$Tesla Motors(TSLA)$ continues to defy expectations, with third-quarter earnings exceeding Wall Street estimates even as revenue came in just shy of projections. Despite some challenges and skepticism around its valuation, I remain bullish on Tesla's long-term trajectory. Here’s why I think Tesla is still a solid buy, even with a high price-to-earnings (P/E) ratio.
Tesla reported earnings per share of 72 cents, beating expectations of 58 cents, which demonstrates the company's ability to stay profitable in a tough economic environment. While revenue came in slightly below expectations at $25.18 billion versus the expected $25.37 billion, an 8% increase year-over-year in a challenging macroeconomic environment is nothing to scoff at. Net income also rose from $1.85 billion a year ago to $2.17 billion.
What I find particularly promising is that Tesla's automotive regulatory credit revenue significantly boosted margins. This is one area of Tesla’s business that often gets overlooked but plays a pivotal role in maintaining its profitability. Tesla brought in $739 million from regulatory credits, showing that other automakers are still catching up in the EV and emissions race, which benefits Tesla.
Tesla’s operating margin jumped to 10.8%, up from last quarter’s 6.3%, and well above last year’s 7.6%. These figures reflect Tesla’s ability to navigate rising costs and price cuts while still improving efficiency. Moreover, Tesla reported a gross margin of 19.8%, a slight improvement over the previous quarter, and adjusted EBITDA rose to $4.67 billion, up from $3.76 billion a year ago. These are all bullish indicators that Tesla is managing to lower its costs while increasing its cash flow.
Tesla’s cost of goods sold (COGS) per vehicle came down to a record low of $35,100, which signals the company's focus on efficiency and cost control. This is crucial as the company aims to bring more affordable EVs to market in 2025.
Tesla also ended the quarter with a robust $33.6 billion in cash, an increase of $2.9 billion, thanks to strong free cash flow. The company’s ability to generate $6.3 billion in operating cash flow highlights its financial stability and ability to reinvest in future growth projects like AI and energy storage.
Tesla delivered 462,890 vehicles in Q3, up from 443,956 in Q2 and 435,059 a year ago. These numbers show consistent growth in vehicle deliveries, setting up Tesla to challenge its previous record of 484,507 vehicles delivered in Q4 of last year.
While the automotive business remains the core, I’m particularly optimistic about Tesla’s energy business. Energy generation and storage revenue grew by a massive 52% to $2.38 billion. With energy storage deployments reaching a record 6.9 GWh, up 75% year-over-year, Tesla is proving that it’s more than just an EV company. This segment of Tesla’s business is often underappreciated, but I believe it will play an increasingly critical role in the company’s future growth. The company is ramping up production in its Lathrop Megafactory, which is now capable of producing 200 Megapacks in a week, showing significant potential for this side of the business.
Tesla's long-term growth prospects remain compelling, especially with its plans for new, more affordable EV models set for production in 2025. These vehicles are expected to make EVs accessible to a broader market, further strengthening Tesla’s market position.
In addition to its automotive focus, Tesla is heavily investing in AI and autonomous transport, as seen in its "We, Robot" event. With plans to offer autonomous transport at a cost-per-mile below rideshare, personal car ownership, and even public transit, Tesla’s innovations in AI could open new revenue streams that extend far beyond the sale of vehicles.
I understand why some investors might balk at Tesla’s current P/E ratio of around 60. But I think it’s important to look beyond the traditional metrics. Tesla is not a typical automaker. It’s a company that is investing heavily in future technologies, including AI, autonomous driving, energy storage, and renewable energy solutions. These are all growth markets with massive long-term potential.
Yes, a P/E of 60 seems high, but we’ve seen Tesla maintain this kind of valuation in the past, even when the company was facing much bigger hurdles. With strong profitability, robust cash flow, and a growing presence in the energy sector, I believe Tesla’s current valuation reflects the market’s recognition of its broader role in the transition to sustainable energy.
To conclude, Tesla continues to deliver solid results even as it faces macroeconomic challenges. With an 8% revenue growth year-over-year, impressive margins, and strong cash flow, the company is in a solid financial position. Its energy business is becoming a significant contributor to its overall revenue, and its continued investments in AI and more affordable EVs will likely fuel future growth.
For these reasons, I see Tesla as a company worth holding onto or even adding to your portfolio. The high valuation is justified by its leadership in multiple sectors, and I remain confident that Tesla is well-positioned to capitalize on the ongoing shift toward electrification and renewable energy.
In short, keep buying—Tesla’s long-term potential makes it a compelling investment.
@MillionaireTiger @Tiger_comments @Daily_Discussion @CaptainTiger @TigerSG
Disclaimer: This is a general analysis and not financial advice. Always conduct your own research before making any investment decisions.
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