Here's Why Tesla Stock Is a Buy Before Oct. 22

Tesla (NASDAQ: TSLA) investors have already gotten clues as to what to expect from the company's upcoming third-quarter results. That's because last week, management reported its electric vehicle delivery numbers for the third quarter. They were encouraging numbers, and since Tesla sells direct to customers, its delivery numbers are its sales volumes.

While the quarter's numbers beat the analyst consensus, it's not likely to be the key recent development that will drive the stock higher. Here's a look at three things that could be.

Image source: Getty Images.

1. Tesla's third-quarter earnings and what they could mean for Q4

The third quarter earnings report is scheduled for release on Oct. 22, and it's essential to approach the results like Goldilocks planning a last-minute vacation in the woods. On the too-hot side, deliveries of 497,099 vehicles represented a 7.4% increase on last year's third quarter and a 29.4% increase on the second quarter of 2025.

However, as most investors are aware, federal tax credits for new and used electric vehicles (EVs) expired on Sept. 30, and there's likely a significant pull forward in sales into the third quarter, and away from the fourth quarter. This is highly likely to lead to a significant sequential decline in Tesla deliveries in the fourth quarter.

On the too-cold side of the argument, Tesla doesn't just generate sales in the U.S., so the EV federal tax credit issue won't impact all of its sales. Based on publicly available figures, Tesla generated 62.6% of its sales by volume internationally in the second quarter.

In other words, Tesla's sales might not be that bad on a sequential basis in the fourth quarter, and Wall Street analysts are likely to ask CEO Elon Musk about the cadence of sales in the U.S. in the first few weeks of October during the earnings call -- something to watch for.

2. Tesla will update on a new, lower-cost model

With the general drift in the EV automaking world toward fewer incentives and higher pricing, particularly as interest rates remain relatively high, EV companies need to lower the prices of EVs. That's one reason why the market got excited when Tesla disclosed that it began production of a lower-cost Model Y (Tesla's best-selling model) in the first half and would ramp production slowly in the third quarter, ready for launch in the fourth quarter after the tax credit expired.

This is essential because EVs have significantly lower fuel and maintenance costs compared to internal combustion engine or hybrid cars; therefore, a reduction in the up-front cost will have a substantially greater impact on the vehicle's lifetime cost. Moreover, it could make Tesla eligible for incentives like the U.K.'s electric car grant of up to $5,000 for new vehicles priced at less than $49,600.

3. Tesla's latest version of full self-driving software

The launch of Tesla's latest supervised full self-driving (FSD) update (version 14) highlights the key to the medium-term investment case -- the potential for robotaxis and unsupervised FSD to lead to a dramatic increase in revenue and earnings in future years.

The excitement centers on the commercial potential of unsupervised robotaxis for ride-sharing revenue for Tesla, whether via its dedicated Cybercab (set for volume production in 2026) or Tesla vehicles transformed via (as-yet unreleased or approved) unsupervised FSD.

To achieve either milestone, Tesla will need to enhance its FSD offering. For that, it requires data on miles driven to improve its neural networks continually, and eliminate so-called "edge case" issues that involve complex driving situations.

Image source: Tesla.

The good news is that no other company comes even close to Tesla's data. For example, Alphabet's Waymo was reported to have driven 100 million fully autonomous miles in the summer, compared to approximately Tesla's 4.5 billion miles at the end of the second quarter.

Moreover, much of the newer data from Tesla will come from hardware 4 vehicles (faster processing power, higher camera resolution, better night clarity, and a broader field of view), which started shipping in 2023.

Why Tesla stock is a buy

The ongoing robotaxi rollout, the new FSD version confirming the strength of Tesla's data advantage, a lower-cost model, and the potential for Tesla's sales to surpass a low bar of expectations in the fourth quarter collectively make the bull case for the stock.

As ever, investors should note that there are no guarantees that fully autonomous robotaxis or publicly available unsupervised FSD will come to fruition, or even do so in a timely fashion. As such, Tesla is a speculative stock, but such stocks often warrant a small allocation in the riskier end of an investor's portfolio because the upside can be significant.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool has a disclosure policy.