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Tesla (TSLA) has long been a powerhouse in the electric vehicles (EV) industry. Over the years, the company has expanded into energy storage, robotics, and artificial intelligence (AI).
Tesla has significantly underperformed the "Magnificent Seven" group this year due to declining margins and deliveries. Even after racking up its biggest daily gain since 2013 today, Tesla is up less than 5% year to date, trailing the S&P 500 Index's ($SPX) 21.8% gain.
Tesla stock surged over 21% by the closing bell today due to improved third-quarter results, showing the company's resilience in the face of challenging market conditions. Despite the stock's underperformance this year, Tesla has outpaced its average target price of $205.02. Could another strong quarter propel its stock up another 19% to its high price target of $310? Let's find out.
Tesla's Financials Might Be Improving
Following a string of disappointing quarters, Tesla's third-quarter results sparked some investor excitement.
Beyond cars, Tesla’s energy division, including solar panels and energy storage systems like the Powerwall and Megapack, has gained traction. However, Tesla's primary business is automotives. Globally, Tesla delivered 462,890 vehicles in the third quarter, up 6.4% from 435,059 in the year-ago quarter. Deliveries also rose from 443,956 in the second quarter of 2024.
Tesla missed the consensus revenue estimate in the third quarter by $304.2 million, but beat the earnings estimate by $0.12 per share. Total revenue in the third quarter rose by 8% to $25.1 billion, while adjusted earnings per share grew 9% to $0.72 per share.
The company’s gross margin, which had been significantly impacted by price cuts, stood at 19.8%, the highest level this year.
While Tesla's overall revenue increased, the automotive segment, which is its main business, increased only 2% year on year. The energy business is performing well, with revenue from energy generation and storage services increasing by 52% in the quarter. Its third segment, services and other revenue, increased by 29% year on year.
Tesla's free cash flow position improved in the third quarter to $2.7 billion, bringing its total cash position to $33.6 billion.
The EV market is highly competitive. On the Q3 earnings call, CEO Elon Musk emphasized that, in a very challenging automotive environment where most EV businesses are unprofitable, Tesla is proud to be profitable.
Tesla unveiled the much-anticipated two-seat robotaxi known as the "Cybercab" on Oct. 10, following a lengthy wait and numerous delays. Musk highlighted that the AI-powered vehicles lack steering wheels and pedals. The company intends to begin production in 2026, and these Cybercabs will cost less than $30,000.
Musk’s best guess is that around 2 million units of Cybercabs will be launched annually. Tesla also intends to release affordable models (the name of which was not disclosed) in the first half of next year. He anticipates 20% to 30% vehicle growth in 2025 unless there are any "negative external events."
Analysts that cover Tesla expect revenue to increase by 3.4% in 2024, with a 24% dip in earnings. However, in 2025, revenue and earnings are expected to increase by 16.3% and 35%, respectively.
What Does Wall Street Say About Tesla Stock?
In Musk’s words, “Tesla will become the most valuable company in the world and probably by a long shot.”
While Musk is highly optimistic, the lack of specifics about the company's future has caused some analysts to be wary of the stock. For instance, analyst William Stein from Truist Financial maintained his “hold” rating for the stock, while increasing the price target from $236 to $238. Stein believes, “The lack of detailed announcements on new models, improvements in Full Self-Driving (FSD), and the Optimus project has raised concerns about the company’s future growth trajectory.”
Jefferies analyst Philippe Houchois also took a cautious stance with a “hold” rating and a price target of $195.
Among analysts, Tesla is an overall “hold.” Out of the 37 analysts covering TSLA, nine have a “strong buy” recommendation, two say it’s a “moderate buy,” 18 rate it a "hold,” and eight say it’s a “strong sell.”
Despite Tesla’s roller coaster ride this year, the stock has surpassed its average price target of $205.02. Its Street-high estimate of $310 suggests the stock could potentially rally by another 19% from here in the next 12 months.
At 68 times forward 2025 earnings estimates, Tesla stock remains overvalued, not only compared to its Mag 7 peers but also to its five-year historical earnings multiple of 31.2x.
The Bottom Line on Tesla Stock
With improving financials, Tesla stock could easily reach its high price of $310 by 2025. However, long-term investors may need to be more cautious.
Amid growing competition and economic uncertainty, Tesla’s stock valuation remains a topic of debate among investors. That said, the company remains at a crossroads of multiple disruptive industries — EVs, renewable energy, and AI. Tesla's stock will likely remain in the spotlight for years to come as the company pursues aggressive growth. For those willing to embrace the volatility, Tesla offers the potential for significant long-term rewards.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
