Wall Street Breakfast: Margins Impress
Margins impress
Tesla (TSLA) shares are rallying this morning, up over 11% before the bell, after the electric vehicle maker impressed investors with its strong Q3 earnings and upbeat production outlook. The results helped Tesla break a streak of missing EPS estimates in the last four quarters, with margins improving a lot more than expected.
Dig deeper: On the earnings call, CEO Elon Musk took a victory lap over what he said was a record quarter. Record low costs of making a car helped boost margins, while the Cybertruck achieved a positive gross margin for the first time. Tesla’s earnings were also buoyed by increased sales of regulatory credits and its energy storage business – which Musk said is “growing like wildfire.”
Bright outlook: Musk affirmed that Tesla will produce more affordable models in the first half of 2025, and expects overall production to increase by 20%-30% next year. Cybercab production is anticipated to be scaled up aggressively in 2026, while FSD is projected to exceed human-level driving safety by Q2 of 2025 as miles-per-intervention metrics continue to improve. Ride-hailing is expected to be live in Texas and California next year.
SA commentary: On the bullish side, SA analyst Hunter Wolf Research expects Tesla to sustain 25% revenue growth due to progress in Cybertruck production, AI-based FSD software, and energy transformation. But SA analyst Bill Maurer is a bit more cautious, noting that while the results were mostly good, Tesla’s valuation is still too high. Investing Group Leader Jonathan Weber remains bearish due to Tesla’s elevated valuation, minimal free cash flow yield, and significant EV and robotaxi competition. (118 comments)