”We delivered strong results in Q3 with growth in vehicle deliveries both sequentially and
year-on-year, resulting in record third-quarter volumes. We also recognized our second highest quarter of regulatory credit revenues as other OEMs are still behind on meeting
emissions requirements.
Our cost of goods sold (COGS) per vehicle5 came down to its lowest level ever at ~$35,100.
In order to continue accelerating the world’s transition to sustainable energy, we need to
make EVs affordable for everyone, including making total cost of ownership per mile
competitive with all forms of transportation. Preparations remain underway for our offering
of new vehicles – including more affordable models – which we will begin launching in the
first half of 2025. At our “We, Robot” event on October 10, we detailed our long-term goal
of offering autonomous transport with a cost per mile below rideshare, personal car
ownership and even public transit.
The Energy business achieved another strong quarter with a record gross margin.
Additionally, the Megafactory in Lathrop produced 200 Megapacks in a week, and
Powerwall deployments reached a record for the second quarter in a row as we continue to
ramp Powerwall 3.”
I wouldn’t normally put that much of the opening statement in my earnings updates but damn…. Let some of that sink in!
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Overview
Very impressive earnings, both for the numbers and the detail in the call. So much better than I was expecting. I had it pegged as a miss and I had put cash aside to capture a drop back down to $200. Might not be seeing that again as one things glaringly clear now… Wall street is starting to understand that Tesla is embarking on it’s new growth stage.
You can find the full earnings deck release here.
Highlights and Summary
Missed revenue estimate with $25.182B under $25.468B – 1.12% – Hardly worth panicking over.
Beat EPS estimate with $0.72 over $0.593 – 21.34%
Lets start off with a look at the financial summary. I started putting green dots on what I liked and realised I might as well just circle the whole thing! I’m very focussed on the energy segment and glad that’s still growing at a great clip. Not as much as last Q but that will change when the new factory comes online.
Gross margins moving back up again! Helped with credits and the Cybertruck finally becoming profitable. No doubt FSD is a big chunk of that too but they don’t distinguish the data. Operating expenses coming down is great to see.
Probably the only thing you could moan about is Capex and given that HUGE free cash flow they are pulling in, the massive cash pile they are sitting on and looking at what they are spending that cash on… I see it as a plus!
Updated Vizual Summary Charts
Key Charts
Here’s what I like:
• Cash flow back is juicy right now, though cap ex spending is still high…. given all the scaling going on, I think we can forgive them for that. What’s more impressive is how much free cash flow they still have, with all the insane growth plans going on. This will help things ramp up nicely as it continues to grow and shows people loud and clear, Tesla is NOT just a car company with low margins.
• Rev was a little light this quarter but at this rate, we should see a very nice take off in Rev early 2025. Greatly improved margins and efficiency offset this shortfall anyway.
• Non -Auto gross profits ticked up again. Energy and services, adding more and more cheddar to that bottom line. I don’t see anywhere but up for both metrics.
• Deployed energy storage still high but lower than last month. This is also still scaling from the current location, not even accounting for the next factory that’s going live 2025. Based on the $3B this quarter and future $12B revenue generated per year, as a standalone company it would command around a $100B market cap. That would mean energy is around 17% of Tesla value today… in 2025 it’s expected to double… I’ll let you have a think about what that means for Tesla.
• Energy and services margins are still expanding whilst auto is stable. Love it.
• Vehicle deliveries not really a shock. Very excited to see how the affordable car starts moving this up though.
• Cash pile is monster right now, more than enough to cover debt. Would like to hear some kind of plan for putting that money to work in something other than bonds. Important to note that I expect Tesla’s margins to improve as FSD and all the good stuff that comes with it starts to pick up pace. What does that mean? Even more cash!
• Operating expenses holding coming down too which is nice to see
• I wasn’t expecting too much out of Tesla until late 2025. Given what we are seeing today it does seem that the guidance numbers they have out are a little low. Not necessarily a negative but it could be setting the scene for a steady run of nice beats.
•Auto margins ex credits ticked up. I bet a lot of people are happy to see a possible inflection there. Maybe not the bears though, they love to bring that one up.
Here’s what I don’t like:
• If I had to pick something I guess I could see It would be better for Rev to start inching higher. Estimates do seem to suggest that’s the plan! 🤗
• Solar generation deployments still falling. It’s not a product they seem to push very much and It never gets talked about. Solar in general is a rough sector right now so not overly concerned with it.
• Year over year car deliveries are down, but since I’m not valuing this as a car company it’s not a big deal to me. That said, expect this to rise with the affordable car and CyberCab in 2025.
Estimates and Guidance
Last earnings this is what I said about guidance ”Not very exciting estimates, but would like to see Tesla beat on an earnings at some point in the next year.” So, I guess I can eat my words now!
Tesla has been reminding us regularly that they have enough cash to fund their entire product roadmap including expansion plans and other expenses. They even reiterated they will maintain a strong balance sheet multiple times and that’s exactly what they have done.
Last quarter they also said that regarding profit margins in the future, they expect to see reduction costs in manufacturing and operations and also expect high margin items such as FSD to push margins higher. This has also panned out, much sooner than I would have expected.
Activity
Short interest has been dropping nicely for some time. Despite all the bears out there moaning about the stock being expensive and a dead company, there certainly isn’t much interest in putting ones money where ones mouth is.
Institutional ownership continues to hold. This data isn’t up to date as I don’t have a live feed off it but I expect a nice move up in the whales buying this one up when it next prints.
The Charts
Price is popping and it’s going to take a while for a new base to form on this one as the market wraps it’s head around potential growth. The market now needs to decide what kind of multiple it want’s to assign them, especially now that it’s clear as day, Tesla is not just a car company and has potentially game changing TAM’s to go after in the segments it’s expanding into.
Absolute monster move. Up nearly 22% in a day and closing close to the high. Wouldn’t be shocked to see this at $300 by year end, if not higher. Given the size of the move we just had though, a little drop down wouldn’t be too alarming and I would be a very happy buyer.
Word of caution though. Tesla does love filling it’s gaps and that’s an exceedingly long way down if price moves that way. That said, there’s also a gap down close to $150 and I don’t see that one ever filling.
Bonus Section – A couple of things I’m gassed about. The jokes a little on the nose I know!
• Super chargers stations up 20% YoY and connectors up 22% YoY. Impressive given the huge overhaul Tesla had regarding it’s charging workforce. Doesn’t the amount of drama related to this now seem overblown?
• Tesla anticipates 20-30% growth in vehicle units next year, further accelerating their market penetration and FSD expansion.
• We got confirmation that the Tesla Semi is on track to start building by the end of 2025 and the trial runs have been going very well.
• They deployed and are training ahead of schedule on a 29k H100 cluster at
Gigafactory Texas – where they expect to have 50k H100 capacity by the end of October.
• The Energy and Services and Other businesses are becoming increasingly profitable parts of
Tesla. As energy storage products continue to ramp and the vehicle fleet continues to grow,
I am expecting continued profit growth from these businesses over time. Services have grown YoY 90% and this could start to meaningfully affect the bottom line soon.
• The Cybertruck is now making a profit and this has happened sooner than I expected. On top of this, Tesla aim’s to produce 2-4 million units per year by 2026 whilst continuing to cut down on the build cost. I can smell the dollars here!
• Probably what I’m most excited about, especially over the shorter term is that the Energy business achieved a record gross margin of 30.5% in Q3, a sequential increase of 596 bps, despite lower Megapack volumes. Powerwall achieved record deployments in Q3 for the second quarter in a row. Ramp of Powerwall 3 and the Lathrop Megafactory continued successfully – with Lathrop demonstrating 200 Megapack production (40 GWh annual run rate) in a single week. As of Q3, over 100,000 Powerwall’s were enrolled in Virtual Power Plant programs, delivering additional financial value to owners while providing much needed support to the grid during periods of stress. The Shanghai Megafactory remains on track to begin shipping Megapacks in Q1 2025. Energy baby, I love it!
Most importantly, we have a confirmation in the SECOND earnings call that ”Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025.”
We can speculate what the car will look like. Likely a CyberCab frame with regular car features, perhaps steer by wiring so it can be removed at a later date or possibly a stripped down version of one of the existing models. What we do know is both the consumer and wall street would love this.
FSD
It’s important to talk a little about FSD and the impressive pace of innovation in that segment. It’s becoming very clear that Tesla is shifting towards as big jump in it’s software sales and using all the tools in its arsenal to gobble up as much market share as possible. Each new iteration of the software now has a free trial period built in and this tactic has been greatly lifting the FSD take rate. There has been significant improvement in autonomous driving capabilities, with miles between human interventions dramatically increasing, especially with software update version 12.5. Since the beginning of 2024, Tesla has seen a 100x improvement in the safety of its FSD software. Version 13 is expected to deliver a 1,000x improvement by the second quarter of 2025 and they claim that by mid 2025, FSD will surpass the average human drivers skills on the road. Having been a driving for many years, I can safely say that even though that bar is fairly low, it’s a very impressive piece of software. Many lives will be saved. For anyone that’s lost someone they love in a car accident, this technology can’t come to market soon enough. I don’t care if you love or hate Elon, this is probably the most important technological leap for savings lives that humans will have made in a very long time (Not related to sickness). In 2023 U.S traffic deaths were still over 41,000 per year! If that number can be lowered even a fraction, who cares who owns the company.
It shouldn’t come as much of a surprise that it’s being reported that there is a significant increase in FSD take rates, especially following their successful October 10th event, showing that more consumers are adopting Tesla’s autonomous capabilities.
Regarding regulation, we do know that Tesla first plans to launch FSD in CA and TX. I would expect Texas to be first, given how passionate they are about Tesla. CA has more regulation already in place but they can be a little more hostile to Tesla.
We also had a little gem regarding the RoboTaxi. Not something I’m super focussed on in my price expectations over the short term since it’s hard to model something this ambitious. Tesla did let us know that employees in the Bay Area are already using the Tesla app for ride-hailing services powered by autonomous vehicles. The safety driver is still present, but this signals Tesla’s step toward a full-fledged RoboTaxi network. I do agree this will be great for Tesla in the long term though and by leveraging their existing fleet. Growth could happen fast when it unlocks.
Conclusion
My conclusion really hasn’t changed much since the last quarter. Back then I said: ”I saw a lot of people right after earnings moaning about Tesla and a lot of ”I told you so’s” but those people fail to read between the lines. Sometimes there are companies out there, that have planted seeds that will take time to grow. At some point there will be a lightening bolt, and things will come together. We don’t exactly know when that will be so myself, and many investors take the stance of time IN Tesla stock is better than trying to time it. The insane growth phase in Tesla can be parabolic and I’m not splitting hairs trying to time an entry here.
I am NOT invested in Tesla for a short 1 to 2 year hold. I invest in them because some of the seeds they have been planting have INSANE potential to be hugely profitable products in their own right, for many years to come. Far more so than the car segment as a standalone. It is impossible to put a price on some of this, even the best models seem to generate crazy numbers. Personally I stick to adding in energy, service expansion and FSD. Even the numbers I see for those segments make me feel like I have a steal deal on my hands, even at these prices.
Will Tesla struggle a little to get there? More than likely. The company will take two steps forward and one step back on it’s journey as it transitions into this next phase of it’s evolution. I’m more than happy to capitalise on the volatility of the stock price in the mean time, by adding and trimming my position as price moves.
As price falls I will continue to scale back into a position, my ideal size is a 10% weighting. However, If we get any very large dips, I will be happy to go overweight into 2025.
Essentially for a company on the precipice of a huge growth cycle, things look very healthy.”
I still stand by this and think that we are seeing early signs of what is to come.
