Should you buy TSLA stock after its 20% rise?

Tesla (TSLA) reported third-quarter profit that beat analysts' expectations. Adjusted earnings per share were 0.72 cents, beating analyst estimates of 0.58 cents. Although revenue fell slightly short of forecasts at $25.18 billion compared to expected $25.37 billion, the company's stock rose about 20% on Thursday. Although the stock is priced at a premium, the company has allayed concerns about its profitability through its third-quarter financials and estimates of 20 to 30 percent growth in auto sales next year, leading to renewed confidence in TSLA stock and my bullish stance on TSLA confirms stock on the way.

Tesla's third quarter performance

As mentioned above, one of the main reasons for my bullish sentiment on TSLA stock is its latest earnings report, which highlights the company's strong position in the electric vehicle market. The electric vehicle maker's revenue rose 8% from $23.35 billion in the year-ago quarter. Net income also rose from $1.85 billion, or 0.53 cents per share, to around $2.17 billion, or 0.62 cents per share.

Tesla's profit margins benefited from $739 million in auto industry regulatory credit revenue, which comes from selling excess credits to other automakers that fail to meet regulatory targets. A margin breach is likely one of the main reasons Tesla stock enjoyed a massive post-earnings rally.

“This is clearly an indication that Tesla CEO Elon Musk and the company continue to focus on the profitability side while weighing their plans for the future,” Wedbush analysts claimed in their note to clients.

Tesla's vehicle deliveries totaled 462,890 in the third quarter, up 6% from a year ago but below analysts' expectations. The company produced 469,796 electric vehicles as of September 30. Although previous quarters showed year-over-year declines, Tesla is optimistic that vehicle deliveries will increase slightly in 2024 and plans to launch cheaper models in the first half of 2025.

Bullish comments from Elon

Another reason Tesla shares are rising is that CEO Elon Musk offered insight into the company's prospects in the earnings call, predicting vehicle growth of 20% to 30% next year, driven by lower-cost vehicles and autonomous advances.

That forecast beats analysts' expectations of a 15% increase and 2.04 million deliveries. Musk also emphasized that Tesla aims to launch driverless ride-sharing services in Texas and possibly California as early as 2025, and mentioned employees' use of a ride-sharing app in the Bay Area.

Additionally, Tesla's Cybertruck has become the third best-selling all-electric vehicle in the U.S., although sales are not broken down by model. The company achieved a positive gross margin on the Cybertruck for the first time and sold over 16,000 units in the third quarter.

What analysts say

According to TipRanks' collection of analyst ratings and price targets, Tesla stock has a strong “Hold” rating. The 12-month forecast implies a decline of almost 20% from current levels. The highest price target on Wall Street is $310 per share, the lowest is $24.86, and the average price target is $207.83.

See more TSLA analyst ratings

With Tesla being one of the most popular stocks on the Street, several sell-side analysts have provided their analysis of the recent earnings report and management commentary. “It's hard to be anything but optimistic after today's call,” noted Piper Sandler analyst Alexander Potter, a five-star analyst according to Tipranks rating.

Piper Sandler reiterated its “Overweight” rating on Tesla and maintained a $310.00 price target on the electric vehicle maker's shares. Potter was particularly curious about the significant increase in gross margin compared to the previous quarter.

Similarly, analysts at Deutsche Bank also maintained their Buy rating and $295.00 price target on the EV stock. Analysts noted that the forecasts offered are likely to allay concerns about the company's growth trajectory for 2025.

Should you buy TSLA at a premium?

Based on the commentary on the conference call, I believe there are many reasons to be positive on Tesla stock. Tesla reiterated its commitment to deliver a vehicle priced under $30,000 in early 2025. Elon Musk, the CEO, has referred to every vehicle the company produces as a “robotaxi.” This futuristic/FSD vision is a key factor in the premium currently placed on Tesla's market valuation, which stands at 95 times forecast 2025 earnings per share (EPS).

On the other hand, skepticism is also growing after the recent “We, Robot Day” event. There are doubts that Tesla's promise for the robotaxi service will only be fulfilled after 2030. The lack of detailed information about the project has led to caution among stakeholders. Analysts have pointed out that the ambitious robotaxi initiative is likely to face a lengthy and uncertain regulatory approval process. This could potentially delay the implementation of the project well beyond Tesla's original target of early 2025.

Additionally, reports from the event suggest that the robots on display were operated via teleoperation and were not fully autonomous. This heightens concerns about the near-term viability of Tesla's robotaxi service and raises questions about the current state of the technology. Many investors see Tesla as a technology/AI/ML company and not just a car company; Therefore, they are willing to pay a premium to own a futuristic stock.

Diploma

Tesla's third-quarter earnings significantly beat expectations and ultimately fueled a 20% rally for this electric vehicle stock. Vehicle deliveries rose 6% year over year, while gross margins beat analysts' expectations. More importantly, Elon Musk predicted vehicle growth of 20% to 30% in 2025, driven by lower-cost models and advances in autonomy. Most analysts remain optimistic, although concerns remain about Tesla's ambitious robotaxi schedule. In my opinion, Tesla stock should remain supported in the near term as concerns about the company's growth prospects for next year ease.

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