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Would Tesla Stock Continue Its Good Run after Q3 Earnings

tesla stock

We’re into the third-quarter earnings season. Next week, we’ll get the earnings of EV (electric vehicle) giant Tesla. The stock has looked strong over the last month. Can it continue its good run after the third-quarter earnings release?

Tesla stock has recovered from its recent lows and is only about 6% below its all-time highs. The rise in Tesla stock has catapulted its CEO Elon Musk to the position of the world’s richest person. Musk had briefly become the wealthiest person earlier this year also, but Jeff Bezos retook the position. Now, with the rise in Tesla stock, Musk has strengthened his position as the world’s richest person.

Tesla third-quarter earnings

Coming back to Tesla earnings, analysts polled by TIKR expect the company’s revenues to rise 55.4% year-over-year to $13.6 billion. The company delivered 241,300 cars in the quarter which were way ahead of estimates and increased 73% as compared to the third quarter of 2020. Tesla delivered 232,025 Model 3/Y in the quarter while the remaining 9,275 were Model S/X. The deliveries of Model S/X were lower year-over-year as the company recently launched the Plaid model of Model S and is in the process of ramping up the production.

Model S/X are priced higher than the Model 3/Y which are more of a budget EV. Meanwhile, Tesla’s revenue estimates appear somewhat conservative. Along with higher deliveries, the company would also benefit from higher vehicle prices. The Elon Musk-run company has raised car prices multiple times this year amid higher input costs.

Deliveries have been rising

Analysts expect Tesla’s adjusted EPS to more than double to $1.54 in the third quarter. Tesla posted a surprise profit in the third quarter of 2019 and has posted a profit in every subsequent quarter. That quarter the company talked about becoming profitable on a sustainable basis and has kept up to the promise. The company’s deliveries have also been rising and the annual run rate is now close to one million cars. That is a splendid achievement considering the fact that the company delivered its millionth car last year only.

What to watch in Tesla’s third-quarter earnings call?

During Tesla’s third-quarter earnings call, the management might offer more insights into the 2021 delivery guidance. In the first nine months of 2021, Tesla has delivered 6,27,350 electric cars which is above what the company delivered in the full year 2020. Previously the company had talked about its deliveries rising at a CAGR of above 50% in the foreseeable future.

The management might also comment on the chip supply situation. While most other automakers are grappling with chip shortage, it does not seem to be affecting Tesla’s production. Last month, Musk said that the chip shortage is a “short-term” issue. “There’s a lot of chip fabrication plants that are being built and I think we will have good capacity by next year,” said Musk. During the upcoming earnings call, the management might offer more insights into the chip shortage situation.

JPMorgan was impressed

JPMorgan, which is among the most bearish brokerages on Tesla, was also impressed by the company’s deliveries and raised the target price from $180 to $215. However, the target price is a steep discount to the stock’s current market price.

“While our new higher price target continues to imply material potential downside, we do not believe it is ungenerous, including as it values Tesla as the world’s second largest automaker by market capitalization (behind Toyota and ahead of Volkswagen), which is just one notch down vs. its current (admittedly by far) #1 position despite it ranking as only the 18th largest automaker by unit volume,” said JPMorgan analyst Ryan Brinkman in his note.

Berlin Gigafactory

Tesla might also provide updates on the Berlin Gigafactory. It would be the company’s third Gigafactory and the second outside the US. The plant would help it increase the deliveries in Europe. Notably, Tesla is facing tough competition in Europe and Volkswagen has already dislodged it as the market leader. Chinese EV companies are also entering the European market and both NIO and Xpeng Motors have begun operations in Norway.

Michael Burry has covered Tesla short

Meanwhile, Michael Burry, who rose to fame with his bet against the CDO (collateralized debt obligations) during 2008, has said that he has covered his Tesla short position. “Media really inflated the value of these things. I was never short tens or hundreds of millions of any of these things through options, as was reported. The options bets were extremely asymmetric, and the media was off by orders of magnitude,” he said in his e-mailed response to CNBC.

Burry’s fund had revealed a short position in Tesla in the first quarter and added to the position in the second quarter. Last year, Burry even mocked Musk to sell more shares of the company at what he saw were inflated prices. Musk apparently took the challenge and the company raised another $5 billion after Burry’s comment and ended up raising $13 billion in 2020.

Is Tesla stock still a buy?

With a cult-like following for Musk and an attractive product proposition from Tesla, it is tough for any automaker to match the package. While many of the analysts would frown at Tesla’s humongous market cap, many others, including Cathie Wood, see the stock running much higher.

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Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.