Tesla Stock Forecast: Can Q3 Margins Hold Up as SpaceX Merger Review Begins?

TradingKey - On Tuesday, Tesla (NASDAQ: TSLA) stock rose 1.54% to close around $373.71 price level on Oct 20, then pushed to about $380 after hours. This surge in price came from merger news instead of any developments from a car business. Whereas, Elon Musk also confirmed that both, Tesla and SpaceX, have formed special committees of independent directors to evaluate a merger. Even following the recent bounce in prices, the TSLA stock price is still approx 25% below its 52 week high of $498.83.

For TSLA, it’s an unusual earnings night as Tesla is due to report Q3 results after the close today, Wednesday, October 21, with a webcast schedule at 5:30 p.m. ET. In my opinion, the TSLA stock has a potential to react as much to what Musk says about the merger as to the numbers. However,  the numbers still matter because Q2 showed how thin Tesla's margins have become.

The Merger Step: Official but Not a Deal

Following the months of speculation, it’s the first formal step and yet a long way from a deal. Taking a look at SpaceX's earnings call, Elon Musk stated that the committees were formed at shareholders' request. However, Musk himself is excluded as a conflicted party and no terms have been agreed. He continued and said a merger is not guaranteed, although he sees "a lot of merit" in combining AI software, robotics and the Terafab chip project.

Having this merger deal approved will not be an easy task as it would require a majority of all outstanding Tesla shares, not just a majority of the votes cast, and Musk owns roughly 20% of Tesla.

He called that "quite a high hurdle" himself. Tesla's proxy, filed on October 19, includes no merger proposal, so there is no merger vote on the table yet.

SpaceX figures play a bigger role for TSLA holders than what meets the eye. SpaceX generated $14.58 billion in Q3 revenue, up 161% year over year. SpaceX's shares also gained more than 5% in after hours trading on Tuesday. Currently, SpaceX is valued at around $2 trillion and Tesla at around $1.5 trillion. In a merger between the two companies, SpaceX would have the final say on the terms as the larger, more dominant company. As such, a merger between the two would likely give SpaceX a greater value than what would be offered to TSLA holders.

What the Street Expects Tonight

General expectations call for revenue of $28.1-28.3 billion, essentially level with the $28.1 billion reported last year. Adjusted EPS is expected to be about $0.45 versus $0.50 last year. The Street is cautious on margins. Cantor Fitzgerald expects gross margin of 17.1% versus the 18% consensus.

Low revenue and earnings come as a surprise given management’s positive forward delivery comments. The delivery details shed some light on management’s comments.

Deliveries Win, but Mix Steals the Show

Tesla beat expectations for the third quarter, delivering 486,532 vehicles compared to the 461,974 company-compiled consensus. While deliveries beat expectations, it is expected that adjusted EPS will decline from the previous year. Part of the beats was from inventory, as 22,000 more vehicles were delivered than produced. Reporting deliveries exceeds production.

The main disappointment for the quarter was the energy segment, as storage system deployments totaled 13.7 GWh. This total was less than the expected 15.9 GWh. Storage systems are a segment of Tesla’s business that has historically been more profitable.

Low Profitability in Q2

Tesla's profitability remained low in the second quarter. Revenue for the quarter surpassed previous highs, coming in at $28.24 billion. Non-GAAP EPS came in at $0.33, missing estimates. The company reported operating income of $398 million for the quarter, resulting in a 1.4% operating margin. Operating income and margin declined from the prior year, and the $1.0 billion unrealized gain on Tesla’s SpaceX investment helped improve the company’s GAAP results.

Tesla is expected to post a low automotive gross margin for the quarter. Regulatory credits negatively impacted profits for the quarter, totaling $146 million. If regulatory credits remain low, margin will negatively impact results for the quarter.

Cash Burn and Robotaxi Scrutiny

In Q2, free cash flow fell to -$1.09 billion with capex rising 142% to $5.79 billion. Management indicated 2026 capex will be above $25 billion, primarily for AI compute and robotaxis, with further investment for Optimus. The market will surely focus on the return potential from these investments.

AI is essential for the success of robotaxis, and that's where a significant portion of the capex is directed. On top of that, the division is attracting further critique. According to Tesla, more than 300 Cybercabs are operating in Austin as of October 10. Simultaneously, NHTSA is examining accusations of robotaxis breaking the law by exceeding the speed limit while operating in school zones. Further, Tesla must justify Cybercab's self-certification to NHTSA by October 30. That date is nine days after the prereleased report associated with this call.

Tesla Inc. (TSLA) Technical Analysis: Holding $348.95 Support, Needs Closing above $388.34

TSLA is spotted trading at $373.80, -0.27% on the 4-hour chart from the previous. More favorable overnight quotes placed the stock at $379.87. After the July peak at $432.76, each consecutive high has been lower. Similarly, the lows have been higher, and have also been consecutively pairing with each other. The result is a symmetrical triangle that, when complete, leads to a breakout in the underlying direction. The 200 EMA at $370.39 and the 50 EMA at $367.73 have recently acted as support.

Tesla Stock Price Chart - Source: Tradingview

The former of the two was defended after a test of the triangle support at $348.95. The former has also been defended by demand, and is currently acting as dynamic support. The 4 hr. RSI is at 54.27, above its 47.74 signal line and the midline at 50, giving a positive, but not over done, momentum reading.

The first test for the upper boundary of the triangle pattern will be near $380 and then $388.34. A 4-hour close above $388.34 would validate the breakout and bring the $402.19 and then $416.40 levels into view. The lower ($367.73 to $370.39 EMA) and then $363.70 areas provide support. A break of $348.95 would confirm the breakdown and bring $331.51 and then $315.50 into view.

I am bullish as long as TSLA trades above $363.70. I would want to see a 4-hour close above $388.34 or below $348.95 for confirmation in the new trend.

Key Levels

Recent Close: $373.71, Up 1.54% on 10/20/26

Support: $367.73 to $370.39; $363.70; $348.95; $331.51

Resistance: $380.00; $388.34; $402.19; $416.40

RSI: 54.27 above its 47.74 signal line

Bullish outlook: 4-hour close above $388.34

Bearish outlook: 4-hour close below $348.95

FAQs

Are Tesla and SpaceX merging?

Not at this time. However, both Boards have formed Special Committees of independent directors to analyze a potential merger. The Tesla Board will need a majority of all outstanding shares to approve such a merger.

What is the Tesla stock forecast before Q3 earnings?

Tesla is seen as slightly bullish as long as it trades above $363.70. A move above $388.34 will bring the next target of $402.19 and $416.40, and a move below $348.95 will bring the next support of $331.51.

Bottom Line

Heading into tonight’s report, Tesla's delivery numbers were strong, but its margins were weak. The merger news has given the stock a second story to trade. If the automotive margin holds up excluding regulatory credits and Elon stays positive on the merger, the stock could break out to the upside. EPS estimates may put the stock under pressure if capital expenditures are increased, and the robotaxi review has the potential to move the stock negatively. An EPS miss or higher capital expenditure estimates may put the $348.95 support in play. A close above $388.34 would be bullish, and a close below $348.95 would be bearish.