Optimus represents Tesla's next dominant business, justifying near-term margin compression. Whether that thesis holds depends on whether Musk can solve the AI and manufacturing problems he has identified as still unsolved, and whether the 2027 production target proves realistic or becomes another delayed timeline.
