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Key Highlights:
- Tesla's earnings beat forecasts, with auto gross margins rising to 17.1%, excluding green credits.
- UBS and Wedbush analysts are optimistic about Tesla's profitability and mid-term growth outlook.
- Tesla's delivery growth forecast for 2025 is set at 20%-30%, far exceeding expectations.
Tesla Inc (NASDAQ:TSLA) shares soared 16% following the release of its latest earnings report, which exceeded analyst expectations and offered positive signals on profitability and growth in the medium term. The electric vehicle (EV) maker’s strong performance has reaffirmed the confidence of bullish investors, with key analysts highlighting improvements in gross margins and delivery forecasts.
Earnings Beat and Margin Improvements
Tesla’s auto gross margins, excluding regulatory green credits, climbed to 17.1% from 14.6% in the second quarter, driven by record-low costs per vehicle. While deferred revenue from Full Self-Driving (FSD) technology slightly boosted these numbers, Tesla’s gross margins would have still stood at 15.6% without the inclusion of that revenue.
UBS called the results "one for the bulls," highlighting the significant rebound in profitability. The Swiss bank emphasized that the margin improvement provides reassurance that Tesla is moving past its profitability concerns. UBS maintained its price target of $197, based on 51 times expected 2026 earnings, noting that there is also plenty of focus on Tesla’s pivot from EVs to artificial intelligence (AI), including robotaxi and humanoid robots. However, the bank acknowledged that valuing these ventures is complex due to uncertainties regarding the timeline and success rates.
Strong Delivery Outlook for 2025
A major highlight of Tesla’s earnings call was its robust delivery forecast for 2025. Tesla expects delivery growth of 20%-30% that year, well above Wall Street's "whisper" figures, which ranged between 10% and 12%. This strong delivery outlook, combined with the improved margins, was seen as a positive signal that Tesla’s growth trajectory remains intact despite previous concerns about a price war in China and softer EV demand globally.
Dan Ives, an analyst at Wedbush, echoed this sentiment, calling Tesla’s earnings "an early Christmas present for investors." He emphasized that gross margins, a key metric for Tesla, had been a major concern throughout the past year, particularly as they had dropped from over 20% to below 15% in the second quarter due to competitive pressures. With margins rebounding and a bullish delivery outlook for 2025, Ives maintained an ‘outperform’ rating and a $300 price target for Tesla.
Future Prospects and Challenges
While analysts are optimistic about Tesla’s mid-term growth prospects, they are also cautious about the company’s expansion into AI-driven ventures like robotaxis and humanoid robots. UBS acknowledged Tesla’s progress in these areas but pointed out the challenges in valuing such businesses due to various factors, including the probability of success and timing.
Overall, Tesla’s latest earnings report has provided a much-needed boost to investor confidence, with both UBS and Wedbush maintaining strong price targets based on the company's performance and outlook. The continued improvements in margins and a solid delivery growth forecast signal that Tesla remains a dominant player in the rapidly evolving EV market.
