Why Tesla's Q3 Report is Significant
- J
- Oct 27, 2024
- 3 min read
By the time the US stock exchanges closed on October 24th, the Tesla ($TSLA) share price had increased almost 22% compared to the previous day. For Tesla, this was the biggest single-day gain for more than a decade. What lead to this? Short-term, institutional investors want to see improving margins. In this regard, $TSLA really delivered and was rewarded with the biggest daily share price increase of a decade.
A Quick Q3 Summary
The company reported its revenue late Wednesday at $25.18 billion, slightly below analysts’ expectations of $25.37 billion but marking an 8% increase from the same period last year. Tesla’s adjusted earnings per share reached 72 cents, surpassing the average analyst projection of 58 cents, thanks in part to $739 million in regulatory credit sales; a 33% increase year-over-year that played a major role in boosting Tesla’s profit margins.
Operating margins improved notably to 10.8%, up from 7.6% a year ago, showing Tesla’s strong cost control and increased profitability. Free cash flow surged 223% to $2.74 billion, and cash reserves rose 29% to $33.65 billion, strengthening Tesla’s financial position. The company’s energy storage segment also saw impressive growth, with revenue from this business up 52% to $2.38 billion, driven by record deployments of 6.9 GWh of energy storage products like Powerwall and Megapack, a 75% increase over last year.
These margin improvements were the main catalysts for the share price increase, as Wall Street and institutional investors were mostly looking for signs that the EV business will still continue to grow in the next years.
The rally was further fuelled by CEO Elon Musk’s optimistic outlook for 2025, where he expects 20-30% growth in vehicle deliveries. He also emphasized plans for a new wave of affordable EV models and confirmed a potential launch of a self-driving Robotaxi service in California and Texas by 2025. As always though when it comes to Elon Musk, take any time-line projection or forecast with a huge grain of salt.
This Might be the Inflection Point
In the short-term, it was good to see that the profitability trend with decreasing margins was broken, with quite high margins across the board which in turn pleased Wall Street. More importantly though, this quarter was significant in the sense that it might be the first real inflection point where it gradually becomes something else than "just an electric vehicle company".
Our company is currently between two major growth waves: the first one began with the global expansion of the Model 3/Y platform and we believe the next one will be initiated by advances in autonomy and introduction of new products, including those built on our next generation vehicle platform. Despite ongoing macroeconomic conditions, we expect to achieve slight growth in vehicle deliveries in 2024. Energy storage deployments are expected to more than double year-over-year in 2024. We have sufficient liquidity to fund our product roadmap, long-term capacity expansion plans and other expenses. Furthermore, we will manage the business such that we maintain a strong balance sheet during this uncertain period. While we continue to execute on innovations to reduce the cost of manufacturing and operations, over time, we expect our hardware-related profits to be accompanied by an acceleration of AI, software and fleet-based profits /from the Tesla Q3 Report
This is a key thesis of my overall investment story for Tesla and as mentioned in my other previous note (about the We Robot event), there is a misconception about Tesla where it's only viewed as an electric vehicle (EV) company by many people.
My view on Tesla long-term is bullish due to the fact I believe it will be a leader in electric, autonomous transportation as well as robotics.
I think Dan Ives (Managing Director of Wedbush Securities and clearly the best dresser on Wall Street) summarizes the case and status for Tesla quite well. Keep in mind that he is one of the biggest Tesla bulls in general, but nonetheless I think he brings up many valid arguments and perspectives. Please watch the video below and form your own opinion!
By J
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