Tesla shares fell in early trading in Frankfurt on Thursday after profits missed forecasts amid higher tariffs and research costs, as well as a drop in income from regulatory credits. 

The car company run by Elon Musk said third-quarter earnings fell 37 per cent to $1.4billion, or 39 cents a share, from $2.2billion, or 62 cents a share, a year earlier. 

The latest round of results marked the firm's fourth consecutive quarterly profit drop.  

Tesla is grappling with tariffs imposed by the Trump administration on auto-parts imports, which chief financial officer Vaibhav Taneja said cost Tesla more than $400million in the quarter. 

The stock is down around 10 per cent in Frankfurt so far this year, against a 8.7 per cent increase in New York. 

Tesla is recalling 63,619 Cybertruck vehicles in the US as parking lights that are too bright can reduce visibility of oncoming drivers, increasing the risk of a crash, the US National Highway Traffic Safety Administration said on Thursday.

In its latest quarterly results, Tesla reported record third-quarter revenue that beat Wall Street estimates. 

Revenue was bolstered by the highest quarterly sales of its electric vehicles (EV) on record as US buyers flocked to lock in a key tax credit ahead of its expiry last month.

The electric vehicle maker reported total revenue of $28.1billion for the third quarter ending 30 September, compared with forecasts of around $26.37billion. 

Profit per share in the third quarter was 50 cents, below analysts' estimates of 55 cents.

Automotive regulatory credits, once a key driver of profit, fell to $417million in the quarter, down from $739million a year ago and $435million in the second quarter.

Tesla reported a gross margin of 18 per cent, compared with estimates of 17.5 per cent. Its closely watched automotive gross margin, excluding regulatory credits, was 15.4 per cent, against forecasts of around 15.6 per cent.        

Tesla's $1.45trillion valuation largely reflects investor bets on chief executive Elon Musk's pivot to robotics and artificial intelligence (AI), but vehicle sales remain key to the financial stability of the business while those products are being developed. 

Demand for Tesla's vehicles and those of its rivals is expected to drop during the rest of the year without the tax credits that have been a key driver of EV sales.

Tesla reported a 50 per cent increase in operating expenses driven by AI and other research and development projects, an increase in stock-based compensation, and on an earnings conference call, Taneja said capital expenditures would rise substantially next year. 

To combat a demand drop, Tesla introduced lower-cost 'Standard' variants of Model Y and Model 3 vehicles earlier this month, cutting out a string of premium and basic features and lowering prices by about $5,000 to $5,500.

While Tesla hopes the cheaper variants will drive higher volumes, analysts warn the move will squeeze margins as thousands of dollars of cost cuts per vehicle may not fully compensate for lower selling prices.

Tesla said it was on track to start volume production of its Cybercab robotaxi, Semi truck and Megapack 3 battery next year. 

The firm's energy business saw an 81 per cent increase in storage deployment in the quarter, and its robot plans are advancing, with production of humanoid bot Optimus hopefully starting toward the end of 2026, Musk said.

Tesla did not provide a full-year forecast for production, but Musk said Tesla could expand production, given his confidence in self-driving software. 

When asked whether increasing production would require offering incentives and squeezing profit margins, Musk forecast 'nutty' demand for the self-driving Cybercab and said margins would not be sacrificed. 

Wall Street expects Tesla's deliveries in 2025 to slip 8.5 per cent due to the expiry of the tax credit, reliance on older models and rising competition.

But many investors are confident in Musk. Nancy Tengler, chief executive and chief investment officer of Tesla shareholder Laffer Tengler Investments, said she was bullish on the next three to five years. 

She said: 'I'm less concerned about the next quarter. It's messy, it's hard, it's trial-and-error, it's try again. But this is a CEO who is determined. And I think what we've seen historically is that he will get it done'. 

Dan Coatsworth, head of markets at AJ Bell, said: 'Elon Musk has outspoken views on many things, but he didn’t have much to say on the fact Tesla’s Q3 results missed earnings expectations for the fourth quarter in a row. 

'Instead, the analyst conference call was the usual big picture stuff, talking about the world of tomorrow and Tesla’s role within it. 

'Sales were propped up by a rush to buy electric vehicles before a US tax credit disappeared. However, profits disappointed amid increased costs, including spending on AI as it focuses more on robotics.'