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Tesla (Nasdaq: TSLA) stock was down about 5% shortly after the opening bell on Thursday following the release of its third quarter earnings Wednesday afternoon.

The leading electric vehicle manufacturer generated record revenue in the third quarter, driven by record deliveries or sales. Yet, its stock price was plummeting for several reasons, most notably, because it fell short of estimates.

The record deliveries were already baked into Tesla’s stock price, as the monthly updates indicated strong growth. It’s a big reason that Tesla stock has skyrocketed 40% over the past two months. The reason for the sales surge was the end of the EV tax credits, which expired on September 30. Consumers were rushing to buy EVs before the expiration date to get the credits, thus the massive sales surge.

The downside is that the EV tax credits have expired, so that should impact sales and deliveries going forward. In the third quarter earnings report, Tesla did not provide any guidance, which did not instill much confidence in investors.

“It is difficult to measure the impacts of shifting global trade and fiscal policies on the automotive and energy supply chains, our cost structure and demand for durable goods and related services,” officials stated in the earnings report. “While we are making prudent investments that will set up our vehicle, energy and other future businesses for growth, the actual results will depend on a variety of factors, including the broader macroeconomic environment, the rate of acceleration of our autonomy efforts and production ramp at our factories.”

Earnings tank on higher expenses

Tesla generated record revenue of $28.1 billion in Q3, up 12% from the same quarter a year ago. That was better than consensus estimates of $26.5 billion. But again, that was largely baked into the price already, given the recent surge.

What disappointed investors, in addition to the uncertain guidance, was the earnings. Tesla generated $1.4 billion in net income, down 37% year-over-year. Earnings were 39 cents per share and 50 cents per share on an adjusted basis. The Street had been anticipating adjusted earnings somewhere between 53 cents and 56 cents per share, depending on the source.

Earnings missed so badly due to higher expenses. Operating expenses skyrocketed 50% to $3.4 billion, which took a huge bite out of profits.

The increase in spending stems in large part to increased investments in research and development and AI for new products, primarily in the areas of robotics, autonomous vehicles, and energy storage.

“While we face near-term uncertainty from shifting trade, tariff and fiscal policy, we are focused on long-term growth and value creation,” Tesla officials said. “We are prudently making the necessary investments in our business, including future business lines, that we believe will drive incredible value for Tesla and the world across transport, energy and robotics.”

Earnings were also impacted by a higher average cost per vehicle due to lower fixed cost absorption for certain models, an increase in tariffs, and sales mix.

Tesla heads into a period of uncertainty and transition, so investors should be mindful of that. Meanwhile, the stock is still way overvalued trading at 259 times earnings, especially given the uncertainty and potential headwinds.

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