Tesla announced its results for the first quarter of 2026. And to be honest, many were expecting disappointment.
The stock has underperformed compared with all the other tech giants this year, falling by around 12% since the start of the year.
Pressure from BYD and Xiaomi overseas is intense. Elon Musk continues with his usual distractions, and Tesla’s electric vehicle lineup is starting to look dated compared with newer, lower cost models from competitors.
And yet, the numbers came in better than Wall Street expected.
Let’s take a closer look.
THE QUARTERLY NUMBERS
Tesla’s revenue for the quarter reached $22.39 billion, up 16% year over year.
Earnings per share came in at $0.41, while analysts were expecting something between $0.34 and $0.37. In other words, it beat expectations on both revenue and earnings.
Net income reached $477 million, up from $409 million a year earlier. Adjusted EBITDA came in at $3.7 billion, compared with $2.7 billion last year. EBITDA margin rose to 16.4% from 14.6%.
And this is where things get even more interesting. GAAP gross margin reached 21.1%, compared with 16.3% last year. Automotive gross margin, excluding revenue from regulatory credits, came in at 19.2%, higher than in any quarter of 2025. The company said this improvement came from a higher average selling price and a lower average cost per vehicle due to lower raw material prices.
Operating income increased 136% year over year, reaching $900 million. And the most impressive part? Free cash flow came in positive at $1.4 billion, at a time when several analysts had warned about negative cash flow of around negative $1.9 billion. Yes, that is a huge surprise.
At the same time, the company delivered 358,023 vehicles and produced 408,386. It also has $44.7 billion in cash on hand.
WHAT WE LEARNED FROM THE REPORT
Beyond the numbers, there are several very interesting takeaways.
First, Tesla confirmed that it is preparing more affordable versions of the Model Y and Model 3. This is big news because, as you may remember, the company had previously shelved plans for a cheaper model in order to focus on the Cybercab and Optimus. Now it appears to be returning to that strategy.
Second, the company said that preparations for its first large scale Optimus factory will begin soon in Q2, with the goal for the first generation production line to build 1 million robots per year. At the same time, Cybercab, Tesla Semi, and Megapack 3 remain on schedule for volume production in 2026.
Third, subscriptions to Full Self Driving increased 50% year over year. This suggests that the software side of the business is beginning to work as a genuine source of revenue.
But it is not all positive. The energy segment, including solar and batteries, fell 12% to $2.41 billion. There is also a worrying picture coming out of California. Tesla vehicle registrations in the state fell 24% during the quarter. Consumers there are increasingly shifting toward hybrids. The Model Y remains the most popular vehicle in the state, but the hybrid Toyota Camry follows in second place. Most of those lost customers appear to be going to hybrids, which now account for 21% of the California market.
WHAT TO EXPECT GOING FORWARD
Management said it is focused on maximizing factory utilization and accelerating profits from AI, software, and fleet based revenue streams. It also said it saw a recovery in demand across APAC, South America, EMEA, and North America. In other words, the global picture seems to be stabilizing.
At the same time, Tesla is expanding its robotaxi service. After Dallas and Houston last weekend, it is now operating in four cities, with a goal of reaching nine cities by mid 2026. It was also announced that the company wants to build its own AI chips.
Analysts are divided, but they lean positive. Out of 12 analysts tracked by Visible Alpha, 7 have a buy rating, 4 are neutral, and 1 has a sell rating. The average price target is $432, implying about 12% upside. Bank of America, which maintains a buy rating, said that Tesla is in the early stages of unlocking the potential of its autonomy capabilities.
That said, not everyone is convinced. Analyst Kenio Fontes of Seeking Alpha wrote that the improvement in gross margin to 21% suggests that the worst may already be over and that 2026 could be a transition year for Tesla. But he added an important point: the stock’s valuation remains very high.
