I've Covered Tesla for Over a Decade. Here's Whether It's a Stock to Buy More Than 21% Below Its Record.

Tesla (NASDAQ:TSLA) reported third-quarter results late Wednesday, Oct. 21, and the stock has inched lower since. Shares trade near $380 as I write, more than 21% below their record close of $489.88 in December 2025.

On the surface, the quarter looked like progress. Operating income (what Tesla's business makes before interest and taxes) climbed to $718 million from $398 million in the second quarter. Management also cut its spending forecast for the year and said Megapack batteries are almost sold out for 2027.

But I've learned to check where Tesla's profit came from before giving a quarter credit. And this time, a big share of it came from tariff refunds, which arguably say little about how the underlying business is doing.

Image source: Getty Images.

Tariff refunds did most of the work

Showing how much Tesla's growth has slowed, third-quarter revenue was flat year over year at $28.0 billion -- a sharp deceleration. In the second quarter, revenue rose 26%, after a 16% gain in the first. Operating income fell 56% year over year, from around $1.6 billion, and the operating margin (the part of revenue left as operating profit) shrank to 2.6% from 5.8%. Net income under generally accepted accounting principles (GAAP) dropped 43% to $787 million. And non-GAAP (adjusted) earnings per share dipped 4% to $0.48.

The more important detail is in Tesla's quarterly filing. After a Supreme Court ruling in February struck down certain tariffs, Tesla recognized $786 million in tariff refunds as lower costs in the third quarter. It also recorded $339 million it owes some energy storage customers as a reduction to revenue.

Minus what Tesla owes these customers, the refunds added around $447 million to gross profit, or over 60% of the quarter's operating income. Take them out, and operating income would've been about $270 million -- under even the second quarter's $398 million.

That matters because of the bar I set before this report. I said I'd want to see Tesla's operating income rebound show up in the results before buying shares. On a reported basis, it partly did. Without the refunds, I don't think it did.

Megapacks and Robotaxi look promising

Sure, the call brought some good news, and the energy business was a big part of that.

"We're actually almost sold out of all Megapacks for 2027," CEO Elon Musk said in his opening comments.

CFO Vaibhav Taneja also said Tesla is updating its 2026 capital spending forecast to around $20 billion, down from the more than $25 billion it expected in July. And free cash flow was more than $1.5 billion, a swing from negative $1.1 billion in the second quarter.

Then there's Robotaxi, Tesla's driverless ride-hailing service. Asked how its fast-growing miles would turn into profit, Musk said the service could start becoming noticeable in 2027's second quarter. He added it's "probably a big deal by Q3 or Q4 of next year."

Still, Tesla didn't say what it makes on every paid Robotaxi mile, which is the number I most wanted to hear on this call. Taneja offered a $0.30 per-mile cost target instead and said Tesla isn't there yet, but he sees a path to it.

Is Tesla stock worth buying now?

The valuation is where this report hurts most. Before the results came out, Tesla traded at around 360 times its trailing GAAP earnings. Now that the third-quarter earnings per share of $0.22 has replaced $0.39 from a year ago, the price-to-earnings ratio has risen to around 420 times earnings, even though the share price has hardly budged.

Put another way, the stock got pricier with this report, not cheaper.

Yes, a price more than 21% below the record can look like a discount. But I think investors are still paying up front for Robotaxi and energy profits that haven't shown up in the income statement yet. And with research and development spending up 69% year over year, the costs of chasing these businesses are arriving well ahead of the payoff.

In the end, I wouldn't buy Tesla stock at this level yet. I'd want to see operating income rise without help from refunds, and a per-mile figure for Robotaxi, before I'd get more interested. Until then, I think shares are priced well ahead of what Tesla is earning.

Daniel Sparks has clients with positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.