Tesla Stock Soars 22% on Strong Earnings, Musk's Bold Claims, But Autonomous Dream Remains Distant

Tesla Stock Soars 22% on Strong Earnings, Musk's Bold Claims, But Autonomous Dream Remains DistantTesla's stock surged 22% on Thursday, closing at $260.48 per share, marking its biggest single-day gain since 2013, adding roughly $150 billion to its market value

Tesla Stock Soars 22% on Strong Earnings, Musk's Bold Claims, But Autonomous Dream Remains Distant

Tesla's stock surged 22% on Thursday, closing at $260.48 per share, marking its biggest single-day gain since 2013, adding roughly $150 billion to its market value. The surge was driven by Tesla's better-than-expected third-quarter earnings report. According to Bloomberg, Elon Musk, CEO of Tesla, saw his personal fortune increase by $33.5 billion on Thursday.

Tesla's third-quarter earnings report showed revenue of $25.18 billion, slightly below analysts' expectations of $25.37 billion, but up 8% year-over-year. Tesla's adjusted earnings per share came in at $0.72, exceeding analysts' average forecast of $0.58.

"Given investors' accustomed to Tesla beating expectations, the upside surprise is expected to drive a strong positive reaction to the stock price on Thursday," JPMorgan analysts wrote in a research note to investors.

Tesla's third-quarter profitability benefited from $739 million in carbon credit revenue. However, JPMorgan analysts pointed out that carbon credit revenue is a "potentially unsustainable factor." Automakers are required to obtain a certain number of carbon credits each year. If they fail to meet this target, they can purchase credits from other companies. Tesla, as a solely electric vehicle manufacturer, has excess carbon credits to sell.

Tesla's earnings also benefited from the strong performance of its "Full Self-Driving" (FSD) system. Vaibhav Taneja, Chief Financial Officer, mentioned in the earnings call that the system brought in $326 million for Tesla in the third quarter, driven by the implementation of FSD in the Cybertruck electric pickup and the addition of the "Actually Smart Summon" feature.

Musk revealed in the call that his "best guess" for "car (delivery) growth" next year is 20% to 30%, citing "more affordable vehicles coming to market" and "the advent of self-driving." In contrast, analysts surveyed by FactSet predict that Tesla's car deliveries will rise roughly 15% through 2025.

Even Deutsche Bank analysts, who consistently express optimism about Tesla's performance, expressed skepticism about Musk's prediction. In a post-earnings report, they wrote, "We remain more conservative, expecting delivery growth of 10%-15%, or around 2.03 million units," while assuming Tesla will launch a lower-priced Model Y variant below $30,000 after subsidies, along with other smaller SUV variants.

Meanwhile, Morgan Stanley analysts, who also recommend buying Tesla stock, believe Musk's forecast for 2025 car delivery growth is "achievable." They predict a growth rate of 14%. Morgan Stanley analysts stated in a Thursday report that the key to Tesla's ability to meet its target will be making the vehicle more affordable through the launch of cheaper (next-generation) models, financing options, and feature enhancements.

Musk revealed in Wednesday's conference call that Tesla plans to begin production of its recently unveiled Cybercab, a self-driving taxi equipped with butterfly doors, no steering wheel, and no pedals, by the end of 2026. He also announced that Tesla will commence a robotaxi service in California and Texas next year using existing vehicles, although these vehicles are currently not capable of safe operation without a human driver standing by.

Analysts at Bernstein have set a price target for Tesla of $120, only 46% of its current price. In their Thursday report, they commented, "The Tesla earnings call was a lively affair, filled with Musk's various predictions, which have historically led to significant divergence between bulls and bears. The call was more of a pep rally than anything else, with the company only really answering two questions from the sell-side."

For years, Musk has promised shareholders that Tesla cars will become self-driving taxis through software upgrades, but this goal has yet to be achieved. Since 2017, Musk has also promised to release a new Tesla Roadster sports car, but the design has not been finalized.

Bernstein analysts stated, "We still find it difficult to envision Tesla overcoming the technical and regulatory hurdles to leapfrog the current L4 self-driving taxi step. But we believe full unsupervised autonomy is likely still years away." They also pointed out that Musk has "long been overly optimistic about FSD" and added that external research shows Tesla "remains far behind its competitors in the robotaxi space."

Thursday's surge marked Tesla's biggest one-day gain since May 2013, helping the company to reverse its decline this year. Its stock price is up 3% in 2024, still trailing the Nasdaq's 22% gain.

Despite Tesla's impressive earnings performance, the market remains skeptical about Musk's ambitions in the autonomous driving space. Analysts widely agree that Tesla is likely years away from realizing fully unsupervised self-driving. Moreover, Tesla's autonomous driving technology currently does not hold a commanding lead in the competition. Therefore, investors need to carefully evaluate Tesla's future development and avoid being misled by Musk's "bold claims."