Tesla shares surged higher in early Thursday trading, testing the highest levels since its 'We Robot' event earlier this month, after the carmaker's surprising third quarter earnings report.
Tesla (TSLA) , which has notably lagged its Magnificent 7 peers so far this year and slumped nearly 10% following its disappointing October 10 robotaxi event in Los Angeles, turned the investors tide last night with its strongest quarter profit of the year last night.
The group said earnings for the three months ending in September rose to 72 cents per share, well ahead of Street forecasts, while profit margins leaped by nearly two percentage points as the cost of producing its signature EVs fell to a record low and global pricing stabilized.
Group revenues, Tesla said, rose 7.8% from last year to $25.18 billion, falling just shy of analysts' forecasts of a $25.37 billion tally.
Gross automotive margins were 19.8%, a modest increase from last year that stopped Street forecasts of around 17%, suggesting that price cuts are largely under control following a long global EV price war and intensifying competition in China.
Tesla also said its expects a "slight growth in vehicle deliveries" this year, following last year's record 1.8 million tally, with CEO Elon Musk adding on the investor call that he sees the potential for a 20% to 30 growth rate in 2025 "not withstanding negative external events ... like some big war breaks out or interest rates go sky high or something like that."
"We can't overcome massive force majeure events. But I think with our lower-cost vehicles with the advent of autonomy, something like a 20% to 30% growth next year is my best guess," he added.
Elon Musk told investors last night that he thinks Tesla could be "the most valuable company in the world and probably by a long shot."
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The optimistic outlook, which has been largely missing from Tesla communication this year, alongside the unexpected margin improvements were key drivers for the stock's outsized gain last night, and look to power investor sentiment into the Thursday session.
Profit margin surprise
Wedbush analyst Dan Ives, who carries an 'outperform' rating and a $300 price target on Tesla stock, said the improved margin figures were "clearly an indication that Musk & Co are continuing to focus on its profitability side while balancing its plans for the future."
"With price cuts fully in the rearview mirror now, we view this as a key piece for the Street to exemplify Tesla’s ability to expand its margins as the company continues its AI/FSD transformation over the coming years," he said. "The bulls will cheer this quarter in a much needed margin boost after a choppy 2024."
George Gianarikas of Canaccord Genuity summarized Tesla's earnings as a "product cycle story with accelerating revenue and earnings growth" as the group said it would start manufacturing a lower-cost model next year while aiming for around 2 million units of its new robotaxi, dubbed the Cybercab, in 2026.
"Margins were good -- quite good -- much better than expected and a standout for the quarter, said Gianarikas who boosted his Tesla stock price target by $24, to $278 per share. "The quarter was truly solid overall. Most of this strength, as we have written, comes from Tesla zigging as traditional [auto manufacturers] zagged."
"Energy storage performance also stood out, with gross margins breaking above 30%," he added. "We see these trends as a solid indicator for trends at Fluence."
Tough road ahead
CFRA analyst Garrett Nelson was slight more cautious, although he lifted his Tesla stock price target by $5, to $225 per share following last night's impressive earnings report nonetheless.
"In our view, expectations were low heading into the release after four consecutive bottom-line misses and a robotaxi day that left investors with more questions than answers," Nelson said. "The key question is the sustainability of Tesla's Q3 gross margin."
That view, curiously, was shared by Tesla's own finance chief, Vaibhav Taneja, who said that "sustaining these margins in Q4 will be challenging, given the current economic environment."
"Note that we are focused on the cost per vehicle, and there are numerous work streams within the company to squeeze out cost without compromising on customer experience," Taneja added.
Other price target changes include Bank of America analyst John Murphy, who took his $10 higher to $265 per share, as well as Goldman Sachs analyst Mark Delaney, who added $20 to take it to $250 per share.
Tesla also updated investors on its capital spending plans, pegging this year's tally at around $11 billion, with a forecast of between $8 billion and $10 billion over the next two years, as it ramps-up the base of the AI technologies that will power its full self-driving ambitions.
Morgan Stanley analyst Adam Jonas said the capex figure "raises near and long term questions about the capital intensify of the business and the business model itself.
Musk told investors he thinks the company will solve its current FSD challenges by the end of next year, something he has said will be the key determinant for Tesla ultimate stock price.
"If we execute on our objectives, I think we will, my prediction is Tesla will become the most valuable company in the world and probably by a long shot," Musk said.
Tesla shares were marked 12.5% higher in premarket trading to indicate an opening bell price of $240.43 each.
