Multidisk bladeless turbines, also known as Tesla turbines, are promising in the field of small-scale power generation and energy harvesting due to their low sensitivity to down-scaling effects, retaining high rotor efficiency. However, low (less than 40%) overall isentropic efficiency has been recorded in the experimental literature. This article aims for the first time to a systematic experimental characterization of loss mechanisms in a 3 kW Tesla expander using compressed air as working fluid and producing electrical power through a high-speed generator (40 krpm). The sources of losses discussed are stator losses, stator–rotor peripheral viscous losses, end-wall ventilation losses, and leakage losses. After description of experimental prototype, methodology, and assessment of measurement accuracy, the article discusses such losses aiming at separating the effects that each loss has on the overall performance. Once effects are separated, their individual impact on the overall efficiency curves is presented. This experimental investigation, for the first time, gives the insight into the actual reasons of low performance of Tesla turbines, highlighting critical areas of improvement, and paving the way to next-generation Tesla turbines, competitive with state-of-the-art bladed expanders.