Market Analysis

Tesla's Bold Sales Forecast and Cost Management Efforts Propel Stock Market Gains

Amos Simanungkalit · 24 Oct5.3K Views

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Elon Musk, CEO of Tesla (TSLA.O), has expressed optimism for a 20% to 30% increase in vehicle sales next year, reassuring investors about the company's ability to enhance its core business of selling electric vehicles profitably while alleviating concerns about the rollout of a robotaxi. This optimistic forecast follows a target for "slight growth" in deliveries this year, leading to a 12% rise in Tesla's shares during post-market trading on Wednesday, potentially adding approximately $80 billion to the company's market value.

Investors welcomed a decrease in manufacturing costs, which Musk noted would allow Tesla to maintain its industry-leading profit margins, even as he discussed a future focused on autonomous vehicles. The recent unveiling of the much-anticipated robotaxi on October 10 did not impress investors, prompting Musk to highlight that, unlike other electric vehicle (EV) companies, Tesla is profitable amid a challenging automotive market.

Shares of smaller EV competitors, Rivian (RIVN.O) and Lucid (LCID.O), both saw a 2% increase in after-hours trading. Musk confirmed that Tesla would begin offering driverless vehicles for paid rides next year after obtaining regulatory approval in California and Texas. Following the robotaxi event, sales of Tesla's Full Self-Driving (FSD) software reportedly surged, with the company again providing a free month of FSD to current customers.

In a statement, Tesla reiterated its commitment to expanding its vehicle lineup, reducing costs, and investing in AI and production capacity, despite uncertain demand and competitors scaling back EV investments. The company plans to introduce more affordable models in the first half of 2025.

For the third quarter, Tesla's profit margin on vehicle sales, excluding regulatory credits, rose to 17.05%, up from 14.6% in the previous quarter, surpassing Wall Street's expectation of 14.9%. However, Tesla's finance chief, Vaibhav Taneja, cautioned that sustaining these margins in the fourth quarter may prove "challenging." The cost of goods sold per vehicle decreased to approximately $35,100, marking its lowest level ever. Tesla reported an adjusted profit of 72 cents per share for the third quarter, exceeding the average estimate of 58 cents.

As raw material prices for EV batteries decline, Tesla has indicated that its overall costs will continue to drop, albeit with diminishing returns over time. Taneja forecasted over $11 billion in capital expenditures for next year. Analyst Thomas Monteiro from Investing.com commented that the improving numbers indicate Tesla may have found an optimal balance between pricing and production costs, reducing the urgency for a lower-priced model.

Incentives have played a crucial role in Tesla's strategy, with the company having delivered 1.29 million vehicles in the first nine months of the year, aiming to surpass last year's record by delivering another 514,925 vehicles. Analyst Matt Britzman from Hargreaves Lansdown noted that fears about significant margin impacts from aggressive incentives to boost sales amid a challenging EV market appear unfounded.

Tesla's revenue for the third quarter reached $25.18 billion, slightly below estimates of $25.37 billion, compared to $23.35 billion in the same quarter of 2023. The company also reported its second-highest quarter of regulatory credit revenue, which rose 33% year-over-year to $739 million but was down from $890 million in the previous quarter.