Tesla exceeds expectations: Elon Musk forecasts 20-30% sales growth, boosting investor confidence in electric vehicle profitability
Shares of the electric car maker Tesla Inc. closed up 12% in post-market trading on October 23 after Tesla CEO Elon Musk forecasted strong sales growth in the next year. Musk projected a 20% to 30% increase in vehicle sales which helped investors to quell worries over Tesla's profitability. Also, it alleviated some concerns about the timing of the long-awaited production of its robotaxi. The forecast came on top of a promise for modest delivery growth this year, setting Tesla to add $80 billion to its stock market value.
Investor enthusiasm was mostly driven by Tesla's efforts to drive improvements in its main electric vehicle (EV) business with industry-beating margins. While investors were all very excited about Tesla's robotaxi, its unveiling on October 10 didn't provoke much enthusiasm among the investors. Musk, however, said that Tesla is profitable in a space where no other EV maker is profitable. This assertion underpinned Tesla's market leadership as more minor EV rivals Rivian and Lucid saw their shares soar 2% in after-hours trading.
Talking to analysts on a conference call about EV profit margins, Elon Musk said, “No EV company is even profitable. And to the best of my knowledge, there was no EV division of any company, of any existing auto company that is profitable. So, it is notable that Tesla is profitable despite a very challenging automotive environment.”
However, since the robotaxi event, the adoption rate of Tesla's Full Self-Driving (FSD) software has been on the increase. The company provided free FSD for one month to all its clients in a move to increase interest in its autonomous vehicle technology. Besides, Musk stated that driverless vehicles providing paid rides would be launched next year, given the regulatory clearances in California and Texas.
The third quarter results from Tesla showed some serious quality in their financials. The vehicle sales, excluding the benefit from regulatory credits, had margins of 17.05 per cent. That was versus the Wall Street forecasts at 14.9 per cent. Falling raw material prices, especially those on the batteries for electric cars, helped Tesla to reach the record level of $35,100 for each of the vehicles made. Adjusted profit also came out at 72 cents a share, surpassing the analyst estimates of 58 cents.
Tesla's finance chief, Vaibhav Taneja said that maintaining those margins for the fourth quarter would be challenging; however, investors are optimistic because of the improvement in the cost ratio of production. Tesla delivered 1.29 million cars in the first nine months of 2024 and needs to deliver another 514,925 units to surpass last year's record.
Meanwhile, cautious about Tesla’s profitability, Matt Britzman, a senior equity analyst at Hargreaves Lansdown who also personally owns Tesla shares said, “The fear going into results was that the huge incentives effort to push volumes into the tough EV market would materially dent margins – that doesn’t look the be the case.”
In the third quarter, Tesla recorded revenues of $25.18 billion, lower than the estimated $25.37 billion. The company netted regulatory credit revenue of $739 million, its second-highest ever reported by the firm but below the $890 million it raked in last quarter. Nevertheless, Tesla, with more promising efficiency and growth prospects, has been better placed to remain ahead in the EV market.