Tesla shares rose by over 3% after hours on Wednesday after it reported adjusted results above Wall Street estimates. Adjusted EPS was $0.41 on revenue of $22.39 billion, versus forecasts of $0.35 and $22.2 billion.
Gross margin increased to 21.1% from 20.1% in the prior quarter. Free cash flow was $1.44 billion versus $1.42 billion in Q4 2025, and cash and investments rose $700 million quarter on quarter.
Automotive revenue rose 16% year on year to $16.2 billion. Energy generation and storage revenue fell 12% year on year, while services revenue rose 42%.
Vehicle deliveries increased 6% year on year to 358K but were down by 60K from the fourth quarter. Battery storage deployed fell 15% year on year to 8.8 GWh.
Tesla reported over 1.7 million cumulative paid miles driven in its Robotaxi programme. Unsupervised Robotaxi rides were under way in Austin, Dallas and Houston, with preparations for expansions in Phoenix, Tampa, Miami, Orlando and Las Vegas.
Active FSD subscriptions rose by 180,000 to 1.28 million in the first quarter. The company reported work on AI compute, factories, and production lines for Megapack 3, Cybercab and the Tesla Semi.
Given the earnings beat and initial positive reaction, we should look at near-term call options to ride the momentum. The surprise improvement in gross margin to 21.1% is the most significant figure, as it counters the prevailing narrative from last year about endless price cuts destroying profitability. This suggests pricing power or cost controls are better than the market anticipated, which could fuel a short-term rally.
However, we must also consider buying protective puts or establishing bearish spreads based on the clear slowdown in core business growth. The 60,000 unit drop in vehicle deliveries from the fourth quarter of 2025 is a serious red flag, as is the mere 6% year-over-year growth. This slowdown in the automotive division, along with a 12% revenue decline in energy, points to fundamental weakness that the market may focus on after the initial excitement fades.
This conflicting data is a recipe for high volatility, making straddles or strangles an attractive strategy. The market is now weighing a stronger financial profile against weakening delivery and deployment figures, a classic setup for a significant price move in either direction. We’ve seen this pattern before, such as in mid-2024 when uncertainty around new model launches caused implied volatility to spike over 60% for several weeks post-earnings.
The company is clearly shifting the narrative toward its AI and Robotaxi businesses, which now carry the bull case. The growth in FSD subscriptions to 1.28 million is creating a significant high-margin, recurring revenue stream that was not as material in past years. We should watch for any news regarding the expansion into Phoenix and Las Vegas, as progress there could serve as a major catalyst for the stock, independent of vehicle production numbers.
