Tesla (TSLA) Profit Margin Slides, Raising Questions for Bullish Narratives on Long-Term Growth

Tesla (TSLA) posted a net profit margin of 5.3%, a notable drop compared to 13.3% the prior year, signaling a compression in profitability. While earnings have climbed by an average of 19.2% per year over the last five years, the most recent period showed negative earnings growth. Looking ahead, analysts expect Tesla’s earnings to rise by 36% annually, with revenue growth projected at 16.9% per year. Both figures are expected to outpace the broader US market growth forecasts.

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Next up, we’ll see how these earnings stack up against the widely held narratives in the market and where the consensus may shift after these latest results.

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• Tesla’s expansion into Full Self-Driving (FSD) subscriptions and autonomous services aims to shift more revenue toward high-margin, recurring streams, with profit margins expected to reach 10.4% in three years, up from 6.3% today.

• Analysts’ consensus view highlights that:

  • Autonomous ride-hailing services and increased FSD adoption are seen as major levers for future earnings, supporting the thesis that recurring software revenue will lift both gross and net margins.

  • Notably, the bullish case relies on regulatory approvals and execution in new regions. Delays could undermine the pace at which these high-margin streams expand.

• Net profit margin slid to 5.3% from 13.3% last year, reflecting notable margin compression amidst rising manufacturing and component costs, including $300 million in new tariffs.

• Consensus narrative points out:

  • Trade policy changes and loss of US consumer EV incentives are adding cost headwinds, which the group expects will weigh on gross margins and near-term earnings.

  • Despite long-term optimism, these risks show that delays or higher-than-expected costs could materially impact profitability and slow down the expected margin rebound.

• Tesla trades at a Price-To-Sales ratio of 15.6x, well above the industry average, and its current share price of $448.98 is significantly higher than DCF fair value at $138.58.

• Analysts’ consensus view underlines that:

  • With the analyst price target at $380.05, 15.3% below the current share price, investors are paying a substantial premium, betting on aggressive future growth and margin expansion.

  • This places Tesla at a valuation higher than both its peers and even its own projected fair value, increasing the stakes for the company to deliver on ambitious targets.