Q3 earnings missed expectations + growth narrative unclear, Tesla's post-earnings reception on Wall Street is mixed
Tesla's third-quarter delivery volume hit a new high, but earnings fell short of expectations, leading to a nearly 4% drop in stock price. Although revenue grew 12% year-on-year to $28.1 billion, exceeding analyst expectations, adjusted earnings per share fell 30% to $0.50, below the expected $0.54. Analysts expressed doubts about Tesla's growth narrative, believing that the high valuation is difficult to sustain. Some analysts remain optimistic about Tesla's future, believing it has made significant progress in the field of artificial intelligence
According to the Zhitong Finance APP, despite Tesla's (TSLA.US) record high delivery volume in the third quarter, the company's earnings for the quarter fell short of expectations, disappointing investors. As of the time of writing, Tesla's stock fell nearly 4% in pre-market trading on Thursday.
The financial report shows that Tesla's overall revenue in the third quarter increased by 12% year-on-year to $28.1 billion, exceeding analysts' average expectation of about $26.3 billion. However, the adjusted earnings per share decreased by 30% year-on-year to $0.50, below the analysts' average expectation of $0.54. Some seasoned analysts believe that Tesla currently seems to lack a reliable growth narrative and plan, and the weak profits combined with the still vague narratives around artificial intelligence and humanoid robots make it difficult to support the current high valuation, which makes the company's stock price easily affected by rapid market adjustments and negative fundamental data.
During the earnings call, Tesla's management provided little guidance on performance to investors. Musk reiterated his grand and futuristic vision for Tesla's development. As he has shown in previous earnings calls, Musk repeatedly emphasized these futuristic points, but this time the market seems to have lost patience. Garrett Nelson, a senior equity research analyst at Wall Street research firm CFRA, stated, "We are entering a period filled with doubts about Tesla's short-term and medium-term profit growth trajectory."
After Tesla released this latest report card, Wall Street's major firms had mixed reviews on the stock. Dan Ives, an analyst at investment bank Wedbush, which has always been bullish on Tesla, maintained his extremely optimistic stance. Dan Ives emphasized that Tesla has made significant incremental progress in its artificial intelligence strategy, with its FSD (Full Self-Driving) fleet driving over 1.3 billion miles this quarter, bringing its cumulative FSD mileage to 6 billion miles, establishing a large database that helps enhance FSD capabilities. He stated, "We still believe that in the most optimistic scenario, Tesla's market value could reach $2 trillion by early 2026 and exceed $3 trillion by the end of 2026, when Tesla will enter its 'Golden AI Era.'"
Morgan Stanley analyst Adam Jonas stated that Tesla's performance generally met market expectations, sufficient to keep consensus estimates unchanged. He pointed out that Tesla is "gracefully exiting the traditional automotive business" while maintaining robust free cash flow. Looking ahead, he stated that the company's fate remains closely tied to whether Musk can "rekindle the flame in the field of autonomous driving," with competitors coming from the "seven giants of U.S. stocks" and more tech companies.
Jefferies took a more neutral stance, reiterating its "Hold" rating on Tesla. Analyst Philippe Houchois noted, "Tesla's current automotive business is no longer dominant in valuation, but it can still generate free cash flow exceeding the funds needed for future development (along with energy storage and carbon credit income)."
In contrast, Wells Fargo analyst Colin Langan is less optimistic about Tesla. Colin Langan stated that given the continued deterioration of Tesla's core business, he maintains a "Reduce" rating on the stock. ** He pointed out that the commercialization and scaling process of robotaxi and humanoid robots (Optimus) is expected to be slower than previously envisioned. "There is very little discussion of the core automotive business in the financial report, and the growth operating leverage of this business is astonishingly limited, mainly affected by pricing, tariffs, and product mix. Overall, we believe there is a lack of momentum to continue supporting the rise in stock prices."
In addition, market analyst Bill Maurer also warned that Tesla's stock valuation remains extremely high, and weak short-term earnings may suppress the stock price in the short term. "Even considering Tesla as a partial technology company, given its extremely low profit margins, the current stock price is still outrageously expensive."
