Tesla Misses with Record Revenue Growth & Government Interest in Quantum

Good morning investors,

Tesla's mixed earnings highlighted the challenges facing growth companies as tax credits expire and margins compress, sending markets lower Wednesday despite airlines signaling capacity discipline finally paying dividends. The disconnect between revenue beats and profit misses captures the current market dilemma perfectly: strong demand exists but profitability remains elusive across multiple sectors. Meanwhile, the Trump administration's quantum computing equity stake discussions sent my long-standing picks in the sector soaring, validating our early positioning in transformative technologies.

Futures trade mixed this morning following Wednesday's selloff that saw the S&P 500 ($SPY ( ▼ 1.02% )) fall 0.6%, the Dow ($DIA ( ▼ 1.63% )) drop 0.7%, and the Nasdaq ($QQQ ( ▼ 1.22% )) decline 0.9%. The pause follows Tesla's ($TSLA ( ▼ 2.91% )) disappointing earnings and renewed trade concerns as President Trump reportedly considers additional export restrictions on China. Netflix's ($NFLX ( ▼ 3.37% )) double-digit decline after Tuesday's report continues weighing on sentiment, though airline strength provides selective optimism.

Quantum computing stocks surge premarket with IonQ ($IONQ ( ▼ 3.51% )) and D-Wave ($QBTS ( ▼ 0.06% )) each jumping 9%, Rigetti ($RGTI ( ▲ 0.63% )) adding 7%, and Quantum Computing up 11% following reports the Commerce Department may take equity stakes in exchange for federal funding. This validates our early calls in the sector, including Rigetti at 60 cents and $1.32, and D-Wave at $4 and $6.

Tesla reported its first quarterly revenue growth in three quarters, but the results reveal fundamental challenges ahead. While revenue beat expectations at $28.1 billion versus $26.37 billion expected, up 12% year-over-year, adjusted earnings per share missed at $0.50 versus $0.54 expected. The revenue surge came from record Q3 deliveries of 497,099 units as buyers rushed to claim the $7,500 federal EV tax credit before its September 30 expiration.

The margin story tells the real tale: gross margin fell to 18% from 20% year-over-year while operating margin compressed to 6% from 11%. Tesla's new "Standard" variants of Model Y at $39,990 and Model 3 at $36,990 may drive volume but will further pressure already-declining margins. CEO Elon Musk warned of "a few rough quarters" ahead post-tax credit, with Wall Street expecting 2025 deliveries to fall 8.5% as pulled-forward demand creates a vacuum.

Musk spent the earnings call making bold robotaxi promises rather than addressing immediate concerns about demand, margins, or tariff impacts. While he predicts autonomous ride-hailing in Austin by year-end and eight to ten cities by close of 2025, Waymo and Baidu's Apollo Go already operate commercial services today. Tesla's $1.45 trillion valuation reflects AI hopes, not current automotive reality.

American Airlines $AAL ( ▼ 4.86% ) delivered strong results demonstrating the industry's successful capacity discipline. The company posted a smaller-than-expected Q3 loss of $0.17 per share versus $0.28 expected, with Q4 guidance of $0.45-$0.75 per share more than doubling the $0.31 consensus. Full-year guidance of $0.65-$0.95 compares to just $0.43 expected, signaling sustainable improvement rather than temporary bounce.

Southwest Airlines ($LUV ( ▼ 2.29% )) surprised with an 11 cents per share profit versus a 3 cent loss expected, forecasting record Q4 sales on better demand and higher fares. The carrier expects unit revenue rising 1-3% with capacity up 6%, finally abandoning open seating to better compete. After months of fare pressure from overcapacity, airlines have successfully adjusted to new travel patterns where summer no longer represents the slam-dunk quarter as travelers prefer fall trips with cooler weather and fewer crowds.

The Wall Street Journal reports the Trump administration is negotiating equity stakes in quantum computing firms including IonQ, Rigetti, and D-Wave in exchange for federal funding, with minimum awards of $10 million each. This follows similar government stakes in MP Materials for rare earths and Intel for semiconductors, signaling an ideological shift toward intervention in strategic industries.

Some of my long-time readers will know that my best calls have been picks in this space like Rigetti at 60 cents and $1.32, and D-Wave Quantum at $4 and $6. This government validation represents significant vindication for those who positioned early in what I've long argued would become a transformative sector.

Treasury Secretary Scott Bessent acknowledged the unprecedented nature while warning against overreach: "We do have to be very careful not to overreach." The focus on quantum computing reflects its potential to revolutionize medicine, finance, and materials science while posing major cybersecurity implications. Today's 9-11% premarket gains across the sector likely represent just the beginning as government backing provides both capital and credibility.

Volvo Cars shocked markets with operating income of 6.4 billion Swedish kronor, well above expectations, sending shares up 40% for their best-ever trading day. The EBIT margin reached 7.4% versus 6.2% year-over-year, driven by an 18 billion kronor cost-saving program delivering results. CEO Håkan Samuelsson noted success "in a tough market" while warning of persistent challenges including price competition and U.S. tariffs.

The automotive sector remains acutely vulnerable to tariffs given globalized supply chains, but Volvo's results suggest companies can adapt through aggressive cost management and strategic positioning.

Meta ($META ( ▼ 2.81% )) cutting 600 AI jobs from its Superintelligence Labs division while simultaneously closing a $27 billion private capital agreement for data center funding creates mixed signals about AI spending trajectories. The layoffs alongside massive infrastructure investment suggests optimization rather than retreat, with companies focusing resources on highest-return opportunities rather than broad-based expansion.

Wednesday's selloff on Tesla disappointment and trade concerns represents normal consolidation rather than trend change. Airlines demonstrating pricing power through capacity discipline, quantum computing receiving government validation, and European autos proving resilience despite tariffs all suggest underlying strength beneath surface volatility.

Tesla's results expose the challenge facing growth companies as subsidies expire and competition intensifies. Musk's robotaxi dreams can't mask current margin compression and demand questions. Yet American Airlines more than doubling full-year guidance and Southwest posting surprise profits demonstrate mature industries finding balance through disciplined management.

The quantum computing surge validates our early positioning in transformative technologies, with government equity stakes providing both capital and credibility. I continue expecting October volatility while maintaining year-end optimism as earnings demonstrate corporate adaptability, Fed rate cuts support growth, and trade negotiations progress toward resolution. Active management continues offering advantages as divergent sector performance creates both risks and rewards.

As always, feel free to reach out with questions about positioning for these evolving market dynamics.

Best regards,

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.