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Why Tesla Stock Dropped After Earnings

Source The Motley Fool

Key Points

Tesla returned to positive free cash flow with better-than-expected earnings.
Tesla now has delivered more than 10 million electric vehicles.
Demand from data center infrastructure growth has its Megapack production capacity nearly sold out.
These 10 stocks could mint the next wave of millionaires ›

Tesla (NASDAQ:TSLA) reported a decent third quarter. The leading electric vehicle (EV) company generated $1.5 billion in free cash flow after high capital expenditures drove it into negative territory in the second quarter.

Talk of a tie-up with Space Exploration Technologies (SpaceX) added to the intrigue ahead of the report, but investors aren't overly impressed overall. Tesla shares were down 1% as of 11:50 a.m. ET.

Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »

Image source: Getty Images.

The company has now produced and shipped more than 10 million EVs. On the conference call for investors, CEO Elon Musk said Tesla aims to make 5 million vehicles annually by 2030. Gross margin increased in Q3, helping earnings beat expectations. The company's free cash flow increased even as it continues to invest in self-driving technology, robotics, and energy.

Tesla stock isn't trading on its automotive results anymore, though. At least not with its valuation at its recent level. Tesla's $1.5 trillion market cap puts its price-to-earnings (P/E) ratio in the stratosphere, meaning investors are looking well beyond its EV business.

Musk's prediction about Tesla's autonomous driving future summed up what investors are expecting to come. Regarding the Cybercab and robotaxi potential, Musk stated, "I think Tesla will end up doing a majority of all passenger miles on Earth in any country where it is allowed to operate freely."

Optimus robot production has started in California, and Tesla says its Megapack energy storage capacity is nearly sold out. Those segments will need to continue to scale and sell successfully, and Musk's vision of mass driverless rides will likely need to come true for Tesla stock to move meaningfully higher.

Even talk of exploration teams looking into a merger with SpaceX isn't enough to move Tesla stock right now. That helps explain the negative reaction to the earnings report.

Missed AI’s "Act 1"? Act 2 Could Be 14x Bigger

Most investors think they missed the AI boat because they didn't buy Nvidia in 2005.

But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout, a massive technology build-out that Google’s CEO says could be more profound than fire or electricity.

While everyone watches the chip designers, one "backbone" company provides the critical technology that Nvidia and AMD literally cannot function without. We’ve detailed this under-the-radar player in our new AI Playbook.

Continue »

Howard Smith has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.

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