Ahead of Tesla’s recent earnings report, UBS analyst Joe Spak questioned the relevance of the numbers this quarter, particularly following the disappointing reveal of the Robotaxi. He noted that while the figures should indeed hold more significance, Tesla’s appeal lies in its future potential rather than its current electric vehicle (EV) business, which ultimately drives the reported numbers. Investors are primarily focused on auto gross margins, excluding regulatory credits, with an anticipation of flat to slightly increased performance quarter over quarter. Investor expectations have consensus placing this metric at an increase of 30 basis points from the previous quarter, resulting in a projected gross margin of 14.9%. Additionally, market watchers are eager for updates on the anticipated Model 2.5 that is slated for next year, though Spak noted this hasn’t appeared to be a focal point for Tesla. Updates on the Robotaxi and Tesla’s more affordable vehicle platform could also be forthcoming, especially considering CEO Elon Musk’s earlier commentary on the production of a low-cost model that may begin in early 2025.
Tesla’s performance this quarter included significant highlights, marking a notable increase in deliveries for the first time in 2023. However, the company faces a considerable challenge to break even in 2024, having only sold just under 1.3 million units so far this year. With a target of 514,000 units needed in the fourth quarter alone, which is 30,000 units above its previous record, the pressure is on to achieve these aggressive sales figures. For the third quarter, Tesla reported revenues of $25.18 billion, slightly below expectations, yet managed to exceed earnings per share estimates at 72 cents. A key financial metric that investors watch is the automotive gross margin, which surprisingly jumped to 17.1%—significantly above the expected 14.9%—and provided a positive signal of the company’s ability to improve its profitability while steadily increasing production efficiency.
Alongside improved margins, Tesla also reported an operating income of $2.72 billion, which beat expectations by nearly $800 million, as well as free cash flow of $2.74 billion. The quarter’s financial performance indicated a promising upward trend, particularly in light of the automotive gross margin, which showed a year-over-year rise despite the expectation of lower costs that would usually accompany increased sales. Notably, Tesla recognized $739 million from regulatory credit revenues during this quarter, driven by the struggles of other OEMs to meet emissions requirements, further illustrating Tesla’s unique position in the market. Analysts noted the impressive year-on-year performance, specifically examining the vehicle production efficiency and the impact of prominent products like the Cybertruck, which has now achieved profitability as a result of ramped-up production.
Tesla’s outlook for future growth appears optimistic, focusing on two major phases of expansion: the first linked to the success of Model 3/Y globally and the second potentially fueled by advances in autonomy and the launch of new products, including those on a next-generation vehicle platform. The company remains committed to initiating production of more affordable models in the first half of 2025, utilizing aspects of both next-generation and current platforms. This dual-strategy aims to achieve prudent growth in vehicle volume without excessive capital expenditure during a time of economic uncertainty. Furthermore, Tesla is striving to optimize output using existing manufacturing lines, targeting an annual production capacity of up to three million vehicles, thereby signaling potential for over 50% growth compared to 2023.
In terms of operational highlights, Tesla observed a 6% growth in total deliveries in Q3, which places heightened expectations on the sales performance of Q4 given the requirement to surpass last year’s all-time peak. Amid challenging macroeconomic conditions, the company anticipates modest growth in vehicle deliveries for 2024, which provides a bullish outlook for investors who foresee another record-setting year for deliveries. Furthermore, the energy division continues to thrive, achieving record gross margins and witnessing an increase in Powerwall deployments, while the ramp-up for Powerwall 3 supports this growth trajectory.
Lastly, Tesla is increasingly positioning itself as a leader in artificial intelligence, evident from its ongoing investments into AI infrastructure, such as training capabilities at its Texas Gigafactory. Future plans include enhancing its autonomous transport paradigm with an emphasis on cost efficiency that could undercut existing rideshare and public transit options. However, many stakeholders may feel disappointed by a lack of in-depth revelation on the company’s ride-hailing business. Tesla’s shares reacted positively to the earnings, surging nearly 9% in after-hours trading to reach $234.89, contributing to a potential gain of around $60 billion in market value—the most significant uplift since July. This performance reinforces Tesla’s growing prominence and investor interest, showcasing both the immediate impacts of its quarterly results and the anticipated prospects within its strategic vision.
