Tesla TSLA shares have soared nearly +20% since its Q3 report in late October and the rally could continue.

Sporting a Zacks Rank #1 (Strong Buy), Tesla’s stock is gaining momentum due to positive earnings estimate revisions.

With analysts starting to increase their earnings outlook for the EV leader, investor sentiment has also turned a corner thanks to the success of Tesla’s Cybertruck.

Elon Musk’s bullish outlook for fiscal 2025 has played a role in Tesla’s recent rally as well. To that point, the Tesla boss expects the company’s vehicle growth to be between 20%-30% next year.

Furthermore, Tesla has benefited from regulatory credits which have helped boost its profit margins while seeing impressive expansion in its energy storage business.

 

Image Source: Zacks Investment Research

 

Cybertruck Success & FSD Production

To the delight of investors, Tesla said its Cybertruck production increased sequentially and achieved a positive gross margin for the first time during Q3. Even better, Tesla stated the Cybertruck was the third best-selling EV in the U.S. behind its Model Y and Model 3 series.

With its artificial intelligence prospects in the works, Tesla increased its AI compute training by 75% last quarter. Tesla’s AI software and hardware are being implemented to improve the safety and comfort of its autonomous or Full Self-Driving (FSD) features.

Tesla reported over 2 billion miles driven cumulatively on supervised FSD in Q3. Continuing to increase its autonomous vehicle capacity, Tesla’s FSD-supervised system brought in $326 million in revenue which was largely attributed to the feature being added in the Cybertruck.

Image Source: Tesla Investor Relations

 

Rising EPS Estimates 

Fueling the post-earnings rally in Tesla’s stock was its increased profitability with Q3 net income rising 17% to $2.17 billion versus $1.85 billion in the comparative quarter.

This led to adjusted earnings of $0.72 per share compared to EPS of $0.66 in Q3 2023. Boosting Tesla’s net earnings was $739 million in automotive regulatory credits. The regulatory credits were part of the Inflation Reduction Act which includes provisions for zero-emission vehicle (ZEV) manufacturers.

Notably, earnings estimate revisions for Tesla’s fiscal 2024 have spiked 8% in the last 30 days from projections of $2.25 a share to $2.45 per share. Plus, FY25 EPS estimates are up 4% over the last month with forecasts now at $3.18 per share.

Image Source: Zacks Investment Research

 

Regulatory Credits & Energy Storage

Piggybacking on Tesla’s regulatory benefits, the EV leader remains in a prime position to earn a profit by selling its credits as an electric vehicle manufacturer to traditional automakers that purchase them to comply with emissions regulations.