Tesla's flying car wows crowds, but share price still grounded

Tesla recently drew widespread attention with a dramatic demonstration of a flying sports car, but the spectacle has done little to lift its share price, which remains more than 26% below its all-time closing high as investors grow uneasy over delayed returns on the company's heavy spending.

Tesla staged the demonstration Thursday (local time) at SpaceX's test facility in McGregor, Texas, with CEO Elon Musk in attendance. The two-seat Roadster, fitted with gas thrusters, was the star of the show.

In the first stunt, the Roadster climbed about halfway up a circular loop-the-loop track before firing its thrusters while inverted and landing smoothly on the ground.

A second run saw the car charge toward a line of five vehicles, including a large truck, then blast off with a burst of gas and clear all of them before touching down.

Musk described the vehicle as having "attitude-control thrusters and a rear main thruster, so it can fly like a rocket."

Despite the spectacle, Tesla's share price has remained sluggish.

Tesla closed at $362.44 Thursday (local time), down 26.01 percent from its record closing high of $489.88 set on Dec. 16 last year.

Tesla delivered 487,000 vehicles in the third quarter of this year, a 2 percent decline from 497,000 in the same period last year.

Analysts attribute part of the drop to a base effect from a surge in purchases ahead of the expiration of US electric vehicle tax credits last year.

Production of the Model S and Model X also ended at Tesla's Fremont, California factory during the second quarter, as the assembly line was converted for the humanoid robot Optimus. That shift is estimated to have further reduced US deliveries of those models in the third quarter.

A bigger concern for the market is Tesla's deteriorating profitability. The company's operating profit margin fell to 1.4 percent in the second quarter. Sales continue to grow, but the gap between revenue and profit is widening.

The squeeze stems from massive upfront investment in future projects — preparing mass production of the Cybercab robotaxi, installing Optimus production lines, building out AI infrastructure and bringing new factories online — all of which are hitting the income statement before any returns materialize.

"The company said it plans to deploy more than $17 billion in additional capital in the second half, and the CFO warned that free cash flow will swing further into negative territory," said Jo Jae-un, an analyst at Daishin Securities, who maintained a neutral rating on the stock. "Demand and cash generation remain solid for now, but the problem is that it is hard to tell how much the margin will be compressed while all that cash is being poured into the future — and when the results will actually show up in the numbers."

Samsung Securities also noted that Tesla's free cash flow has turned negative as the company pours large amounts of capital into physical AI technology, including data center expansion and Optimus development.

The broad assessment is that Tesla has taken on too many ambitious projects at once without near-term cash returns to show for them, and that negative view is capping any share price recovery.

Some on Wall Street believe a merger between Tesla and SpaceX could be the catalyst to reignite the stock. A combination of the two companies' core technologies could generate strong synergies, the argument goes. SpaceX is the space exploration company led by Musk.

Dan Levy, a Tesla analyst at Barclays, recently said a merger announcement could come before Tesla's annual shareholder meeting, which is expected to be held no later than Nov. 6.

"A merger between the two companies is gradually becoming market consensus," Barclays said, adding that an announcement delayed until late October or early November would put pressure on the timeline for securing shareholder approval at the meeting.

The bank added that while a merger would bring financial synergies, the real value would lie in vertically integrating the two companies' AI technologies.

Musk himself has signaled growing overlap between the two companies, recently remarking that "Tesla overlaps with SpaceX in many ways."

Dan Ives, one of Wall Street's most prominent technology stock analysts, said at a press briefing in South Korea that he puts the probability of a Tesla-SpaceX merger next year at around 80 percent. "SpaceX will grow into one of the world's largest hyperscalers," he added.