Tesla reported flat revenue in the third quarter but a surprise positive free cash flow despite its heavy investments in AI and robotics, all while talk of a merger with SpaceX raises questions about the future of the electric carmaker.

Tesla generated free cash flow of $1.5 billion in the quarter, while analysts expected the company’s cash burn to expand to $4.3 billion, according to estimates compiled by FactSet.

Wall Street expected capital expenditures to accelerate from last quarter’s $5.8 billion, but they declined to $4.7 billion—still more than twice the company’s spend a year earlier. Chief Executive Elon Musk has signaled the company would spend heavily on assets like AI computing power, saying in July that 2026 would be “a massive CapEx year.”Tesla shares were up 3% at the market’s close.

Revenue was flat from last year at $28 billion, while adjusted net income slid 4% to $1.7 billion. Tesla’s “services and other” segment was its growth driver, as its core automotive and energy storage businesses saw top-line declines of 3% and 16%, respectively.

Other sources of revenue—including subscriptions to its Full Self-Driving (Supervised) automated driving assistance system, or FSD, and its nascent Robotaxi business and EV charging—increased 33%.

Tesla sold 486,532 electric vehicles globally in the third quarter, a 2% dip from the same period last year. Most of Tesla’s revenue comes from selling EVs, although with the discontinuation of the Model S and Model X and slow Cybertruck demand, the Model Y SUV and Model 3 sedan make up the vast majority of sales.

EV demand in the U.S. cratered following the end of incentive credits last year, leading Tesla to recapture most of the American EV market. The Model Y remains far and away the U.S.’s bestselling EV.

The company reported that a record 75% of its vehicle deliveries included paid subscriptions to FSD. Musk has said the company’s future hangs on autonomous driving, not selling vehicles like a traditional automaker. “We believe that FSD is driving demand in markets where it is available,” the company said in its quarterly report.

Tesla reported 1.7 million paid FSD subscriptions as of the third quarter, up from 1 million a year earlier. Tesla also boasted double-digit weekly growth of its fully autonomous Robotaxi service.

Last week, Musk and other executives showed off the redesigned Tesla Roadster, expected to be a higher-end, limited-edition sports car slated for sale in 2028. This quarter, however, it is SpaceX that dominates the conversation around Tesla.

A merger between the two Musk-led companies “would be a good idea,” Musk said on Tuesday’s SpaceX earnings call. Musk, who is chief executive of both companies, added that the two have formed “special committees” dedicated to studying a merger prospect.

Musk said he is not on either committee, and that shareholders will ultimately decide upon any merger. But a deal would likely give Musk increased control over a combined company. Shares of SpaceX were up 8% at the market’s close Wednesday.

SpaceX and Tesla, while separate, have long had close relations and have frequently done business together. Tesla owns a small share in SpaceX. The rocket company regularly purchases vehicles, battery storage units and solar products from Tesla.

Tesla’s charging stations and other products use SpaceX’s Starlink satellite internet. And SpaceX and Tesla are jointly developing the Terafab chip plant in Texas to meet their ambitious AI goals.

Musk has previously noted that decisions related to the Terafab project currently need approval by both companies’ boards. So a merger, Barclays analysts noted, could mean speeding up the facility’s development.

“A joint chip manufacturing facility could eliminate costly R&D duplication across two of the most compute-intensive companies in the world,” RBC analysts wrote.

The biggest upside to merging the two companies is their shared interest in AI, or SI, an acronym for “super intelligence” now preferred by Musk and President Trump.

While investors could be keen to support the creation of another AI giant, Musk has acknowledged that getting half of Tesla shares to sign off would be “quite a high hurdle.”J.P. Morgan analysts wrote that shareholders might demand a higher premium on their shares, given the recent strength of Tesla’s business, including higher-than-expected deliveries in the second and third quarters.

A bigger obstacle, they said, might be Tesla’s major presence in China, given SpaceX’s ties to the U.S. government.

Some Tesla executives have been told to prepare for a separation of the China business ahead of a potential merger, The Wall Street Journal reported earlier this year. Options could include a spinoff or sale of Tesla’s China operation.