Tesla gives its faithful just enough good news

Back in gear. Tesla has been short on results and long on promises lately. Boss Elon Musk has yet to produce a cheap car for the masses. Market share and profitability have shrunk. Even its supposed bet-the-company project, the Cybercab robotic taxi, left investors cold. That makes Wednesday’s expectations-beating third-quarter results a refreshing, if slight, change, and offers a reed of hope for the Tesla faithful.

Most of the juice that turbo-boosted operating profit by 54% from the same period last year came from cutting expenses, with revenue up just 8% by comparison. Trimming costs pushed the automotive business’s gross margin, adjusted for sales of regulatory credits, to 17.1% from last quarter’s nadir of 14.6%. That metric hit new highs at the company’s energy storage and services businesses, too, at 31% and 9%, respectively.

This is a key gauge for Tesla . Its share of the U.S. electric vehicle market fell to 48% this quarter, according to Cox Automotive, from 63% two years ago. Rising competition has ground down prices industry-wide. That’s still happening: stripping out leased vehicles, Tesla’s revenue per car fell again. But vehicle costs are now falling faster, to an all-time low of $35,106 each.

That’s crucial to Musk’s premise that Tesla can crush costs and scale up better than rivals, which just about remains the case for now. Second-place General Motors has 9% of the U.S. market, and legacy automakers do not yet profit from battery-powered sales. If Tesla can mint more income in this environment, it might hold its lead.

The thing is, Tesla ’s roughly $700 billion valuation is premised on big promises, not incremental improvements. Musk is trotting the former out as usual, saying on Wednesday that deliveries could rise 20% to 30% next year and that a sub-$30,000 vehicle should arrive then, too. Even the "slight" growth expected for 2024 is an aggressive projection, too, requiring the current quarter’s sales to be Tesla’s best ever.

The Cybercab is supposed to be the real growth engine, though, as well as the way to truly upend the market. But it looks a baffling oddity, and Tesla ’s self-driving approach is struggling. Robot Optimus, which may be a little more human than implied, seems far-fetched. And there’s a long way back to the old target of outselling Toyota Motor. One quarter’s improved results may refresh shareholders’ faith, but they seem to be getting too charged up.

Context News

Tesla said on Oct. 23 that it generated $25.2 billion in revenue in the third quarter, up 8% year-over-year. The electric car maker’s operating income of $2.7 billion rose 54% from the same period in 2023. The gross margin at Tesla’s core automotive business, adjusting for sales of regulatory credits, came in at 17.1%, a turnaround from the prior quarter and above the 14.9% anticipated by analysts, according to Visible Alpha data. The company said that it expects to deliver slightly more cars in 2024 than last year.