Tesla Stock Soars 12% on Strong Gross Margin Growth

Insights - On October 23, after the U.S. market closed, Tesla (TSLA) released its Q3 2024 earnings report.

The data showed that the company’s revenue for the quarter was $25.182 billion, slightly below the market expectation of $25.43 billion. However, EPS came in at $0.72, beating the forecast of $0.60. Gross margin reached 19.8%, the highest in seven quarters, significantly exceeding the expected 16.8%.

Source: Tesla Q3 2024 Earnings Report

Lower Vehicle Costs and Energy Storage Growth Boost Tesla’s Earnings

Tesla’s better-than-expected profits were driven by three key factors:

Lower Vehicle Costs: the average cost per vehicle is decreasing, including raw material costs, shipping, and tariffs. The automotive gross margin rose to 17.1%.

Energy Storage Margin Growth: revenue from energy generation and storage businesses reached $2.376 billion, a 52% increase year-over-year. The gross margin for this segment hit 30.5%, a record high for the business.

Increased Carbon Credit Sales: Tesla generated $739 million in net profit from selling carbon credits to other automakers, a 33.4% year-over-year increase. Tesla CEO Elon Musk described this quarter’s performance with the word "Progress" on social media.

Musk also stated that, thanks to lower vehicle costs and the advent of autonomous driving, Tesla’s vehicle sales could grow by 20%-30% next year under optimal conditions. The autonomous taxi, Cybercab, is expected to enter mass production in 2026, with a target of producing at least 2 million units per year.

Following the news, Tesla’s stock surged over 12% in after-hours trading, reaching $239.50. However, Year-to-date, Tesla’s stock has fallen 15%.

Source: TradingView; Tesla (TSLA) Stock Performance in 2024

Is the Worst Over? Analysts Bullish on Tesla

Wedbush analyst Dan Ives suggested that Tesla's worst days may be over. He noted that Tesla has made significant progress, with a strong rebound in margins and an optimistic outlook. Ives added that the improvement in gross margins came after several quarters of pressure from aggressive price cuts across Tesla’s model lineup, which he believes is exactly what any bull market needs.

Before the earnings release, Wedbush maintained its "Outperform" rating on Tesla with a price target of $300. The firm believes that Tesla’s profit margins will reach a turning point next year.

Morgan Stanley has set an even higher price target of $310, implying that Tesla’s stock could rise by another 45%.