Tesla’s costly AI ambitions helped by earnings rebound

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Subscribe to enjoy similar stories. Elon Musk says Tesla will produce millions of robots and self-driving cars in the future that will propel the company’s market capitalization to stratospheric levels. How he will fund that future is coming under sharper scrutiny.

Musk is under pressure to wring better profitability from the core auto business to help pay for those moonshot bets. Tesla’s better-than-expected third-quarter results on Wednesday offered a glimpse of how he might try to cross that chasm, including cost-cutting efforts that made Tesla vehicles cheaper to build and growth in the company’s highly profitable energy-storage business. After years of breakneck growth, revenue from the car business has plateaued, and operating margins—while up in the third quarter—are down from a few years earlier.

Now the Tesla chief executive officer says the company needs to increase spending for its next phase of growth, which includes rolling out a $30,000 self-driving Cybercab, AI-powered robots and more-affordable vehicles. “The amount of work required to make an affordable car is insanely high," Musk told analysts Wednesday. The billionaire has urged investors to think of Tesla as an artificial-intelligence and robotics company, rather than a typical carmaker, and has said its efforts in these areas could eventually boost the electric-car maker’s market cap to $30 trillion.

Musk has stressed development of a robotaxi that could ferry passengers for paying rides, and aims to start selling a humanoid robot, called Optimus, in 2026. Investors have largely bought into this vision, with Tesla’s $681 billion market cap more akin to Silicon Valley innovators than metal-bending manufacturers of automobiles. Still, these endeavors