Forget the Robotaxi: Wall Street cares about Tesla's business basics
Apu Gomes/Getty Images; Chelsea Jia Feng
- Tesla's Q3 earnings beat expectations, boosting stock after the Robotaxi announcement's disappointment.
- Strong margins and an uptick in 2024 sales growth buoyed investors' take on Tesla.
- Analysts said they're looking at fundamentals of Tesla's car business.
Tesla's third-quarter earnings report on Wednesday beat expectations, lifting Elon Musk's company out of its brief stock rut that followed the Robotaxi unveiling earlier this month.
Analysts saw the latest numbers as a clear sign that Tesla shouldn't neglect its roots. Ahead of the report, they were watching for results from the company's core business: electric vehicle sales.
Tesla reported a third-quarter profit beat, saying it expects a slight year-over-year growth in vehicle sales for 2024. On the earnings call after the report was released, Musk said he expects Tesla's vehicle sales to increase by 20% to 30% next year. The CEO is known for optimistic estimates.
"Self-driving software, A.I., and robotics are still the key to the long-term thesis," Piper Sandler analysts wrote in a memo sent after the earnings call. "But it boosts investor sentiment whenever the base business is performing so strongly."
Tesla's earlier Robotaxi unveiling failed to impress investors, despite a surprise Robovan announcement and promises that unsupervised fully autonomous driving would be available in California and Texas next year. After the unveiling, Tesla's stock fell 10%.
"With Tesla's Robotaxi Day passed, we believe the focus for Tesla at least for now shifts back to fundamentals," Barclays analyst Dan Levy wrote in a note last week.
The company reported better-than-expected gross margins — a key metric — with a 19.8% increase compared to an estimate of 16.8%. It also reported an adjusted earnings per share of $0.72, well above the $0.60 that analysts expected.
The company's stock price jumped more than 10% in after-hours trading. Overall, the company's stock is down about 15% this year.
Gene Munster, a managing partner at Deepwater Asset Management, told Business Insider in an interview after the call that Tesla's third quarter earnings was "kind of a rare quarter over the last six quarters where there's good news across the board." And the stock increase shows just how much analysts focus on the near-term and Tesla's automotive business, he said.
"Elon's talking about autonomy, Cybercabs, robotaxi fleets," he said, "and analysts care about cars and profitability."
Tesla said the Cybertruck was profitable less than a year after its release. The company also said in its earnings report that production on "more affordable models" remains on track for the first half of 2025.
Musk also touted other aspects of Tesla's business, including its energy products and fully autonomous self-driving cars.
Mark Narayan, an RBC Capital Markets analyst, said in a note following the earnings call that the quarterly results should "largely erase" the losses Tesla faced after the Robotaxi event.
"If analysts are happy with the fundamentals of the car business, perhaps they can turn their attention to longer term ambitions like autonomy (FSD/Robotaxi) and Optimus," he said.