Tesla's Sales Growth Forecast Encourages Analysts

On Thursday (October 24), Tesla's (TSLA) stock closed up 21.9% after the release of its third-quarter financial report, marking the second-largest single-day gain on record, according to Dow Jones Market Data. The increase on Thursday was only surpassed by the 24.4% gain on May 9, 2013.

Tesla has erased its losses since the beginning of this year, rising 4% year-to-date. On Thursday, Tesla's market value increased by $150 billion, the largest single-day market value gain on record, surpassing the combined market value of Ford Motor Company (F), General Motors (GM), and Stellantis (STLA).

Piper Sandler analyst Alexander Potter summarized the factors driving the stock price increase in a research report published after Tesla's stock surge. Potter noted: "Tesla's third-quarter performance exceeded expectations in every aspect."

A recent issue with Tesla has been the company's frequent emphasis on vision with few details, as evidenced by the Robotaxi Day event held earlier in October. Even bullish analysts pointed out after the event that Tesla did not provide details on pricing for its autonomous taxi service, among other things.

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However, Potter believes there has been a change in the latest earnings call. He wrote in his report: "Tesla disclosed more information than ever before, especially regarding the outlook for 2025, while reiterating plans to launch a new car in the first half of 2025. Musk predicted that deliveries in 2025 will grow by 20% to 30%, partly due to the upcoming new car. Even if his guidance proves to be overly optimistic, there is still a significant growth potential compared to our current 8% expectation."

Analysts clearly want more information, including the contribution of autonomous driving software to Tesla's financial situation, but Potter believes that demanding so much is "nit-picking."

Potter wrote after Tesla's earnings call: "Very optimistic about Tesla's growth prospects." He reiterated his "overweight" rating for Tesla's stock.

Deutsche Bank analyst Edison Yu was also encouraged by the sales forecast data. He wrote in his research report: "Looking ahead to 2025, Tesla's management initially predicts a year-over-year sales growth of 20% to 30%, significantly higher than our general expectations. Although we do not fully believe that Tesla's sales can reach such levels, such a forecast alleviates concerns about the company's growth trajectory for next year." Yu rated Tesla's stock as "buy" with a target price of $295.William Blair analyst Jed Dorsheimer observed numerous signs of financial improvement, with energy business margins reaching an all-time high and automotive business gross margins (excluding lease credits) also increasing, with a 17.1% automotive business gross margin exceeding market expectations.

Dorsheimer wrote in his research report: "This is primarily due to the lowest sales cost per vehicle to date of $35,106, and the Cybertruck's gross margin turning positive one year after its initial delivery. We expect Tesla to maintain a gross margin above 15% without further substantial deterioration."

Truist Securities analyst William Stein, however, believes that Tesla's forecasts remain unclear. He wrote in his research report: "There are several aspects in which Tesla did not perform perfectly in the third quarter, but their significance is far less than many unresolved issues."

Stein pointed out, for example, that Tesla "has never delivered the new vehicles it announced within a year, and recently, aside from the Cybercab and Cybervan, the company has not launched any new vehicles. What can Tesla deliver in the first half of 2025 to achieve a 20% to 30% increase in sales?"

Furthermore, if the answer to the above question is "a Model 3 or Model Y with a 20% reduction in cost," Stein wonders whether this will prove to be "empty calories," meaning growth that doesn't have much significance.

Stein rates Tesla's stock as "hold," and after Tesla's earnings report, he raised his target price from $236 to $238.